Before even running the numbers, cutting the upfront MIP which is arguably when they need the money the most, wouldn’t seem to make sense. So when in doubt, I always fire up a new spreadsheet. Not surprisingly, my suspicions were confirmed. Want to see exactly how bad it could get? Here’s a very short video to demonstrate  how it works out.

If you’d like a copy of the spreadsheet shown in the video for your own use or to engage your clients and partners, you can download it here.

So which is it?  Is the FHA just saying one thing and doing another? Don’t they have accountants that work there? Are they purposefully trying to seal their fate?

Or, for you conspiracy theorists, was this all a well concocted plan to run up the stock prices of the regular PMI companies (check the recent price action)? When you boil it all down, that’s about the only beneficial thing for at least somebody that’s coming out of this…..

My guess is that this is just another well intentioned but very poorly thought out plan by yet another government agency that fails to seek advice from those that are perhaps in the best position to offer it. If this bothers you, please check out www.immaag.com  This is run by Bill Kidwell. Bill is an esteemed broker from CO and is leading the fight against this and other proposals which are only harming the public and making it more difficult and expensive for all involved.

In the meantime, if you have any FHA/fence sitters waiting for things to get better, use the spreadsheet to show them how much more expensive their payment will be or how much less house they’re going to be able to afford once the MI costs go up.

For instance, if we look at the major stock market indices, an investment over the last 5 or 10 years has you in the hole right now. Conversely, there are only 6 states in which the same can be said for the housing market. In the remainder, values are up from fractionally, all the way to almost 37% over the previous five years.

To those that understand that those are simply nominal returns not further enhanced as they are typically by both tax advantage and leverage, the comparisons to the alternative market barometers are well to the extremely advantageous.

So while all we seem to hear on the news is how housing is down and stocks are up, it’s best to give yourself and your clients the benefit of proper perspective. Especially now that the day trading of homes is largely passe’, it’s time to take stock of what has FOR the responsible also BEEN responsible for the uptick in their net worth over the last 5 or 10 years.

State by State Appreciation Rates

Reminds me of the mortgage industry’s own misfortune now that HUD, albeit with good intentions but poor execution, has laid down the law to try to help protect consumers when they engage in the mortgage process. Seems to me that they have their own other worldly definition of protection or enlightenment and all they’ve really done is to encumber and confuse the process.

On the one hand, it only takes six pretty basic pieces of information to constitute an application which triggers the requirement of providing a GFE within 3 days. That GFE stipulates that an interest rate and closing costs be for the most part guaranteed. While at the same time, it’s impossible to know all of the hundreds of intimate details only discernible by comprehensive analysis and discovery (credit reports, appraisals, verifications, underwriting, title examinations, etc.) necessary to prudently come to the contractual conclusion that this form mandates.

To make it all the more difficult, over at Fannie and Freddie’s offices (aren’t these pretty much now a branch of the government?) they have these things referred to as Loan Level Price Adjustments. Add in a little HVCC - you know, that protection for the consumer which has stripped them of that nasty thing called “home equity” and you have the recipe for nothing but good intentions gone bad.

So has HUD become the Department of Unbridled Hypocrisy (DUH)? Or are they smarter than we think and secretly wringing their hands over punishing the industry when in reality, those that deserved it have already left the building?

Too bad that the folks making the rules aren’t the ones witnessing what’s taking place now in our industry from the inside. Gatherings of the best and brightest are taking place at events like the Mortgage Revolution and together, they’ll continue to push for real practical reform that will actually benefit the consumer rather than the aspirations of certain politicians.

Rate Quote Insight

In the meantime, it won’t change the rules, but for those of you that like to educate your consumers about the potential pitfalls associated with comparison shopping based on rate quote alone- especially when these are delivered via the Internet or without the benefit of thorough discovery, then here’s a little tool that will help make it easier. Just click on the image to open a PDF and you can then save it to your computer for printing or email distribution.

To twist a line from Alanis, HUD has handed us 10,000 spoons when all we needed was a knife. The ultimate irony would be if we use those spoons to cut through the bureaucracy and red tape to deliver to our customers what they really want and need - good honest service, intelligent & well suited advice and all delivered at a fair and appropriate price.

