May 2006 Archives
Contact me at my office!
Dan Melson, Realtor and Loan Officer
Clarion Mortgage Capital
Clarity Real Estate Network
California Depart of Real Estate License 01389295
Phone 619-300-7425 (cellular) (no vendors)
email danmelson (at) danmelson.com (consumers only)
For Real Estate Buyers and Sellers, as a Realtor I specialize in the urban areas around La Mesa, CA (Zip Codes 91941 and 91942), Santee, CA (Zip Code 92071), El Cajon, CA (Zip Codes 92020, 92021, and 92019) and adjacent areas of San Diego, CA (Zip Code 92119, with parts of Zip Codes 92120 and 92115). I will happily work in other areas of San Diego County. I was born here, I grew up here, I've watched the area grow and mature. I know the neighborhood markets. Sorry, but I do not engage in sales work outside of San Diego County. There are only 24 hours per day, and I do not believe I can maintain the level of market knowledge necessary, nor provide the level of service necessary
I am able to do loans anywhere in California. Extremely competitive quotes, Guaranteed at time of lock. If it costs more than I say it will, you don't pay the difference - I do.
People who are interested in having me do a loan or real estate transaction for them: You may leave your contact information in the comments space, and it will be kept private, or you may email me (danmelson at danmelson dot com) or any of the usual ways to contact me. Please disregard the final paragraph below, which relates to people trying to sell me stuff.
Lenders and other people with things to sell: I am always interested in finding better deals for my clients, and I do want to talk to you. However, you must contact me through my office - do not use the above information. Make an appointment if you don't want to rely upon luck. Do not send unsolicited e-mail - it will be deleted unread. Sending commercial e-mail to either the danmelson.com or searchlightcrusade.net emails will cause your email address to be to consigned to the spam filter (I'll give you my vendor e-mail when we talk). Unless I specifically instruct you to do so, calling any of my personal phone numbers (including the cell number above) will save you the effort of future solicitations, and will almost certainly result in a do not call complaint. I do not market via cold call, and I expect vendors to observe reasonable limits on the practice if you want to do business with me or my clients, who don't want to be telemarketed either. To save you time and embarrassment, I am not interested in any loans featuring negative amortization. Don't try to tell me "great service" is the reason I should do business with you, as opposed to the vendor who also has great service but gives me a better price. All of my wholesalers have great service and excellent turn times as well - if they don't, I won't use them. The primary things I am interested in for new lenders are better prices for loans or loans that allow things that the competitors don't. If you're not confident enough of the value of what you're providing to spend the time and effort to hold a good conversation, that tells me all I need to know. On the plus side, people are usually pleasantly surprised at how I do welcome new vendors with something that might actually help my clients, and I will keep your information against future needs even if I don't have an appropriate client right now.
(Continued from Part I)
Below the "Estimated Closing Costs" line, there are three more sections. The first is "Items required by lender to be paid in advance." These are not negotiable - they are what they are, and except for mortgage insurance or PMI, correct accounting should be the same no matter who the loan provider is. Of course that doesn't stop many providers from playing games to make it look like their loan is cheaper. Sometimes the items in this segment or the one below it may not be exactly knowable in advance, but many lenders make intentionally small misrepresentations.
"901 Interest for (blank) days at $(blank) per day." This is a good example of a fee that isn't exactly knowable in advance. On a refinance, until the current lender comes back with a payoff demand (which are usually in the form of $X, plus $ABC.DE interest per day after Date 1, invalid after Date 2), all I can do is estimate. It should be a pretty accurate estimate if I have last month's statement. On either a purchase or refinance, when the lender's loan funder sends to the funds for the new loan, they will tell how much prepaid interest the escrow company needs to collect, which is also in a comparable form. The same thing applies to that figure as well. Until the actual quote is in our hands, all we can do is estimate closely.
The reason for line item 901 is simple. Unlike rent, mortgage interest and payments are made in arrears. They can't charge you interest until they earn it. You could win the lottery, get an inheritance, or receive some other large windfall, and decide to pay your loan off (or down). You could also sell your house or refinance it. This would affect the amount of interest the current lender is owed. So you borrow the money at the beginning of the month, it accrues interest all month long, and you make a payment at the end of the month. So when you buy a house on March 15th, the lender is going to require you to pay interest on the loan from March 15th through the 31st in advance. This gives them a chance for their servicing department to set everything up. On April first, the loan will start accruing interest normally, and your first regular payment will be due after the end of April - May first to be precise.
When you refinance on March 15, you must pay the old lender for interest due between March 1st and March 15th, which has accrued since the last time you paid them on March 1st. You must also pay the new lender for the interest due from March 16th through March 31st. Between the old lender and the new lender, this figure can never be anything but the whole entire month worth of interest, and there will always be one or two days of overlap between the time they get the funds from the new lender and the time they are disbursed to the old lender. Around the beginning of the month, it can be two months interest if the old lender hasn't received your payment yet or hasn't credited it yet. You borrowed the money from them for the time in question. They are entitled to be paid. They're not going to let you keep it out of the goodness of their hearts, especially not when you're leaving them.
As you can see from the above, you never actually skip a month (or two) in your payments when you buy or refinance your home. It is not going to happen. What is happening is that your new lender is paying for this interest out of their pocket and adding it to the loan balance where you will be paying interest on it for a very long time. Pretty sneaky, huh? Well, you do have the option of making a payment to cover this line, or any other line on this whole form. Many providers will not tell you this because they can't run up the loan amount (and their compensation) if you make these payments. If you decide to make the payment to cover this line, it will be the interest portion of your normal monthly payment, prorated between the two loans in the case of a refinance, or prorated on that portion of the month you have a loan in the case of a purchase. In most cases, I tell people to think of it as their normal monthly payment paid early, because that is what is going on, and a reasonable approximation of the dollar amount.
The most common game played with this line is to decrease the number of days of interest you'll actually be paying. Let's say you're planning this on June 1st, and your loan provider tells you "don't worry about it. We're going to close on July 1st". First off, the chances of this actually happening as planned on any particular day are slim. Second, it's pointless to try. If you do close on July 1st, the lender is going to ask for all the interest for the month of July up front, and your loan starts working normally August first with your first payment being due September first. Third, I've learned the easy way (from watching other people make this mistake, not wanting to lose clients of my own) never delay closing - it always gives something else a chance to pop up, and it's amazing how often something does. It's amazing how often something new pops up at the last minute without this gratuitous opportunity. If you can close it now, do so. Once those loan documents are recorded, the bank can't call the money back unless you violate the contract.
