Mike Mueller, Social Media.ist

As I was talking to a Realtor the other day on Broker Tour,
They had happened to see me on the News where the host had asked me the question,

"If you make $90,000 a year and have $25,000 in the bank can you afford to buy in the Bay Area?"

The Realtor and I were having a lively discussion about what the right answer would or should be.
I was contending there is actually two correct answers, the TV version and the Reality answer.

The TV answer is short. It's a broad based statement. It's a generalization. It comes with obligatory YMMV stipulations (Your Mileage May Vary).

The Reality answer is long. It's well thought out and takes into account the many variables that play into this scenario.

In answer to the original question - the answer was "Yes! They could absolutely buy a home in the bay area."

That's the TV answer and that's what I said.
But then the "Mike" in me came out and I qualified it with a small portion of the Reality answer.

The Reality answer would be, "Maybe! Maybe they could and maybe they couldn't."
I have a couple of questions to ask them first...

• How's your credit score?
• Do you have all three scores?
  
• Credit quality?
• Tradelines?
• Collections?
• Derogatories and the time since the last one?
• Past BK? How long ago?
  
• Are you full time permanently employed?
• How much of that $90,k is due to overtime?
• How much to Bonuses?
• Is that regular or scheduled?
• How long have you been on the job?
• How long in the line of business?
  
• How's your debt?
• How many accounts do you have open?
• How about remaining balances, are you maxed out?
• New accounts, how many of those do you have?
• Inquiries, how many recent inquiries show in the last 12 months?
• When we do this loan what will your back end debt ratio look like?
  
• What kind of property are you looking for?
• Single family, Condo, PUD, Manufactured Home, or Doublewide?
• Is the purchase going to be "as is" or fully disclosed?
• Seller concessions? If so how much and what?
• How much are you looking to put down?
• Seller Carry back?
• How does the Property appraise?
  
• What comps and where are those comps?
• Additions to the property?
• Were they done with a permit?
  
• Got assets? "No, sit back down and get dressed. I'm not talking about that!"
  
• How much do you have in reserves?
• Is that all in your name and for how long?
• How much is liquid?
• 401,k or IRA?
  
• Gift Money? How much and from who?
• Have enough cash to close?
• How much left over after that?
• How long do you plan to live there?
• And then what do you want to do?
  

That'll get us started.
No really! That's just a start to the considerations that go into a loan.
This is why people like me exist and cannot be replaced by mindless Borg Units or computer programs like online lenders.

So the easy answer is that, "YES! You could absolutely buy in the bay area."
But is that a tumble down shack in a shady hood, or a beautiful new home on top of a hill?

Even if there was an easy answer (there isn't), or a way to compute the answer it still would be wrong to give that away on TV.
The reason?

If I had that answer, and hypothetically said, "Sure! They could buy a $550,000 home anywhere they want."
Then they talk to a less than ethical loan officer who tells them, "I can get you into a $1.4 million dollar home for the same payment!"
"Wow! That's more than double the home that lousy guy Mike said we could buy! - Let's go with Lester Sleazeball, He's the Man!"

You know the answer right?
That's a Neg Am Loan.
That's not the right loan for everyone.
They'll be in foreclosure in just a couple of years when their payments triple.
Lester and the Real Estate Agent, Suzie Sliime, will have already spent their huge commissions and moved on to the next victims, I mean "Valued Clients".

In the end, I guess the right answer isn't what you see on TV.
The right answer only comes after you have spent the time and energy searching for it.
And channel surfing doesn't count!

"Hi, my name is Mike Mueller
I'm not a real Doctor but I play one on TV...

I have a problem, it's a serious problem,
and guess what?
I know you have it too!
It effects each and every one of us every day."

 
Actually the realization is closer than you may think.

 
I am a highly trained, highly skilled, Mortgage Professional.
While the real doctors are also highly trained, skilled professionals we both use much of the same systems and tools.

We both rely heavily on new and complicated technology.
This technology allows us to make better decisions in our recommendations.
Yet nothing replaces a human smile, a warm handshake, and a knowing voice assuring the patient that, "Everything's going to be alright."

The M.D. works in conjunction with others very well.
He refers tasks better done by specialists like lab tests & X-rays.
If the doctor is a general practitioner, they may bring in the opinion of other specialists in specific fields.