It’s amazing, though not entirely surprising given the history of misleading advertising that we’re forced to contend with those companies that still publish rates as though they were as easy to choose as the gas you select at the pump.

30 Year Fixed Rates

5.50% / 0 Points

5.25% / 1 Point

5.00 2 / Points

Press the button and pump away.

Rrrriiiggghhhht!!!

Adverse market delivery charges, loan level price adjustments, credit scores, LTV, CLTV, HCLTV, rate term, limited or cash out,  DU refi plus, FHA, High Cost, conforming, jumbo, High Balance, subordinate liens or not, was that temporary limit extended or will it expire this December only to be extended again before being made permanent when the adopted step children Fannie and Freddie marry unofficially and officially move into the big house together to become part of “Govie Mae”…. home of the permanent 4% mortgage?

Ahhhhh yes…the simple days are done.  Yet the deceptive ads continue.

Unfortunately for some, we’ll never get the chance to speak with those that blindly trust in too good to be true ads. But hey, don’t you have an abundance of 45% LTV, dual W2 wage earners with 785 Fico’s, 18 years on the job, 12 months of reserves in their checking account, a single family house in an appreciating marketplace and a current rate high enough to pass the benefit test to justify refinancing and despite all this, the willingness to provide signed letters of explanation and documentation to prove that they really are who they say despite the maiden name from 18 years ago that appears as a name variant on their credit report that’s holding up their commitment? No? That’s too bad, there really is such an abundance of these out there and that of course justifies those ads doesn’t it?

Embellished a bit, tonque in cheek maybe? Yeah, but not by much.

Anyway, wanting to quickly yet effectively convey the reality of the marketplace to assure my prospects and yours with all they need to know about what we must contend with in the delivery of an honest and applicable rate quote, we’ve constructed the following flyer.

Click the image to download a copy for your own use with the compliments of Estate of Mind, Inc.

Email this to your prospects when they’re looking for that 4.00% rate and it just might save you some explanation time so you can invest it instead in running credit, researching value, analyzing documents and working up a proper and applicable analysis. The more our consumers learn the reality of the process, the more they’ll learn to ignore those that persist in the promotion of ignorance, deception, bait & switch tactics and foster general bad perceptions of our industry.

Like the old EF Hutton commercial, when Bill Gross speaks, the markets listen. To those that missed this, Bill really detonated the destruction by suggesting that the US of A could lose its AAA debt status. It was all downhill from there.

Inflation at its core IS a monetary event and when the supply is increased, it is inflation but for all practical purposes, is it really? For in reality, it ultimately depends on the environment. 

Even a limp balloon becomes full in a vacuum but let the atmosphere back in and it’s still just another shriveled piece of rubber. Alternatively, put that balloon in a pressure vessel and you’ll realize that it’ll take a lot more air than usual to inflate it. 

By all accounts, we’ve seen the abyss or at least teetered on the edge. It’s only by way of massive stimulus (and plenty of hot air) that we’ve avoided the plunge. Have we now gone too far and to the point that a deflationary environment and Armageddon are just soon to be forgotten hitchhikers in the rear view mirror? Does it really happen that quickly?

Don’t get me wrong please, those that know me understand that I’m only a couple T-bones short of pure bred perma-bull, but I also bear the scars of the branding iron. I’ve learned my lessons by being there and though I’d love nothing more than to see an end to our current crisis, I also feel the foundation is not yet cured. Low rates, while artificially colored and flavored, were just beginning to have the intended effect. We’ve only just begun to grill that burger and there’s a lot of pink left on the flip side.

Maybe I’m just an idealist and would like to see the nation’s homeowners all locked in at 4.5%, maybe I just like helping people achieve that or maybe I’ve studied the past well enough to know that the likelihood of significant inflation occurring immediately post recession or unless hindsight proves differently, still in the midst of one, would be a phenomenon by classical definition. 