As I have said, on a refinance the number of days prepaid interest can never be anything less than the entire month. Period. Somebody writes anything less than 30 days on this line, they're trying to pull the wool over your eyes. On a purchase, look thirty days out or to the last day for close of escrow according to the contract, and estimate the number of days left in that calendar month. There's the number that should be written. If a loan officer can't do it in thirty days, chances are they can't do it at all on the quoted terms or anything similar, and chances are they were playing games with you from the first. The only general exceptions to this are when refinance is booming. For instance, during the summer of 2003 the delay between complete loan package being submitted to the bank and the underwriter actually looking at it for the first time got to be more than thirty days right there, never mind the time it took for everything else. And even then I could usually run purchases through another department in close to a normal time frame. If you're not writing a check to cover prepaid interest, and you have a $270,000 loan at six percent, that's $1350 getting added to your loan when you may not want it to be, and you'll typically be paying interest on that for a very long time.
"902 Mortgage Insurance Premium" This is another one of those lines that needs discussion. First off, the odds of it really needing to happen, or being in your best interest if it does, are vanishingly small. In the hundreds of loans I've pushed through I've never actually had a loan that included mortgage insurance. It was never the best thing to do for the client.
Let's take a step back and ask, "What is mortgage insurance?" It's an insurance policy that the lender makes you, their client, buy for their benefit so that if you default they get the full amount of their loan. The usual threshold for this is 80 percent of the appraised value of the house. Mortgage insurance is never tax deductible when it's a separate charge, and is always charged based upon the full amount of the loan, and the amount of the loan expressed as a percentage of the value of the home. The larger the loan, the more you pay, the higher your loan value as a percentage of your home's value, the more you pay. It is commonly assessed as a separate charge, but can be expressed as a rate surcharge on the loan interest you'd pay anyway (in other words, say a 6.625% rate on your loan instead of 6%).
"What good does mortgage insurance do me, the consumer?" you may ask. The short answer is it gets you the loan. It gets you the loan when you would be turned down without it. After that, it's just money out of your pocket every month. Mortgage Insurance, also called Private Mortgage Insurance or PMI, is primarily a thing that happens in the A paper world (sub prime loans are usually incrementally priced to cover the higher risk, as the lenders there are in the business of taking those risks for appropriate compensation), and more importantly, it's usually avoidable.
PMI is only charged if the first mortgage exceeds 80% of the value of the home. But if I split even a 100% loan into two pieces with the first mortgage 80 percent or below, it goes away. Yes, the second mortgage will be at a higher interest rate, and yes, the closer to 100 percent of the home value it gets the higher that rate gets. But this tends to be on significantly smaller amounts of money, and this is an interest expense - deductible in most cases. The difference in total interest expense and total monthly payment tends to be in favor of doing this even without mortgage insurance or tax treatment factored in. So when I'm shopping a given loan around, sometimes I don't always even ask about doing the loan as one loan.
"With all this against mortgage insurance, why does it still happen?" you ask. At last the critical question. Lenders usually pay yield spread to brokers or commission to their own loan officers based upon the amount of the first loan. Pay for a second is typically (not always) a flat amount or zero. Your loan provider makes more money by doing it all as one loan. The loan provider wants to make more money and sticks you with the bill. Just warms your heart, doesn't it? Didn't think so.
"903 Hazard Insurance Premium" This is mostly for purchases, the yearly hazard insurance or homeowner's insurance premium. Any sane lender is going to require you to pay your insurance premium through escrow or before closing. They do not want there to be even a fractional second when their investment in the property is not insured. Of course, you don't want this either. I can't imagine paying the current cost of housing around here and not insuring the investment. So they're not asking for anything outrageous on this line. Unless you are one of those people who won't insure their properties, the extra cost to you is zero.
"905 VA Funding Fee" I haven't done a VA loan in three years. All I remember is that it's charged by the VA on VA loans, not by the lender. If it's applicable, it's going to be the same no matter what lender is doing it.
The final section is reserves of money held by the lender to be used to pay your expenses. This is your money; they're just holding it for you in order to make sure these items get paid on time. If you sell the property or refinance you should get this money back.
These are once again, not truly costs of the loan, unless you roll them into your mortgage where you're going to pay interest on them basically forever. The lender may (and most do) require that you hold up to two months reserves in this account. Ironically, this section of comparatively small amounts is one of the most tightly regulated aspects of the entire MLDS, and the whole escrow or reserves account thing is optional - although most lenders require a small fee for no reserve account. Many prospective loan providers, however, use the "safe harbor" rule of six months taxes and two months insurance, so make certain you're not penalizing the company who actually tells you the full truth, as the safe harbor rule is less than the vast majority of these quotes should be. In my experience, Escrow or Reserve accounts are usually more trouble than they are worth. I'm just going to explain quickly, and not with any dollar figures because 1) they vary too much, and for good reason 2) they are not, properly speaking, costs of the loan. As I said, they are your money, just being held by the bank for your expenses. When you sell the home, refinance it, or pay off the loan, you get the remaining contents of these accounts back.
"1001 Hazard Insurance Premium" in most cases, count the number of payments from the time the refinance is effective to the time that the yearly premium is due (usually on the anniversary of the date you bought the property), subtract it from 14. Multiply this number by your monthly premium. Even for purchases, the lenders will generally want a month or two of reserves.
"1002 Mortgage Insurance Premium Reserves" See my comments for line 902. If an early premium on this is due, compute it the same way as your prorated hazard insurance.
"1003 School Tax" California doesn't have it as a separate line item, or at least I can't recall seeing it broken out. Matter of fact, neither of the other states I've done loans in does either.
"1004 Taxes and Assessment reserves" This is the part to make certain your property taxes are paid on time. Same method of computation as line 1001. The lenders really don't want the city, county, or state repossessing the property out from under them.
"1005 Flood Insurance Reserves" Some homes require flood insurance in order to get a loan. Same method for computing as line 1001. If you live in or near an old riverbed, especially with dams and such on the river, research "riparian rights" sometime when you want another real world horror story.
Then there is a line about Compensation to Broker, which may be disclosed here or above. Some will try not to disclose it at all. Once again, you're looking for honest disclosure here, not the lowest number. This line makes no difference to you unless you're the one paying it. This didn't used to be required, but lenders and packaging houses got it put through in order to make the deal a broker offers you look worse in your eyes, thus handicapping brokers in their ability to compete. The thing that's important to you is what happens to you - the loan you are getting. When comparing offers, scrutinize the terms of your loan carefully, not what the broker is making on the deal. It's not like the packaging houses and many lenders aren't turning around and making even more money off the secondary market, just that that particular amount isn't disclosed anywhere.
There is a sum of all the things the client is paying to the broker versus paid to others. I wonder if this might not backfire on the lending and packaging houses that got this part added. They're going to show a line of fees paid almost entirely to them, whereas the only things paid to or from an actual broker are origination fees (if any), processing fee (my processor works for me or for the brokerage, not the lender), and broker's rebate to client (if any, and which if it exists is something paid by me the broker to you the client - a good thing in most client's opinion). Psychologically a telling advantage, even if it doesn't really mean anything. No matter who gets it, you're paying it, right? Concentrate on the loan with the best terms for you
At the bottom of page one, there are subtotals for fees paid to others and fees paid to brokers, and then an overall total. Then there's a section which says "Compensation to Broker," explicitly adding "(Not Paid Out of Loan Proceeds)". In other words, this isn't coming out of your pocket, although they could certainly give you better terms by reducing their compensation in the vast majority of cases. But the fact that one broker is making more than another (or is required to state explicitly what they make, whereas a direct lender or "packaging house" originating their own loans is not) does not mean you're not getting a better loan from them. Some brokers get discounts others do not. Some brokers disclose honestly and completely, others do not. Examine the loan you are getting - all of the terms, rates and conditions, and decide based upon those which loan is better. That's what makes a difference to you. The rest is a matador's red cape - a distraction from what is important.