As a professional, I do the same. 
I order work (lab tests) from my title company, my processor, appraisers and so on.
As for specialists, I have plenty.  Not everyone who comes to see me is in good mortgage health.
As a mortgage broker I need to know who might be able to help my patient.
With the plethora of lenders available, sometimes it's in the patients’ best interest to call in a specialist.

Bringing in the expertise of others is critical to the patient's health.
Having a general practice doesn't mean the MD can, will, or should do most everything involved in the treatment.
The same goes for my chosen field of practice.

While I do have a State of California, Department of Real Estate License which would allow me to represent the seller or the buyer in a transaction, as a true professional I fully understand the implications and serious ramifications that may be possible if I did. 
Working in the best interest of my client is my Fiduciary Responsibility as decreed by law. 
Doing anything more would be Real Estate Malpractice in my professional opinion.

In the course of treatment the M.D. may recommend certain drugs.
Some times these may be considered "over the counter" and available to the patient with little guidance from the Doctor.

Other times the best drug for treatment may be by "Prescription Only".
Prescription drugs may have serious side effects if used by the wrong person, or in the wrong conditions, and may interact with other drugs a negative ways.  While a particular drug may work medical miracles on one person, it may be deadly for another.  

When dispensing any drug it's imperative for the patient to be aware of possible side effects and precautions.  The Doctor upon writing the prescription will make these issues and concerns perfectly clear to the patient.
For this reason the F.D.A. determines the drugs that may pose serious problems be dispensed only by trained professionals.

As a mortgage professional, I dispense or prescribe loans.
Just like there are no bad drugs, there are also no bad loans.
Every loan program has the potential to be a good program if applied to the right condition with the right patient at the right time.

When the patient comes for an office visit,
(And yes, sometimes I do house calls) it is my job to accurately diagnose the ailments of that patient.
Once diagnosed, we can discuss possible treatment options.

Sometimes the best remedy may be something simple, akin to putting ice on a swollen joint.
Example: "Mr. Johnson, I suggest you live with the adjustable loan another 6 months until your prepayment period is up."

Sometimes the best remedy may be something generic, something "over the counter" but offered with a little guidance.
Example: "Mrs. Smith, I suggest you go down to your bank and get a $50,000 HELOC, but make sure there are no costs at all."

And then sometimes the best remedy is something very specific, but something with serious warnings and contraindications, something that if used improperly could result in devastating complications to the patient.
Example: "Mr. and Mrs. Newlywed, this combo loan will allow you to buy your first home but remember the interest rate is going to be fixed for only a short period of time.  After 7 years this loan will become adjustable and you may want to move, sell or refinance before that time."

All of the above also have possible side effects and complications that as a professional it is my duty to warn about.

I am a professional.  I am very confident in the work I do and the patients I treat.
But I have a problem.

The industry allows non trained, non skilled, non professionals to prescribe the same drugs I can.
These pseudo professionals appear to the unknowing patient as professionals.

• Do they do the same diagnosis I do?
• Do they ask insightful, probing questions, like I do?
• Do they fully understand the needs and goals of the patient, like I do?
• Do they accurately and precisely articulate both the risks and rewards of all possible solutions, like I do?

• Do they act with the same Fiduciary Responsibility, like I do?

Anything less is mortgage malpractice and that, in nutshell, is my problem.

No, I am not really a 17 yr. old gamer.  That really is my picture over there ------------->

But a client sent this to me and I thought it was good enough to share with you all.

After all, it's Friday (on the east coast anyway) - loosen up!

So this is a cute little flash game called Mansion Impossible

The object of the game is to buy and sell houses, hopefully making a profit until you can 1031 Exchange them all for the Mansion on the Hill.

(OK,  so I made up the 1031 Exchange part)

Get this...  The house values go up AND sometimes they go down!  How weird is that?

Now don't go and spend all day playing this.  Or if you do, don't tell anyone!

Have a very Happy Friday! 

Here's the link: http://www.flashgames247.com/play/575.html

A recent post here started me leaving a comment.