 



Click to open larger image

 

Looking at the chart above, we can see that inflation (orange field) is nowhere to be seen, in fact, we’ve been in a deflationary environment and unemployment (red line) has propelled its way close to double digits. Absent the skew of the birth death ratio adding rather than subtracting jobs and the real rate is even worse. Each instance of recession (grey verticals) has seen inflation and thus interest rates continue to abate, often for a year or more after the end.

In simple terms, this is not the classical environment during which rates should rise. 

So what gives? Well if you’re old enough to remember, think Heinz 57 and Carly Simon.

Markets will move in anticipation of current fundamentals and policy leading to the most popular collectively expected results.  In other words, if we print more money, it’s worth less and investors or lenders demand higher yield.

Head Fake or Pipeline Cleansing Pause?

I’m still more bullish on housing than I am on stocks and the “V” shaped equities recovery we’ve seen can still become a W. If that happens, then we may very well see a renewed flight to safety,  lower bond yields, the continuance if not the further expansion of the Treasury MBS purchase program and don’t say it too loudly – lower mortgage rates.

Are these necessary for ultimate recovery, NO. Would they help further the nascent stabilization we’ve begun to witness with sometimes deeply discounted homes going to truly qualified buyers, YES. Would they help enhance the needed confidence for the shell shocked or side-liner’s urge to get back in the game, YES. Would they provide a continued enhanced family cash flow so that dollars currently servicing debt could be freed to fuel saving, discretionary spending and investment, YES. Would the lower interest rates actually help the government by increasing the taxes paid by homeowners but doing so in a way that benefits debtors directly by still lowering overall outlay, YES. Would they further benefit the government by simply lowering the cost of financing the national debt, YES.

Regardless of what would be nice, if what we’ve experienced is truly collective expectation acting as a barometer of coming economic growth, then let it rain. However, if all of this is the negative consequence of too much stimulus and not enough sizzle then let’s hope that recipe can be tweaked in a way that better enhances and defines the escape plan, brings strength back to the dollar and provides for rates more truly in line with realistic expectations for forward growth. For with sustained rates at a level that allows everyone eligible to lock in durable affordability, we’ll have truly created an environment that will foster a balanced and healthy housing market.

]]> http://www.topofmind.com/blog/index.php/2009/06/inflation-or-fire-drill/feed/ 0 http://www.topofmind.com/blog/index.php/2009/05/mortgage-revolution-video/ http://www.topofmind.com/blog/index.php/2009/05/mortgage-revolution-video/#comments Mon, 01 Jun 2009 02:19:18 +0000 Brian Larrabee http://www.topofmind.com/blog/?p=1302 As I write this post, there’s a grass roots movement taking place in the mortgage industry. The 2009 Super Bowl of all things mortgage is quietly under construction.  It’s a revolution and in fact, it’s “The Mortgage Revolution”.  A group of 14, incited to action by the vision of Mark Green, diverse, able, motivated, desirous of change and just inquisitive enough to ask each other the quintessential question of the season:  “Can mortgage professionals take their industry back?”.

Well, we intend to find out the answer from Nov. 9 through 11 at the Galleria Centre in Atlanta, Georgia.  The website will go live this coming week but in the meantime… enjoy the video glimpse to whet the appetite:

Interested? Want to help the cause and take up your modern day arms to fight back? Please visit Chris Brown’s Recruitment office to type in your John Hancock.

]]> http://www.topofmind.com/blog/index.php/2009/05/mortgage-revolution-video/feed/ 2 http://www.topofmind.com/blog/index.php/2009/05/viral-mortgage-marketing-stupid-human-tricks-and-guinea-pigs/ http://www.topofmind.com/blog/index.php/2009/05/viral-mortgage-marketing-stupid-human-tricks-and-guinea-pigs/#comments Sun, 10 May 2009 16:48:02 +0000 Brian Larrabee http://www.topofmind.com/blog/?p=1103 As my old Latin teacher Dr. Margro used to say, “what the H.E. double toothpicks do those have in common?”

And my customary refrain to any question he ever asked of me “I don’t know” was the non-answer. After all, I was just a punk freshman in a class full of seniors way smarter and much more ambitious than me. Though pretty intelligent otherwise, my instructor forget to tell me why learning a forgotten language would ever be of benefit to me and thus, my ignorance fueled my stubbornness. Since then, I’ve always advocated education but with an equal dose of “and this is why it’s important.”