Page two of this two-page form starts with section I, which is a short accounting of the money. My inclination is not to trust this any more than anything on the Good Faith Estimate. In other words, whether this is accurate is likely to be a function of your particular loan officer's good will more than anything else. Once again, the only form where there are real penalties for being inaccurate is the HUD-1, which comes at the end of the loan, not the beginning. But it's a good intention, nonetheless, and perhaps one of these years it'll actually mean something even if your loan officer is Simon LeGreedy or has a nose fourteen miles long. Proposed loan amount less costs, less other stuff of yours that's getting paid off, less the purchase price of the home or payoff of existing loan. The idea is to give you an explicit "you're going to get this much cash" or "you must pay this much cash to make this balance"
Section II is something I want to draw your attention to: Proposed interest rate is a good thing to have, although there is no more guarantee that this is the rate you're going to get than a federal Good Faith Estimate. But it has a choice of two things to check off "Fixed Rate" or "Initial Variable Rate". Just because Fixed Rate is checked does not mean the loan they are discussing is fixed rate for the full duration of the loan. Let me repeat that: Just because Fixed Rate is checked does not mean the loan they are discussing is fixed rate for the full duration of the loan. It might be fixed for thirty years - or it might be fixed for three months. This is a good place for unscrupulous loan officers to offer misleading information verbally, while checking the correct box doesn't usually mean a whole lot.
Section III is proposed term of the loan. If something less than 360 months is written here (or whatever the amortization of the loan is in years), it's telling you there's a balloon at the end. Once again, there is no way to verify that if 360 months is what is written, it's real.
Section IV is proposed loan payment. Ideally it's computed based upon the amounts given in the previous three sections. Verify that it at least makes mathematical sense by running these numbers through an amortization calculator, or doing the calculation yourself. Many loan officers will play games with the payment because people shop loans based upon payment.
This section is just bookkeeping, really, except sometimes you can spot your loan provider playing games if you pay attention. Remember, if this is a purchase I really hope for your sake you know your purchase price. If it is a refinance, I hope you know what your statement says your balance is. From this you can get to an approximate payoff by prorating your monthly interest. Once you have this figure, look up above on this form for the total of closing costs and prepaid items. Sometimes in a purchase your seller will give you a certain amount of credit for closing costs, so if this is applicable you can subtract those. This is the Amount You Have to Come Up With. Now subtract off new first mortgage amount, and second mortgage amount (if any), but add any closing costs for the second mortgage. The figure that is left is the Check You Need To Have. This is cold hard cash you have to come up with in order to make this all happen as described.
One of the most common tricks I've seen is for loan officers to tell clients and prospective clients they can roll the costs into the loan so they don't have to come up with cash. Despite being told this is what the client intends to do, they then give you, the client a payment quote in the third column here based upon you paying all of these costs out of your pocket - with the Check You Need To Have. In short, they're acting like all those closing costs have mysteriously vanished somewhere, like they're lurking in the Bermuda Triangle waiting to ambush some poor unsuspecting sap who will never be seen again. This poor sap is you. You're going to pay them somehow. They generally can be rolled into the loan, but make sure the loan provider gives you a payment based upon real numbers. Most people shop for a loan based upon payment because they don't know any better. This gives loan providers incentive to play games here, and the vast majority do.
Loan officers know that most clients shop for loans based upon payment quoted. This is the not the best or smartest thing for you to be doing, but it is nonetheless what most people shop based upon. So many loan providers will play a lot of games to be able to quote you a low payment. And this is one of the games they play, quoting you a payment based upon the loan without the closing costs of the loan added in. If you have a financial calculator, use it. If you can do the math yourself, better. Otherwise, go out and do a web search for financial calculators or mortgage calculators. Automobile loan sites will probably be programmed incorrectly (different assumptions), but pick a couple of others and punch the numbers in. Make certain that the real loan amount you're going to need jibes with the payment they quote at the rate they quoted. Of course, this all assumes that they're being upfront and otherwise honest and are not going to hit you with three points out of the blue, but you do the best you can with what you have. Oh, and now that you're done applying for your loan I strongly suggest you find someone willing to act as a back-up loan provider so that you can offer the person who just gave you this form a concrete reason not to hit you with those three extra points.
Section V: does the loan have a prepayment penalty, and on what basis? I'm glad to see this section here. I'll be even gladder if and when I see evidence the answers mean anything in the sense of legal penalties for lying. Lying about prepayment penalties has been rampant for a long time. Lying about prepayment penalties is a good way to make an absolutely awful loan look pretty good. Lying about prepayment penalties gets someone to sign up with the loan provider who lies because of this. And when you find out at the end of the loan process, when they present the loan documents, that they were lying (if you even notice, which many are expert at making sure you don't!), you may not have any good alternatives to signing those documents anyway.
Section VI basically tells you the lender cannot require credit life insurance or disability insurance. Many lenders would if they could. Not that disability insurance is a bad idea - quite the opposite in fact (I'm of two minds on credit life insurance, and this is not the place for that essay).
Section VII requires you the client to tell them, the lender about all the other liens on the property and hints at penalties for dishonesty. Not that the lender or broker is going to take your word for it, of course. But the gall this amazes me: requiring a consumer to be accurate on this or face penalties, pay for the loan, etcetera when many brokers and lenders could submit the form to the Pulitzer committee for consideration in the category for best short fiction.
Section VIII is about Article 7, which covers loan amounts so small as to be irrelevant for all practical purposes in California. There's also a bit about whether or not a broker is lending their own money. This is potentially both confusing and interesting, but beyond the scope of this essay. It's good that they are requiring license numbers now. In California, you can easily look them up for past violations online at http://www2.dre.ca.gov/PublicASP/pplinfo.asp (many other states have similar registries). Not that someone without past violations is pure, and not that someone with them necessarily intends to do anything dirty to you. But it's good information to know. Another good place to check them out is with the Better Business Bureau, which compiles information on every business, members or not, at http://www.bbb.org/ You'll need a business name and address, phone number, or web site. Now, if they've got one strike against them, they could easily have been caught in circumstances beyond their control. But a pattern of abuses is a clear warning. A few days ago, I decided to risk $50 for a business card order with a company that has a truly awful rating BBB rating. The cards arrived two days later and I couldn't be happier with any aspect of the transaction. But my next order from them won't be any bigger until they have established a track record with me (and also I with them so they can see a long history of orders they want to keep coming, and which will stop if their service isn't satisfactory).