Quickly the size of my comment became the size of a post.  So now it's a post!  Not wanting to point fingers, I'll leave the link to the original post commented out and just offer this up as just good information.  I'll also warn you now, I may have a strong feeling about this.  ;)

Remember the Bruce Cockburn song entitled "If I had a Rocket Launcher"

I work in a large office building.  In our building there is a mortgage company that hires extremely un-qualified loan officers, as many as they can.  They do not have desks, they are outside sales people.

They get them in, they hype them up, they give them scripts, and then they unleash them to the world like a swarm of bad door to door salesmen.
They train them on two, and only two loan programs.
Want to guess which ones?

That's right!  The Payment Option Arm and this Mortgage Accelerator Program.
They are trained on what to say and how to say it.
They are NOT trained and do not understand the features of the loan, or how to be a LO in the first place.
They are really birdogging - that's all.

They'll start conversations with everyone.  In the elevators, in the cafe, in the lobby.
The conversations all start the same, "have you heard about this new loan program, I'm sooooo excited!..."
I can't tell you how many people in the building really shun them.

They also all say that they have signed up all their Friends, Family and Co-workers!

If everyone's doing it, it must be a good thing, eh? My grandmother would have then pinched my cheek and said, "If everyone jumped off a cliff would you too?" What? yours too?

But hey that's sales - and if that's the business model the company chooses to use - so be it.

I won't go into the how when I ask insightful questions of this new program - they don't have a clue what I'm asking.

My problem is in the facts.

No matter what this loan is titled,  "The Super De Duper Payoff Your Mortgage in 8 Years Program"...

This loan is an ARM, this loan is a HELOC, this loan is a Hybrid.

I've seen it reported as a HELOC on Steroids.  Come on, give me a break!  And besides look what they did to Pro Athletes!

So tell me what caps are there?
What's the Index?  The Margin?
Does this loan have to be paid off in 30 years?
Does it recast?  Does it reset?

This loan is quickly becoming one of the new HOT marketing products in the business.
Will it be the POA of 2007?  Too soon to tell.

The charts and figures rely on the fact that the consumer will continue consuming in the same manner or less.
Yet we all know that as a group, consumers will, when given access to money at reasonable rates, tend to use that money.
So the loan balance may go up not down.
That's just human nature.  Knowing that's human nature, are they not lying with their projections?

Looking at POA people as an example.
It's true that if you took the extra cash you might have spent on a traditional 30 year fixed and invested in stocks, bonds and the like you will be light years ahead down the road (net worth wise).

Some people who have POA's were sold on that premise.  Others were sold on the minimum payment.

Virtually none were shown what happens when the loan recasts.
None were shown that their loan may recast in as soon as 3 years or less.
None were shown how their minimum payment would double or even triple!

http://www.patagoniafinance.com/poa

Industry figures maintain that a full 75% of those people with a POA (NegAm loan) consistently make only the minimum payment.
Now with all those Neg Am payments out there and all that extra cash floating around you might expect to see savings and investment rates at all time highs. 

Conversely, those savings rates are at all time lows!

Put everyone in this glorified HELOC program, let them spend what they want, or paydown what they want and you tell me what's going to happen when the loan needs to re-amortize.

This program isn't all that new, I did a quick search and found an article in my paper from back in May 2005 warning of it's pitfalls.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/05/26/BUG95CULR51.DTL&type=business

From the Article:

People who continuously spend more than they earn will keep adding to the principal and their mortgage will end up like a negative amortization loan.

Joyce Franklin, a financial planner with JLFranklin Wealth Planning, says "a borrower with financial discipline who wanted to pay down principal could do so on her own, without a fancy product" that charges a premium rate. 

Phish may be a great band (myself being a self described closet Deadhead)

"Heavy Things" (song reference) may come down on you if you don't heed this warning...

But this isn't about the band called Phish - it's about a scam that is becoming quite popular on ebay.

This was just sent to me by an associate and I thought it might be beneficial to anyone who uses ebay.

Personally, I've sold maybe three things in my life on ebay.
It turns out I really don't like packing things, boxing and taping them up, and going to the post office and waiting in line.  I'm an ebay buyer.

If there is a scam for the sellers you can also be certain there's also a scam out there for the bidders too.