But getting back to our title, the answer here is not “I don’t know.” Rather, it’s pretty much nothing. It is however the path that seems to be followed whenever I poke around on YouTube to try to figure out how I should be using this popular venue to further build my mortgage practice with videos and viral marketing. Seems every time I start out down the right path, something pops up that’s so unbelievably compelling, that you just have to watch. Having clicked on one of these selections, you are now branded by Big Brother as an aficionado of watching other people embarrass themselves and thus,  the most popular sequels will be cued up and ready the next time you sign on.

OK, I know, where do the Guinea Pigs come into play here? Well, that’s what happens when my daughter sees anything other than emails, charts and spreadsheets on my monitors and comes over to join in the fun. Of course, since she’s just seven and despite our “deal” only the part time caretaker of Vanessa the quinea pig, she loves to watch GP videos on YouTube. Yes, believe it or not this is not just a little niche but a popular subject and based on what I’ve seen, a pretty competitive one at that as owners and their pigs,  er, I mean pets, try to outdo one another with the limited range of tricks the little fuzzy’s can muster.

So what’s the point here? It’s that YouTube, while a great source of endless variety, is exactly that. It’s just way too easy to get lost by venturing from one video and category to another. Great for the viewer, yet if you’re trying to drive your prospects to you and your message, it’s too easy for it to get lost in the soup.

So what then? Confronted with this, I set out to build something different. A video player/destination without links to the nether lands of “entertainment” when education is the goal. Like Latin, only with a purpose and a future! You know, more like if I had only been really smart and taken Spanish in high school instead…



Click the Image to View a Sample

The end result here is to provide a source of video based learning where my clients, referral partners and prospects can learn more about the things I want to teach them, then share it easily with others. Most importantly, to do so without any pet tricks in sight.

The individual video “player” has a button to launch the viewer’s email client with my address already populated or to forward it off to a spouse or friend that might benefit too. As well, the “see more videos” button will take you to the main player with a menu (currently short as this is brand new) of other segments. For more info – click here

]]> http://www.topofmind.com/blog/index.php/2009/05/viral-mortgage-marketing-stupid-human-tricks-and-guinea-pigs/feed/ 0 http://www.topofmind.com/blog/index.php/2009/03/if-youre-not-a-resource-youre-just-another-salesperson/ http://www.topofmind.com/blog/index.php/2009/03/if-youre-not-a-resource-youre-just-another-salesperson/#comments Sat, 21 Mar 2009 13:27:27 +0000 Brian Larrabee http://www.topofmind.com/blog/?p=584 Words to live by spoken by my great friend Frank I. in a “real life” commercial for the Wall St. Journal.

Though I love music, I used to listen to AM radio on my way into the office each morning to catch the business news on 1010 WINS. I almost drove off the road the first time my good buddy’s voice came booming through my speakers. It’s a little surreal when you’re accustomed to hearing that same voice emanating from the passenger seat instead.

This became a pretty regular event as the commercial was in regular rotation and once getting past the novelty, the words really began to stick. Soon, I was asking myself this question every day “am I a resource to my customers or am I just another salesperson?” Being in the mortgage business, and part of the perpetual stream of loan officers streaming in and out of Realtor’s offices, it really struck me that differentiation could be a key to success.

The questions grew, “am I just a commodity or do I truly bring value”, “at closing, the borrower ends up with the same amount of money, what makes mine better?” “If I had a choice to do business with the teacher or the student, which would I pick?”

The commercials were compelling, but I was already reading the Journal everyday from front page to back. It was my advanced education. I learned about economics, the markets, predictive analysis, etc., by absorbing every word and warring view points. In time, I learned to paraphrase what I sponged into more generally palatable tidbits that anyone could chew and swallow with ease.

Every other loan officer was distributing “rate sheets” to their agents. In those days, coffee, donuts and APR’s were how business was done. Yet I would watch the process of printing sheets in the morning, to driving them around and seeing them spill from mail box or desktop straight into the circular bin. Yesterday’s news, who needs it? This is when the epiphany struck and I stopped adding to the overflow and started talking about where things were heading instead. Soon, I was sought out for my viewpoints rather than my “rate & points” and I’ve never looked back.