Section IX explicitly tells you, the client, that this is not a loan commitment. This is good, so far as it goes. As I said in Part I, I've spoken to many otherwise intelligent people who somehow had acquired the idea that because a loan provider filled out a Good Faith Estimate, it meant the loan was a Done Deal. It most certainly does not mean anything of the sort. No real estate loan officer EVER writes a loan commitment, and it's been that way for at least a couple of decades. Loan commitments are the exclusive province of the underwriter, who is intentionally and for anti-fraud reasons isolated from the client (i.e. the underwriter is not allowed to communicate with you directly). The most an ethical loan officer will say is "my experience does not show me anything that should cause you to have a problem"
Now, here's the rub, and an indication of what this section really should say. Does it not stand to reason that if the loan is not a Done Deal at all, it most particularly is not a done deal on the exact stated terms? This form is supposed to be an estimate. It may be a good estimate, given on a loan that has already been locked, and that the loan provider intends to guarantee in that they will pay any difference, not you. I do this, and I know of one other company. More commonly it's just a convenient story that gets you to sign up with that provider and they couldn't deliver a loan on those terms if they wanted to, which they don't. There is no way to be sure it's good until you get the HUD-1 at the end.
mortgage real estate home loan MLDS Mortgage Loan Disclosure Statement consumer education
California has just replaced the one page federal Good Faith Estimate with a two page Mortgage Loan Disclosure Statement. Regulations for filling it out are similar to the federal Good Faith Estimate, especially as the only thing a recent seminar we paid for on changes in the business had to say was, "If you give the client a Good Faith Estimate, you will be held to have complied with federal regulations but not state of California regulations." Which implies that California didn't alter the existing federal standards so much as add a few more lines, the effects of which are to leave all of the games loan providers play with the federal Good Faith Estimate intact, as well as adding a couple more.
I've actually had some looks at abuses of the Mortgage Loan Disclosure Statement now, and they are essentially the same abuses the Good Faith Estimate still suffers from in other states. The abuses of the Federal Good Faith Estimate and the fact that pretty much all of them are actually legal had been something that took time to soak in back when I first got into the business, although a short stint with a Company Which Shall Remain Nameless was a real education. It appears that the regulations for the Good Faith Estimate part are unchanged, which translates into english as "Excrement." Furthermore, I'm certain that somewhere in Sacramento lobbyists are paying
bribes campaign donations so that just this or that little detail can be changed "just a little in a way that doesn't really make a difference," and eventually the cockroaches will have even more ways to game the system.
Many people think the forms you get at the beginning of the loan are binding, or in some legal way, indicative of the loan you'll actually end up with. If I had a dollar for every time people have told me, "I've got the quote in writing," in response to my telling them a rate wasn't available, it would make a real difference on my mortgage. The fact is that neither a MLDS nor a Good Faith Estimate in the other forty-nine states means anything unless the person or provider giving it is willing to stand behind it with a guarantee that they will pay any difference, not you. I can point to many, many loan offices - the vast majority, as a matter of fact - who intentionally misrepresent the loan on the beginning paperwork. I don't know how many people tell me, "I'm sure Super-Colossal Mega Bank intends to honor its commitments." By themselves, neither the MLDS nor the Good Faith Estimate are in any way, shape, or form a commitment. It's not an underwriter's loan commitment, it's definitely not signed loan documents, and it most definitely is not a funded loan. The Truth In Lending form doesn't mean anything either, as it's based upon numbers in the MLDS. Garbage in, Garbage out. The only form that means anything is the so-called HUD 1, a two page form required by the federal government, but you don't get that, even in provisional form, until you sign loan documents. There are guarantees that can make the MLDS mean something, but without those guarantess, the MLDS is a used piece of paper with unimportant markings.
The first page of this new form is similar to the Federal Good Faith Estimate. The first major difference is that there is no explicit loan or rate quoted at the top, and the broker or lender must disclose whether each given cost of the loan is paid to the broker or to someone else. There is no explicit line item (as there is on the Good Faith Estimate) for "Estimated Closing Costs" to explicitly sum all of the things that are actual fees or costs of the loan, as opposed to reserve requirements or things that are your fees paid in advance, such as property taxes. Your property taxes are the same whether you have lender A, lender B, or no loan at all. Ditto your homeowner's insurance, school taxes (if any) and flood insurance (if any). Setting a form where they are part of a total to be compared, rather than apart from that total, is just offering the loan provider one more opportunity to play games or distract you from the really important information.
On the line above where all of this starts, there should be written a total loan amount, an interest rate, and a term (360 months for all 30 year loans, whether it is fixed for the full term or not - numbers less than 360 mean that the loan is due in full in less than 360 months. This can be one clue that they're trying to hit you with a balloon payment loan). As I have said elsewhere on this site and will continue to stress, just because a mortgage provider puts these numbers on an MLDS does not mean that they have any intention of actually delivering them. I think bait and switch is the official company game of many providers. The MLDS, along with the Good Faith Estimate it's based on, is THE most abused loan document, bar none. It's supposed to be a real estimate of what the loan is going to be like, based upon the loan officers best estimate. In practice, it's become nothing more serious than the loan provider wants it to be. In many cases with many providers, it's almost like a joke: "(giggle) and this is what we had to tell him in order to get him to sign up! (loud guffaws)" and this carries through the rest of the document as well. The relationship of the loan described on the MLDS to the loan that is actually available and that said provider will actually deliver is completely arbitrary and up to the provider within very broad limits. Because at the end of the process, the client has very little leverage to get the provider to deliver the loan they talked about to get you to sign up. Unless, of course, you signed up for a backup loan like I keep telling you to do.
Now, it is also important to note that with two exceptions, all of the fees below are commonly held in abeyance until the end of the loan process, and you don't owe them if you don't end up refinancing or purchasing with that company. They can be added to your loan balance instead of being paid out of pocket. It is the biggest red flag I know of for a loan provider to ask you for money up front beyond the credit report.
The first actual line item on the Good Faith Estimate is "801 Loan Origination fee." This is an explicit fee charged by the loan provider who signs you up. It can be expressed in dollars, but it is more commonly expressed in terms of "points". One point is one percent of the final loan amount. Put another way, if you have a loan for $198,000 plus one point, the way to do the computation is $198,000 times 100, divide by 99 (100 minus the total number of points), which equals $200,000. It's probably not unethical if the loan officer uses $199,980 ($198,000 plus 1%, or $1980) on a quick calculation, just a desire to get an approximate answer quickly. It's still not mathematically correct. Now, if as is common, the loan provider only writes down 1% here rather than converting it to dollars as well, it can appear as if that loan is much cheaper at first glance or to the uninitiated than it actually is. If you've got a loan that's $200,000, leaving the estimate as one point without an explicit dollar figure is a way of making it look like the loan actually costs you about $2000 less than it will. Two points without an explicit dollar figure is twice as much ("The other guy wanted $5000 to do my $300,000 loan, but this guy only wants $3000 and two of these point thingies. What a great deal!" You would be amazed and dismayed how often I have to explain even to people who know what points are that $3000 plus two points on a $300,000 loan is about $9000). Nor is this figure, whether expressed as points, dollars, or both, carved into anything more than silly putty. I worked for a short time at a Company Which Shall Remain Nameless, and one of the things that got me yelled at several times, and one of the many reasons I left, was that I violated company quoting policy by actually adding in all of the little miscellaneous adds for half a point here and a quarter point there that the customer was going to get hit with at the end of the process anyway, and telling the customer about them up front. Finally, there is no reason why this line has to be more than zero in all cases, and indeed I've done more loans without than with points, but that's a subject for another article.