"It starts as an email from a "potential buyer" about the item you have listed, asking if it is the same as this item at this location. (they give you a link that looks like ebay) You respond - and it takes you to what LOOKS like ebay and you have to enter your username and password. Bingo - hooked another one! Then - all the existing bids on your item are canceled - within a minute or so of each other. Then you start getting emails from OTHER sellers that have apparently gotten a similar request from your hi-jacked ebay account - and the cycle starts for them. Then your password to ebay no longer works. When reset - ebay has a message to you (and it is also in your personal email) that your account was compromised, etc., etc., etc... so do this, then this, then this, then that. Ebay knows ALL ABOUT IT and how it works."

This is called Phishing.
Here's a link to ebay's page on it: LINK
If you do get a funny looking email, don't delete it - forward it to spoof@ebay.com
They are pretty good at getting back to you as well.

Phishing comes in many forms and hopefully you are smart enough not to be sucked in by any of it.
If you do get other suspicious emails from your bank, your credit union, PayPal, or anywhere else, you can also go here: http://www.castlecops.com/pirt to report them.
They'll attack it for you.

IMPORTANT: If someone you know, as in your friends, family or co-workers, forwards you an email about a new virus, a new missing child, a petition to make vanilla the flavor of the month, or anything that asks you to pass this along to all those in your address book, and if you do you can help save this __________, 

Do the world a favor, just one thing, before you do anything else.

Cut and paste the beginning of the email body.

Go to www.Snopes.com and do a quick search for this email you are about to blast to the world.

Many times what sounds like a real story is indeed a farce.  Then again sometimes these are real.  Wouldn't it be nice to know the difference?

BTW: If you send me something like this, I'll check it out at snopes first, if it's false I'll make sure to reply to everyone in your email letting both you and all the cc'd people how NOT to be a sucker to these. I'll make sure I send it from my business email so I get some free advertising too!

I'll do it partly to embarrass you, partly to educate, partly to change the world, and partly because you caused me  to stop what I was doing and look research something you should have done in the first place. 

I'd much rather empower you to make educated informed decisions instead. 

Be careful (and responsible) out there!

I last wrote about CPI 2 months ago (back in December).
It had to do with the November CPI and Core CPI data

Sometimes I like to go back and read what happened and why.
It gives you a perspective on how topsy turvy the markets can be sometimes.

Here's the post from December: LINK

Here's a rehash of the why and what of CPI:

It's put together by the Dept. of Labor and is a weighted average of prices of a specified set of goods and services purchased by consumers.

In simple terms, it tracks the prices of a "specified basket of consumer goods and services, providing a measure of inflation". It's considered a cost-of-living index.

When that shopping cart of goodies rises dramatically we have inflation.

You'll hear from time to time people referring to "Core Inflation".
Core Inflation is when you take the CPI numbers and back out the most volatile components - food and energy.

Why you ask?

Because these two groups can have dramatic mood swings, which then will skew the monthly numbers, which then might have even more dramatic results on the market.

Why do we care?
> CPI is very closely watched by the Feds.
> The Feds raise and lower short term interest rates.
> That changes influences the markets in general (not 30 yr mortgages)
> Which then determines how much investment money is out there for lenders to use and at what rates.

So other there are other reasons why we as members of society care about CPI than just how much it's going to cost us to live here, cloth our children in the latest fashions, and so on.

• The core inflation figure they were expecting went up not down.
• Not only did it not go down, it doubled what they were expecting.
• And the "Head Fed" publicly and specifically announced their intentions concerning this indicator.

That's a clear cut signal to the big money playing with the odds that what might have been back in December, isn't anymore now in February.

In the end, the market is always right.
We can just sit back, try to make sense of it all, and enjoy the ride.

Who's to blame?
No this isn't about Lee, I'm talking housing and Sub Prime Lenders.

I've posted about the Sub-Prime Lenders taking heat in the news for making so many bad or questionable loans. I've also posted recently about the closing of doors for some of these companies. It all comes back to them having to buy back, or take the loss, of some or all of the bad loans they've made.

We (the public) have to have someone to pin the upcoming onslaught of defaults on.

These companies can and will suddenly announce they're closing.
In regular business terms they are not running that close to edge.
I can't speak for all of them, but in general they do have retained earnings, they do have cashflow, they are not "cooking the books". So they are doing things in the normal sense of business. This isn't an Enron situation.

But as I've stated before, I believe the problem is that they are running their businesses with normal business operating reserves and standards, yet operating in a high risk environment, in a high risk marketplace. That's the disconnect.