Things are very different now, those days are long gone and technology has arrived. Yet it’s still about differentiation, content, delivery, education, advice and execution. Our business, too often focuses just on sales and your referral partners still have an in-box stuffed with junk. Today I ask the question, “am I delivering value or am I just another quickly deleted annoyance?”

Being the “educator” or the true resource is a great way to achieve your goals. If you’re focused on making smart decision making easy for your customers by sharing and explaining information and real insight, you transcend from just the commodity to the “must have” accessory and the best part is that it makes doing business better. There’s genuine thanks involved and you sleep well at night knowing that you made a difference.

More recently, the education I provide to my clients and referral partners focuses on true market trends. Given all the dire and in some areas actual devastating news we’ve seen, reminding people that there’s an incipient recovery out there somewhere and that despite the gloom, it’s not the same all over can go a long way to snapping the perma-funk many are stuck in. I am thrilled to now have some of this information delivered automatically each quarter to my database by Top of Mind.

When you “touch” your db with an educational rather than a fluffy sales piece like all the other ones they receive and the responses are like this one “Brian, I think I would like to speak with you about possibly refinancing. I will give you a call over the weekend” it’s a great feeling and direct validation of the practice! 

Actual email and response:

Alas, my work is not done yet as after almost 20 years, I still apparently haven’t taught my clients that weekends were made for Michelob, not 1003’s…

]]> http://www.topofmind.com/blog/index.php/2009/03/if-youre-not-a-resource-youre-just-another-salesperson/feed/ 0 http://www.topofmind.com/blog/index.php/2009/03/stay-ahead-of-the-curve/ http://www.topofmind.com/blog/index.php/2009/03/stay-ahead-of-the-curve/#comments Sun, 15 Mar 2009 17:27:10 +0000 Brian Larrabee http://www.topofmind.com/blog/?p=500 Real estate has always been a cyclical market. In extreme cases, we can range from euphoria to dispair. It’s easy for many to get caught up in all this as fear is clearly contagious. Yet, it also works both ways for the terror of missing out is as compelling a reason to jump in as is the hysteria that makes us want to get out at exactly the wrong time. Looking at the past several years gives us good examples of both.

While all the well publicized price declines have arguably been the most prevalent market force of late, examining what’s taking place below the surface will afford you the opportunity to be ahead of the curve. For some basis about prices, take a look at this chart. The message here is that it’s not the same all over.

A look at any charted index reveals lots of smaller moves up and down while the longer term view reveals the real direction. Some markets are meant for traders and some are meant for investors. Unlike stocks, the sales cycle and mechanics of buying and selling real estate never lent credence to day trading houses. Yet as you can see, buying a home and holding it for more than just a couple of years has proved to be a good investment even in the areas that have seen the biggest declines. Since our primary homes are meant for shelter and only incidentally help build wealth, it is a little bit like getting paid to eat at your favorite restaurant.

So how do we educate our consumers when they are overcome with fear of falling prices, fear of  job loss and having all of this exacerbated by the 24/7 news? We must simply step beyond the media and provide them with information that’s timely, but also replete with the proper perspective of using time frames matching home ownership. In other words, if you’re going to buy today and own for 10 years, does it really matter if the value might drop a bit further 3 months from now? There are two prices in any transaction that matter the most, the price you pay and the price at which you sell.

I’ll be the first to acknowledge that psychology can rule the markets. Yet ultimately, the fundamentals will prevail. Let’s look at the basics: Supply & Demand Flyer

We see here that supply grew significantly. Yet, despite all of the breathless reporting we’ve witnessed, this has peaked at or below the levels of past cycles. The biggest factor here is overbuilding. Having been a builder, I speak from experience when I say it takes a long time to go from concept to completion.  The NIMBY crowd, zoning & planning boards, environmental challenges, permitting, financing, labor, construction and finally sales hurdles all add time to the process. It takes years from the For Sale sign being planted on the vacant land to the first moving truck pulling up. In the midst of all that, the market will turn and turn it did. Worse, this time around the usual cycle was more than twice as long as usual and like trying to stop an oil tanker, if you start the process too late, you don’t want to be the one standing on the dock, wearing the captain’s hat or owning stock in the insurance company.