The next line is "802 Loan Discount". In theory, this is supposed to be used only for actual discount points charged by the lender. In practice, it is used almost interchangeably with "Loan Origination Fee" on the line above (not without some justification in fact, which is beside the point of this essay). Once again, watch out for whether the figure in points is converted into an actual dollar value. Again, there is no reason why this line has to be nonzero, and I've done more loans without than with.
"803 Appraisal Fee" in California is $350 to $450 for the average home, depending upon what that particular appraiser charges for that particular job. It is legitimate and correct to mark this as PFC (prepaid finance charge) so long as the loan officer gives you an approximate figure. Unless they have a contract with a particular appraiser, it's not under the loan officer's control. This is another place where many providers play "hide the closing costs." Quoting from one less than ethical example "Hey, I'm not the one charging it and if it makes my loan look better than the guy stupid enough to tell the client, that's not my problem." I tell people with average homes that it's likely to be about $400. The abuse that happens here is that this is one of those things that's called a "third party charge" - paid to a third party service provider. As such it is not included in total fees when calculating APR on the "Truth In Lending Statement", and will almost certainly not be included in any computation of total fees by your loan provider (Other than me, I know exactly one company that includes it). The vast majority of those billboards advertising "Total fees $X" really mean "Total fees $X plus third party fees," not to mention the fact that they're going to give you a rate which gives them an Earth-Shatteringly Large Rebate (see my essay on rates and points when it's posted for more). It is not unethical for the loan provider to ask you to pay the appraiser at the time the appraisal is performed, provided the person being paid is an external appraiser (see my essay on the appraisal for in depth reasons).
"804 Credit Report" is usually somewhere around $20. Single Individuals buying a house on their own are cheaper than two married people, but unmarried individuals must each be run separately, and so it may be a little more than $20 if you're buying a house with your brother, parents, or whatever. It is neither unusual nor unethical for the loan provider to ask you to pay for this up front. So long as the check is written to the credit reporting service, there's nothing wrong. And there is a rule now in effect that we must have explicit written consent to run credit from every person, so don't get angry with your loan provider for following it.
"805 Lender's Inspection Fee" is charged by the lender to have one of their inspectors go out and take a look and make certain the house isn't falling down. It is common for the lender's fees to be ignored by a broker, and then you'll get another MLDS from the lender that discloses this, and the correct summary of the costs is the sum of the numbers on the two sheets - not that anyone will tell the client that. On the other hand, Lender's Inspection Fee is not necessarily charged on every loan. Many lenders will rely upon the appraiser's work in this, and not do one of their own, particularly on refinances. Since (assuming you're sane) you're going to want a building inspection yourself in the case of a purchase, the lender may make it a condition that they get a copy. And, I will admit as a broker that although I do disclose a total of all lender's fees I know about, I don't always break them out into categories and may amalgamate them all under one category. (I can ask a lender what their fees are, and one will tell me A, B, and C adding to $750. The next one will tell me A, D, and E adding to $780. The third might tell me B, E, and F adding to $995. And so on. The brokerage I work for is approved with well over fifty lenders. I maintain that as long as I disclose the total amount, most clients don't care whether it's going to underwriting or document preparation or spa visits for the CEO. It's just not important to them where it goes. It's a fee they've got to pay to do business with that lender and get that loan. Whereas I will help them consider the total cost in comparison to the cost of other options, this total is not subject to negotiation).
"808 Mortgage Broker Fee" (there is no line 806 or 807 on the form). This is another fee potentially charged by a brokerage. Just because it's not, or listed as zero, here doesn't necessarily mean you're not going to end up paying it. One trick I've seen is leaving it blank at the beginning, then at the end it's "We charged that based on how difficult your loan was. You don't expect us to work for free, do you?" Trust me, they're not working for free, although I don't think you need an astronomical level of trust for you to believe this.
"809 Tax Related Service Fee" I've never had to include it as a separate line item even if present. It's usually amalgamated and lumped in with something else, if it's applicable.
"810 Processing Fee" This is what they pay to the nice person who processes your loan and coordinates your transaction while the loan officer is off doing other loan officer things. This varies, but I'd be very suspicious of anything less than $300. I know brokers that say to charge $600 when they pay the processor $300. My attitude towards that is that at least they're telling you, the consumer, about it up front. Better that than being told $300 and hit for $600 at the end. The processor knows what they make. The broker knows what he pays the processor. Don't worry if the processor gets the whole thing. It's not your concern, and it's not really negotiable, and whereas you have the option of going elsewhere, the elsewhere you go has the option of lying to get you to sign up.
"811 Underwriting fee" is charged by the bank to pay their underwriters. It's also a good category for brokers who hate pointless detail to lump all of a lender's fees together in. If it is broken out, as a direct lender should do, be suspicious of anything less than three to four hundred dollars - typical actual underwriter's fees. But just because he's showing $995 here where everyone else is showing $400 doesn't mean he's overpriced. Just to mention it, if you are doing a first and second mortgage simultaneously with the same lender, the lender's fees will go up by about $500 to cover the second. If the second is being done with a different company, they're probably going to charge a whole other set of lenders fees.
"812 Wire transfer fee" is charged by the escrow/title company to wire the money into your account for immediate availability. Otherwise, it's going to be a few days before the check clears. If it isn't something advantageous to you, don't get it. Most of the time it probably isn't necessary, but considering daily interest on typical amounts of real estate transactions, it may be a good investment. Last time I had this done for a client it was a little under $25. The lenders fees I've talked about elsewhere usually include a charge for wire transfer between them and escrow or title, but this doesn't cover sending it on to you.