But is it a short sidedness on their part or just a anomaly of the market forces?
Hey, rates and competition hasn't been helping either.

Do we blame them for the housing correction, the bubble, or general doom and gloom?
Maybe, maybe not.

Did Oswald act alone, or was he a patsy in a larger conspiracy?

Put on your X-Files FBI Badges and get out your decoder rings.
As Oswald may have not acted alone...  So to, in this there are other shadows in the game.

The previously mentioned Sub-Prime Lenders that's a given.

Then we have the Loan Officers.
(These shady greedy bastards would lie cheat and steal to get a loan closed)
The influx of untrained, unethical, unprofessionals into the industry.
I'll say it again, My profession is filled with lying, stealing bastards.

Is that too strong of an opinion?

We have the Products themselves, loans that allow a borrower to get into a house that they really shouldn't have. Payment Option ARMS, Interest Only, Stated Income / Stated Assets, NINA, and so on.
They do have a place for the right person and situation but they've been seriously misused.

We have the Public too!
The public demand for loans that get them into that house fuels the machine.
If there was little or no demand the lenders wouldn't have created these questionable products and underwriting guidelines.

Finally we have the Markets.
If the housing market was still chugging along as it had two years ago, would we be here talking about this?
The market is as free flowing as the oceans themselves right?
Or are they? (in keeping with the conspiracy theme)
Is there some secret unknown "New World Order" that controls the market behind the scenes?
The Priory of Amortization? - (Dan Brown would be proud)

How about the Fed's ?
Nah, the government has nothing to do with our personal lives.
They've just raised the Fed Funds Rate what 17 times in a row? All in the name of curbing inflation. Of course the FFR effects the Discount Rate, which effects the Prime Rate and other short term yields, ultimately effecting the COSI, CODI, COFI, LIBOR, MTA, MAT and so on which most all of the questionable loan programs are based off of.
See they had nothing to do with it.

You know I'm just kidding about this whole conspiracy thing right?
It's just an analogy to show there are more at fault than just the newspapers and cover stories would lead you to believe, right?

But just in case, I've documented everything I know and given it to a ship captain who is constantly sailing. That ship will remain at sea unless they hear of my untimely demise. At that time, the ship will port and everything I know will be published in the NY Times.

I have to go.
There's a Candy-Gram at the door...

Honest Confession:
In some perverse way I think I may actually get a kick out of these posts.

I'm very sorry.
Somewhere, someone was deeply effected by the fraud and indeed lost something of value. Their lives were not improved but instead were damaged by the actions.

Don't get me wrong.
I am certainly not rooting for the bad guys.
Maybe it's more of a matter of my astonishment of their cunning ways. I really can't put a finger on it.

Why do we like all the cops shows?
CSI, Law and Order, and the like?
They all certainly all have victims, people who have lost something.
I pride myself on being able to feel how others in different situations may feel. This is called Empathy. I feel the joys and pain of others.
I am an empathetic person.

But alas, on to the Fraud!

So this guy, Michael Edison of Las Vegas was just indicted for defrauding a SF woman.

He told her he owned a financial planning firm with something like 12,000 clients!
He first got her confidence, then once he had her confidential information, he opened a joint account, I'm guessing a checking / savings combo.

With that opened, he then applied for a mortgage on her home.
He got a first mortgage from Wells Fargo and then a second line of credit from Countrywide.
Since her home was paid off, I guess these would be cash out refinances.

Where did the cash go?
To those joint accounts he set up.
He deposited 2.8 Million to the accounts.
He then drained 2.4 Million from the accounts leaving her with two mortgages and from my calculations $400,000 left in her new accounts!

So how'd she find out?
The banks started foreclosure proceedings on her property for lack of payments.
I guess he wasn't smart enough to setup automatic withdraws.
Even if he did - let's see...

• 2.8 million loan amount
• 30 year term
• 6.5% ballpark interest
• Would give him a theoretical payment of $17, 697 P & I
• Given the $400,000 left that would have lasted for 22 months.
  

"So Mike," (you say) "At least he left her the $400,000"
Don't count on it. Chances are not.
Once the F word was uttered the banks probably froze the accounts in question, if not all of her accounts.