Moving forward, we have seen builders pull out the stops to sell their properties. Free flat panels, BMW’s, 3.9% financing, they are a creative bunch. Most have hit that dock now and that’s clear by the wreckage. Housing starts fell in January to an annualized pace of 466 thousand. We’ve not seen a number that small in over 45 years. At the peak of the past boom, the pace was more than 475% higher at appoximately 2.27MM.

Further, if you look at the “Housing Starts as a Percetage of Population” graph, you can see not only the usual cyclicality of this but moreover, the steadily dwindling progression when measured in this manner.

The simple comparison of homes built over time to the number of homes sold evidences the simplest basic foundation of markets and of course, the title for the piece- supply and demand.

The population rises at over 3 million per year and that increase fuels 1 million new households. If builders are now only adding less than half of the homes needed, where will the rest come from? Sure, they’ll be happy to build more as soon as the actual market demand returns but as we reviewed earlier, that process takes time. This is especially true when some of those tanker captains lost their stripes (and their shirts).

There are problems right now, but they will pass. Not unlike fish, people are comfortable “swimming in schools” and by nature, will never discover anything ahead of the crowd. Conventional wisdom is neither. Being the “one” unafraid to go it alone, step out of the pack and get where you want to be before the rest arrive will always allow you to prosper in the end.

Affordability has never been better than now. For those that marry that fact with the right instinct to take advantage of it and the longer term point of view that ultimately, fundamentals will trump sentiment, the recovery ahead will be all that much sweeter.

So whether you take advantage yourself to dig up some gold nuggets or set up shop to sell the shovels, now is a great time to anticipate what’s next and equip yourself accordingly to share the view with your clients, prospects and referral sources.

]]> http://www.topofmind.com/blog/index.php/2009/03/stay-ahead-of-the-curve/feed/ 0 http://www.topofmind.com/blog/index.php/2009/02/the-sky-is-falling/ http://www.topofmind.com/blog/index.php/2009/02/the-sky-is-falling/#comments Wed, 04 Feb 2009 17:09:19 +0000 Brian Larrabee http://www.topofmind.com/blog/?p=97 I’ve added quotation marks here as this is the type of headline we see or hear all too often these days. While there’s certainly no doubt the markets in many areas have major problems right now, broad generalizations in the media leave little if any room for the public to understand the distinctions that really do exist. The “news” by its nature is what’s happening now yet when it applies to already fragile mind-sets, it can incite further fear and self-fulfilling prophecy. We hear about the Case-Shiller Index repeatedly, yet rarely is it spelled out that this is applicable to only 20 Metro areas. Last I checked, there were almost 400 of those in this country…

So let’s take just a moment and dig a little deeper using the most recent quarterly update from OFHEO/FHFA which is a much broader measure that reflects every state and metro area:

Declines in property values YTD (through the 3rd Qtr. 2008) are prevalent, yet there are only 4 states that saw double digit declines and 9 that have actually appreciated in value (open link below to see the chart).

Since typical ownership terms run from 5 to 15 years, the short term market moves should be less important anyway. If we look at the last 5 years running, only one state has seen a decline (MI) and even here, this has more to do with the areas that have supported manufacturing. Other areas in the state are doing better as industries like medicine are growing quickly.

For all other states, total appreciation ranges from 5% in Ohio to a high of 75% in Hawaii. It’s most interesting to note that even some of the most recently hard hit states such as Arizona, still have average annual double digit appreciation over the last 5 years.

The take away here is to know your market and how it relates to what your customers are hearing on the news. Times of great fear have historically been the best time to buy. With historically low rates, lower prices and at least for the 92.4% of the workforce that is still employed, affordability is at an all time high. No one knows exactly what will happen in the future yet history is irrefutable and makes for a pretty solid case.

Link to state by state chart & figures here: http://www.homeeconomicschart.com/quarterly%20update%20flyer%20b%20larrabee.pdf

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