Below this are several blank lines. An ethical loan provider will use them to disclose that he's getting a rebate from the bank (assuming he's getting such a rebate) or tell you that the price quoted includes a rebate to you from them reducing the price, if such is the case. (Most of the loans I have done tend to have this feature. You'll find out why in a different essay). Just because provider A is getting a bigger rebate does not mean provider B has a better loan. It happens quite often that one broker shops a better lender or works a little harder. A 5.5 % loan with $3500 in total closing costs is a better loan than the same loan type with the same terms at 6% with $5000 in total closing costs, even if the broker in the first case is getting paid $10,000 more by the lender, to pick an extreme figure. Now it's unlikely that there's that much of a difference in broker compensation when the one is delivering a better loan, and if there is that much of a difference I'd bet millions to milliamps that the loan terms are different. But the point is for you, the consumer, to look hard at the actual terms of the loan involved - that's what's important to you. There was just a study released a few months ago about how most people would just choose the loan where the broker made less money, or where a loan provider's compensation wasn't disclosed, rather than the loan that's actually better for them (If anybody finds a link to it, send it to me. I tried and couldn't find it again among my search engine results). If we weren't all adults here, I might need to make the point that if the loans are otherwise the same, the broker in the first case earned every penny of his extra pay by finding you a better loan on the same terms and qualifying you for it. But we are all adults here, so you know that.
There also may be other fees listed here. I've only done significant business in three states, but there really is no need for anything else that I've seen. Additional fees in this area usually amount to a "Loan Officer's Latte Fee", or a "This is going to make me miss my surfing!" fee. If they actually list them, at least they're telling you up front instead of keeping it a deep dark secret that the consumer has no way of knowing about. Every once in a while, I'll see somebody write something like "Amalgamation of lenders fees" rather than using line 805, 811, or 1105 to cover it.
Finally, some states require a survey if none has been done for a certain period of time, usually ten years. California does not, and it's very rare for it to be required otherwise, usually due to ongoing boundary disputes which must usually be resolved before the loan funds. This will cost $300 to $400 if required, possibly more.
So when we look at this section, we are left with midpoint fees of $400 for the appraisal, $20 for the credit report, about $800 between line 805 and 811 and miscellaneous other lender imposed fees, and $500 for processing. Believable total, thus far, $1720, plus the amount for any points you pay, less any rebate to you. $2220 or so if you're doing a simultaneous first and second, $2500 or more if you are getting a first and second from different lenders.
The next section is title fees. These are the fees you are charged by the title company for doing the work necessary and writing appropriate policies of title insurance upon the transaction. Title insurance is a part of every real estate transaction in California, although I am given to understand there are still states where it isn't necessarily so. And even in California, if you're silly enough to buy the property for cash and insist that you don't want any kind of coverage in case it turns out later that the seller didn't really own it, or in case what you think you see is not necessarily what you got, it is possible to do a transaction without title insurance. Otherwise, when you buy the property, the seller should, as a condition of the sale, buy you an owner's policy of title insurance. When you get a loan on the property or refinance that loan, the lender will require you to buy them a lender's policy of title insurance.
"1101 Closing or Escrow Fee" depends upon the company and type of escrow. Many loan officers will write PFC, but ethical ones should tell you what it costs. Middle of the road is $450 for a refinance, the same plus $1 per thousand dollars of purchase price, divided by two for a purchase, because it is split two ways between buyer and seller. Like the appraiser's fee, attorneys fees, and title insurance, this is a third party fee that is excluded from the calculation of APR, and it's not under the lender's control unless there's a contract. Still they should let you know how much it's going to be, as it's not like there's any possibility of you not having to pay either an attorney or an escrow company, and many will pretend it doesn't exist or try not to give you a dollar value, as $X plus unknown escrow charges sounds cheaper than $X plus 450 for refinances or $X plus $375 for a purchase.
"1105 Document Preparation Fee" somewhere between $100 and $200 in most cases, this covers the cost of generating the mortgage documents. Will be covered in total lender's fees if that's accounted for elsewhere. Grant Deeds, etcetera usually prepared by the escrow or title company for the process will be extra, usually about $50 or so per document.
"1106 Notary Fees" $100 to $150 is reasonable, and about the range of what the various mobile notary services charge. Even if your loan officer agrees to act as notary, this is likely to be charged. You may or may not be able to save yourself money by taking it somewhere yourself as state laws are different, but if you do, you're going to have to cover it out of pocket, and you're going to have to deal with the issue of the notary's business hours, taking time off work, everybody who's party to the loan being there to sign, etcetera, not to mention the fact that getting loan documents signed is something that is always time critical.
"1107 Attorney Fees" Some states require the use of actual attorneys to do the escrow and/or title functions. Luckily, California isn't one of them. Attorneys are more expensive. I haven't done any actual work in these states but from what I can tell $800 is about average. Disclaimer: the company I was working for at the time may have had a contract for reduced rates to which I wasn't privy. Like appraiser fees, escrow fees and title fees, this is a third party fee excluded from APR calculation, and can be marked PFC, but the loan officer should give an known dollar value, as the company should have a contract with the attorney's office. Once again, unethical providers will try to keep a dollar value from finding its way onto the paper because it looks cheaper that way.
"1108 Title Insurance: Like Appraisal, Escrow, and Attorney's Fees, this is a third party charge, and as such is excludable from the calculation of APR. A dishonest loan officer will mark it PFC without telling you how much, as once again, $X plus unknown title fees sounds cheaper than actually adding the title charges from the rate book to the paper. In the case of a purchase, the seller should purchase an owner's policy for the buyer, and the buyer's lender will require the buyer to purchase a lender's policy of title insurance, which should be heavily discounted because it's the same title search under slightly different rules of relevance. In the case of a refinance, the lender will require the borrower to purchase this. I took an average of the costs to the nearest dollar between several rate books, but they companies are really pretty comparable in most cases. If the property had a policy of title insurance issued on it within five years (the vast majority of properties in California qualify, as only about three percent of all mortgages are older than that), the owner's policy will cost the seller about $1400 base rate, and the concurrent lender's policy will cost the purchaser about $650 or so for an average property. In the case of a refinance, the lender's policy would cost about $900-1000.
So adding this section up at the mid points, in the case of a refinance you have $450, plus $150 plus $125 plus $950, totaling $1675. In the case of a purchase, you're talking about $375 plus $200 (somebody is going to have to do a Grant Deed) plus $125 plus $650 (remember, the seller usually pays for owner's policy of title insurance, and we're talking about a Good Faith Estimate for a loan, which the seller doesn't need unless he's buying another property) totaling about $1350.
I'm going to lump two sections into one here.
"1200 Recording Fees" charged by the county recorder. Should be the same for every lender. In San Diego County it's currently $63.
"1202 City /County Tax Stamps" Some city and county governments have an intangibles tax on mortgages.
"1203 State Tax/Stamps" Some states have an intangibles tax on mortgages, computed based upon the dollar amount of the loan. California does not. Usually it's the states without state income tax. If your state charges this it will be the same no matter your lender. If you're in such a state and one company gives you an estimate that's different from everybody else, that's a matter for investigation.
"1302 Pest Inspection" On refinances, if something raises a red flag with the lender, they will require a pest inspection. There may also be areas of the country where it is required of every loan, but I've never heard of one. On a purchase, you're going to want a pest inspection anyway. There is potential for abuse (somebody charges you $200 and orders a $100 inspection), but it's relatively small potatoes, and most just won't bother when it's so much easier to hide big ticket scams elsewhere. Order it yourself from an approved vendor if you're concerned.