When the dust settles she will have lost many thousands of dollars if not millions!

How do I feel now?
Honestly? Not so happy.
As a matter of fact, I feel really sad.

I will never knowingly engage in fraud and yet the possibility of fraud is infused in what I do for a living.

Earlier this week we had a client who wanted us to pull only his credit.
He wants to do a cash out refinance but doesn't want his wife to be emotionally dragged thru all the details.

He told a sad story about how his wife just can't handle numbers and finance.
He wants her to NOT be on the loan, not on the deed.
Matter of fact, let's not even tell her we're doing this.
"I'd prefer you only contact me on my cell phone and mail everything to my office."

What's that?
You smell something too?

So did we!
.

In Part 1 I discussed the advantages and disadvantages of being a direct lender.

In essence, if it doesn't fit in their box it doesn't fit, and they have to decline the loan.

From a Borrower's point of view...

Let's say our Borrower walks into Bank A, applies for a loan.

A week or two later they find out they were turned down.

That's OK, they didn't really like that bank anyway.
So they go to Bank B.
Same application, same documentation, and unfortunately the same results.

Undaunted, they go to Bank C.
Applied, Documented, and Turned Down!
3 strikes and You Are Out!
"That's it dear, We are un-financable!"

End of story - right?

I can't tell you how many times I've come across people who were completely resigned to the fact that there was nothing they could do about their situation.  Absolutely convinced.
"We've already applied at Bank ____ and they turned us down too."

The problem is that the loan did not fit neatly into the lenders box.
It wasn't that it was a bad loan.
There was just something that kept it from fitting in.
It may have been something small.
It may have been something big.
And the Bank isn't going to tell them the exact reason why...  They'll just turn it down and move on to the next one.

A broker doesn't have a box.
A broker does the math, understands the loans weakness as well as it's strengths and then applies that loan only to those banks (lenders) he knows want that particular loan.

So in essence, a Mortgage Broker has many boxes.
I have 7,000+ different programs to choose from.
Which box a particular loan fits best into is the "ART" of what I do.

I like to say that if I do my job correctly, I will get the borrower the very best loan that fits their goals and needs at that time as well as in the future.

Broker's used to be at a disadvantage to lenders in underwriting.
Technology has changed that.
The playing field is dead even now.

As a Mortgage Broker, I can now pull credit in seconds.
I can then apply that credit record and supporting documents to an Automated Underwriter, something only available to lenders not so long ago.
I can get an approval in seconds, minutes at most.

Remember the case of Garbage in - Garbage out...  AU decisions are only as good as the input.

I'll submit the loan to a human underwriter via simple uploading of documents and in 24 hrs have a real approval!
That's pretty powerful stuff!

The one thing I still have to give to the lender side is the knowledge of products.
A direct lender should have better understanding of the quirks and features of their products.
Don't get me wrong, I'm not talking about your pimply faced bank employee, but the true mortgage professional (generally they don't work in a retail bank location).

Don't you just love technology?

NOTE: I was a direct lender for years and know that some direct lenders can also function as a broker. I also left out the YSP disclosure requirement for Brokers vs Lenders and some other things not relevant to the direct concept between the two factions.

So I caught a little flak over my explanation of the LTree and it's business model.
LINK

No biggee.
If I get this right, I am the "Flak-er", and they would be the "Flak-ees".

The Flak-ees reactions ranged from the standard issue knee jerk "Duh", to eye opening wild disbelief.


Let's do this in two parts:

Part One - the answer to the Dee-Dee-Dee side, (Carlos Mencia reference)...

Some of the Flak-ees maintained that the Tree was and is doing what it needs to do to stay in business. In order for the Tree to continue offering the great services it does to us poor consumers, they need to sell the leads. "Wadda you think? They should just give 'em away?"

Uh, no...
I have no problem in their selling the fruits they have grown.
I do have a problem with their trying to deceive both the buyers of the leads and the customers.

Advertising has been called the business of half truths.
Some might argue that there's far less than half of a truth in any advertising.
But I'll say, if the banks were competing you indeed would win.
That is the truth. But the truth is, the banks can't really compete.
For many reasons, the playing field is stacked against honest competition.

With the Tree sending leads to their own mortgage company first, they get a jump on the competition. If they really wanted you to know they had a mortgage company wouldn't they have called it something like Lending Tree Mortgage?