So the section total is $63.
Below these sections on the Federal Good Faith Estimate, but not the MLDS as they have taken it out, is a line "Estimated Closing Costs". This really was the total of all the closing costs associated with the loan. I keep telling folks that the numbers which go onto this sheet may be fictional or incomplete, but if they are actually complete and correct then the number here on this line was the most important one on the whole sheet. This was the total of the costs you were really paying to get your loan. Some call it the "total of non-recurring closing costs." If you pay attention to nothing else on this sheet, (begin Groucho Marx accent) chances are that you're being taken for a ride (end Groucho accent). But this is the most important single number. Adding the midpoint estimates from the sections we come up with $1720 if you're getting one loan on a refinance to $1675 or $1898 plus $63 plus any charges for points. Using consistent assumptions, this makes for a total for a refinance cost of $3460 for a typical single family residence in San Diego. The totals for a purchase under these assumptions is $3130. If you're buying a small condo, these numbers will be a little smaller, whereas if you're buying something upscale, they will be somewhat larger. None of these numbers account for points you're paying or rebate you're getting, of course.
Just to make an important point again, this sounds like a lot more than $1658 plus third party fees, doesn't it? If offered the choice between buying one item for $3460 and buying the same item for $1658 plus third party fees, most people think the second choice sounds cheaper. However, as I've just demonstrated these are exactly the same given comparable assumptions. And there's a lot of leeway in those third party fees for junk fees if your loan provider wants to make use of them to pad their own pocket, not to mention they could trivially be much higher if your loan provider doesn't choose third party providers wisely. Insist upon actual numbers.
Continued in Part II
mortgage real estate home loan MLDS Mortgage Loan Disclosure Statement consumer education
People looking for a place to live for several years: The market is unstable right now, and is likely to fall further. It may not, however. But you still need a place to live, and if you're going to be in the property a few years, you will quite likely be able to sell for more money than you would get in the stock market. Here's an ten year analysis (including selling costs) of how well you'd likely do versus an idealized investment in the stock market - Assuming the place loses $50,000 in value the minute you buy it, and only recovers 5% per year. Values may or may not go down further, and historically California has averaged about 7% per year.
As you can see, you start out negative, but within a very few years, you end up better than even a tax free 10 percent per year from the stock market - and both the equity column and net benefits column take into account the likely cost of selling the property at that point!
People who can fix up run down properties: These hardworking folks can always find a project home that they will be able to fix up and sell for a profit. Unlike most speculators and flippers, these folks really do add value, and they are paid handsomely for it. When speculators and flippers are always looking for the next hot market and are S.O.L. if they can't find one that's appreciating twenty percent per year, these folks can always find estate sales, older properties, and stuff that just wasn't taken care of to turn from eyesores into very attractive properties that they can sell at a handsome profit. Plus they have a place to live while they do it.
People who can work the distressed situations market There are always people who have bad things happen to them. They lose their job, get transferred, or whatever, and have to sell right now so more bad things don't happen to them. What happened to them is not your fault, and most of them are very grateful to people who rescue them from the situation. There's also a good opportunity to make money at it. Distress Sales, Foreclosures, Real Estate Owned by the lender. Particularly if you can hold on to it for a couple years, you can do very well even in the current market. Doing this requires a certain amount of ready cash, but not as much as you might think.
Anybody with a stable positive cash flow You have a five year or longer fixed term remaining on your loan, and the cash flow from renting the property covers all expenses. Your payment isn't changing. You've got money coming in every month. You're sitting pretty no matter what the market does, and you have the luxury of dictating the terms of any transaction. You don't have to sell, because you're making money every month. So you make money if you sell, and you make money if you don't. I love these kinds of choices. Don't you?
Commercial Commercial and Industrial real estate are always more expensive, and require a bigger down payment. But they're not overheated the way the residential market is, and these lots are always more scarce than residential ones. Somebody looking to open a business in a particular area are often faced with one property to choose from, or even none at all! Depending upon the exact zoning, there can be immediate demand, either for tenant landlord or for people looking to open their own business or people looking to buy a building for their existing business. This ties in well with the stable positive cash flow, and also with the fixer-upper buyers. Unattractive properties that no one wants can be fixed up into turnkey condition and sold for a tasty profit to merchants who just want a great looking place for their clients to come.
Apartment buildings. If you have twelve or sixteen units on one plot of land, bought for a million or so, it's sometimes kind of hard not to make a monthly profit. The catch here is the down payment (and the ongoing work of having tenants), but if you've got that, it can be extremely lucrative.
If so, the odds are excellent I can put you into a better situation.
If your agent or loan officer took advantage of you by putting you into a Negative Amortization loan (also known as Option ARM, Pick a Pay, and many other pleasant sounding nicknames), and it's making you crazy, odds are good that I can put you into a thirty year fixed rate loan at a rate that is lower than the real rate on the Option ARM. Your minimum payment will be higher, but it'll be a real payment, cheaper than your current 30 year option, and your loan balance will stop increasing.
If you have a short term interest only option that's about to adjust and suddenly require higher payments than you can make, I can help there also. Chances are excellent that I can move you to a thirty year fixed rate loan at a lower rate than you are paying, and I also have a variety of interest only options, both on thirty year fixed rate loans and others.
If interest only isn't an idea that works for you but you can't quite make the payments on a thirty year loan, I also have forty and fifty year loans available. These have somewhat lower payments than a thirty year fixed rate loan, but you're still making progress on the loan and building equity.
If you have an ARM that has or will adjust to something you don't like, please call or email. I can do home loans for bad credit, low to no equity, and many other problems that people have in the real world.
Riverside County Foreclosure Rates Rise 64%
Riverside County is the exurban bedroom community not only for San Diego, but for Orange County and Los Angeles County as well. It's where people head for affordable housing, despite commutes that vary from one to two hours each way. Entry level people were buying there, just to get their foot in the door of being homeowners. And people being people and real estate agents and loan officers being what they are, of course the people were encouraged to stretch too much so that the alleged professionals could get a bigger commission, and now the chickens are starting to come home to roost. A couple years ago you could still get a decent house in Hemet for $100,000, but part of the price for most folks was an 80 plus mile commute, the first twenty of which were to get to the freeway. The same thing today is around $300,000 or so. Temecula and Murrietta are as expensive as suburban San Diego county. Market overheats, people pay too much and secure it with unstable short term loans that they know they're going to have to refinance. Then Wile E. Coyote looked down, and now the folks are upside down on their mortgage and they can't refinance, not to mention rates are up (At least a full quarter of a percent on 30 year fixed in the last week or so, over half a percent since the start of the year).
The lenders are going to be in trouble soon. Bet they're regretting pushing all the garbage loans, and I'm betting underwriting and program standards are going to get tightened in a hurry, particularly in the subprime market.