Home Loan Center doesn't sound like L.T. at all does it?

Then there is matter of human nature.
I'm a good guy, but I know there are plenty of less than honorable people out there.
As I have said before, they can lie thru their teeth about rates and fees all the way to the signing table. There's nothing illegal about it. It's called Bait and Switch and I see it everyday.
And guess what? If they know they have to beat 3 other liars to get your business, guess what they are going to do?

The best liar wins.

I have a great solution.
Make them tell the truth!
How?

The "Mueller Act"!

Force the lenders (you figure out how) to quote you a rate, a term, a prepay, the total non-recurring closing costs, all fees, everything, and then set that quote in stone.
No changes - period!

Then, if the loan you get isn't what they quoted - they have to pay the difference plus let's say $10,000 in damages.

Furthermore, take the quoting away from individuals (loan officers who work for commission) and put it in the hands of the corporation. Not that corporations don't lie - they'll be more apt at looking at the bottom line.
In short, fully guarantee the quote.
Sounds like a sound and reasonable idea - right?


Now let's step back and see what happens.

From the Lender side:
The lenders will now be caught between trying to compete but not underestimate the rates and fees. They know there are 1,000 ways a loan can change from application to funding.
Many of which are completely unseen this early in the process.
As a lender, you can take a calculated risk and hope nothing increases the rates and fees, that you can close before your lock expires, that the supporting documentation comes back as stated.
But that's a risk. Guess wrong and it costs you money.

So the business is going to price these with a certain amount of cushion.
How much? - Nobody could tell for sure, but a cushion for sure.
Cushion means... not the lowest rate possible, yet low enough to win the deal.

Let's go over to the consumer side:
I'll take two different borrowers, one who has it all together and a super clean deal with no surprises anywhere. We'll call him Mr. Clean.

The other one has everything imaginable come up - not necessarily by his own fault. Both have identical income, credit, and debts. He's Mr. Calamity.

Mr. Clean is doing a refi on his condo. He locks for 15 days (cheaper rates), the appraisal is done and comes back perfect, the prelim as clean and clear as well. His HOA does what they need to do and keeps the records they are supposed to.
Working with any reputable lender, he would get the absolute best rates and fees.

Mr. Calamity, doing the same refi, the same amount, locks for 15 days as well.
But then the poop starts hitting the fan.
His appraisal comes back with issues - there are questionable comps, they need more pictures, or a zillion other things. The Prelim comes from title and shows tax liens. It also shows his ex-wife who happens to be on safari with the new husband. Ooops. We need a quit claim deed signed. His condo turns out to be unwarrantable, the parking is under the building as opposed to outside the footprint, the loan he applied for also says it needs to be 75% owner occupied complex wide. Oh, and there is pending litigation from someone who tripped on a sidewalk last month and is suing the HOA.

Each and every item listed added to the rate, points and fees of Mr. Calamity's loan.
That's just a couple of items that might go wrong.

So under the newly enacted "Mueller Act" the lender that quoted both these guys would get the same loan. Not having a crystal ball, the lender would have quoted the same to both. Got it?

But here's where market forces screw it all up.
Mr. Clean - had he gone the traditional route, would have gotten better rates and fees.
Why? Because the lender had to build the risk of unknown factors into the original quote - the cushion. Mr Clean paid more for his refi then he had to.

Mr. Calamity however made out like a bandit.
Not intentionally, but the lender would have to honor the quote.
(eat the difference)
His real rate and fees would be incredibly higher.
Missing his lock might have cost him a 1/4 point.
Tax liens, pending litigation, HOA cert. all would bump him out of an A paper loan.

The lenders, learning from their mistakes on Mr Calamity would adapt and build in a bigger and bigger cushion. Unfortunately imposing this cushion on the next Mr Clean.

So in the end, the "Mueller Act" would fail in what it was enacted to do.
Mike Mueller would be impeached,
the Act would be repealed,
and the lessons learned would be taught to high school history students across the US for years to come.

Ok, how's this idea instead?
We educate the consumer to make insightful decisions, by working with trusted professionals, who understand the consumers objectives and goals.
I like that better.

Next time we'll look at the "They don't really do that do they?" side in Part Two