I've gotten compliance alerts that were non-news to me from at least four lenders in the last week. This was stuff like "Don't commit fraud" and "We're watching for excessive fees". The lenders normally send out this kind of thing when they've been sued, as evidence to show they're supposedly on top of it, or that they're closing the barn door after this particular horse has escaped, so that, to quote Leo Bloom "We're very sorry and we'll never do it again!" But the real hazard to the lender's health is going to be defaults, foreclosures, and REO's where they don't recover their investment. We are likely looking at subprime lenders failing in the same numbers as Savings and Loans did in the early nineties.
I do not believe the A paper lenders are going to have that level of problem, as the Fannie Mae and Freddie Mac guidelines are probably going to turn out to have saved their bacon in retrospect. They'll have some increase in the default rate, of course, but nothing like what the subprimers are likely to see. They'll also probably lose some refinance business because Loan to Value ratios won't be there to meet guidelines.
Taxpayer bailouts are likely to be limited, however, as most subprime lenders are packaging houses that work with Wall Street money rather than depositors' funds, but look for some real trouble in the bond market, particularly mortgage bonds, but bleeding through to corporate in some instances. Now would not be a good time to be in residential REITs, either.
Now if your current lender fails, it really doesn't make much of a difference to you. The right to receive payments is going to be sold off somewhere, so just keep making those payments on time. Nor are they going to alter the terms of the contract you signed. But when you go to refinance, it could be a lot harder to find a loan if large numbers of subprimes go out of business and the survivors tighten up their policies. The ones who survive are also going to raise prices, aka rates, because they will be able to. Furthermore, with market deflation, a lot of folks that are A paper now could find themselves stuck in a subprime lending situation. Say you bought the property with an A paper 3/1 ARM two years ago, but you can't afford what it adjusts to and when you go to refinance you find that you're now in a subprime situation because you've lost some equity. This may well be a horns of the dilemma situation as you can't afford your current A paper loan and you can't afford the rate on a subprime refinance.
This is why ignorance of financial principles among other things, can be deadly to your financial health. These folks were encouraged to stretch too far by unethical people who pretended to be their friends in that they promised to get them into property they should not have been able to afford. Now the people are going to lose their home, their investment, have their credit rating ruined (because nothing hurts credit like a mortgage default), and likely owe thousands of dollars in taxes from debt forgiveness. I sincerely hope that those agents and loan officers who made this their practice face some severe consequences. If there's some lawyers out there looking for class action work that actually benefits the public, I know where you can start looking. Ditto district attorneys looking for some high profile public feel-good cases.
So you know how I do business, I hereby promise all my clients:
I will always put your interests before my own, even if it means advising you that, were I in your situation, I would not buy, sell, or refinance. If I don't think I can make your situation better, I will tell you straight out.
I will never work both sides of the same transaction. I'm working for your best interest, and no one else's. Whether I am representing the buyer or the seller, I represent them only, and will refer the other side of the transaction to another agent. I do not engage in dual agency.
I will never quote you anything but the full costs and correct rate for a loan I have reason to believe I can really deliver. I will guarantee in writing the cost and terms of my quotes, contingent upon underwriting approval. No low balls, no pretending costs don't exist or aren't my responsibility to tell you about. If you would rather, you may choose the terms of the Upfront Mortgage Broker's guarantee instead of my own. Only an underwriter can approve a loan, but that's no excuse for pretending I can deliver something I know I can't.
I will always tell you the complete truth as I understand it. I may be wrong, but I will not lie or obscure the truth.
If I see something that may be a problem with a property as a buyer's agent, I will bring it to your attention immediately, not bury the matter in the fine print of disclosures. I can always find you another property. Once breached, nobody can recover trust or credibility.
If I think I see a better way to do something, or a way to put you into in a better situation, I will advise you of it, but the final decision must be the yours, and I promise to respect that.
I never lose sight of the fact that once you're in the property, you are going to have to actually make those payments, and I want to make certain that you can. I will remain within your budget for buying a property. I will not show you properties which cannot realistically be obtained within your stated budget on a stable and sustainable loan for which I believe you will qualify.
I will work under non-exclusive agency agreements to the extent possible. I will not ask for an exclusive buyer's agent agreement unless I am giving you something that costs significant money otherwise. Exclusive buyer's agent agreements do not benefit the client, they benefit the agent by locking up your business for a given amount of time no matter what the agent does or doesn't do. Non-exclusive agent agreements are better for clients. They motivate the agent to work, because if someone else fulfills that buyer's needs that someone else gets paid and the agent gets nothing.
I will keep my list of active clients short enough that I can handle all the work myself. I owe you my personal attention, not a clueless unlicensed assistant who was working fast food two weeks ago. Where I do involve assistants, they will be behind the scenes. You get my personal best efforts on your behalf.
Dan Melson, Realtor and Loan Officer
email@example.com (no vendors)
619-300-7425 (no vendors)
Welcome to Dan Melson's San Diego Real Estate and Mortgage Tips Website. I've been running Searchlight Crusade for about a year, and it's up to getting an average of over 2000 visits per day due to the fact that I tell the truth as I see it about the markets and everything else. This site will have the same real estate and mortgage articles, but with a local San Diego bent.
I am a very experienced loan officer and somewhat new real estate agent. It's the same license, but the skills and knowledge involved are very different. Most real estate agents who do loans just started because they could make more money off the same number of clients. I spent time with an internet loan house and did more loans than most loan officers do in twenty years in the space of two before I started learning real estate. I also have a background in the financial services industry. I know what works and what doesn't, and why.
I am not going to try to bring anyone up to a professional level of knowledge in either real estate or loans. What I am going to try to do is educate you in the mindset and what you need to know to protect yourself from the less than ethical operators out there. I am also going to have some articles of strictly local nature.
There should be a link to the MLS service off my office's website before too long; the website is currently being redone. I'm putting it up for the folks who will want that sort of thing, but the main attraction of this website will be straight talk about San Diego real estate and mortgage loans. Since I started writing about my knowledge, I've often been asked why more loan officers and agents don't have the same sort of information on their site. The answer to this is twofold. First, many of them don't know this stuff. They got into this business "shake and bake" style because they were told it was an easy way to make money, and they really don't understand what is going on, particularly not the economic factors. Second, for those who do know, if they told you the unvarnished truth it might make it harder for them to make money off of you. I'm not afraid of that. I'd rather tell you straight off if I believe it is not in your best interests to buy, sell, or refinance at this time. I believe you'll respect me for it, and quite likely send me your friends, family, and anyone else you know who would like an honest answer to the situation. Furthermore, I believe you'll likely come back to me yourself when it is a good time. Finally, for those who could do well to buy, sell, or refinance, the fact that I'm willing to give a straight "I don't think it's in your best interest" makes my recommendation carry a lot more weight when it is in favor of doing something.
Over the next couple of days, I'll have a market outlook article publish, as well as my promise to all my clients and a piece on where I believe there are significant opportunities remaining. Then roughly one hundred already written consumer knowledge essays, at a rate of one per day. I will be writing more. Strategies to protect yourself, what folks in the business really mean when they say something, how to come out as well as possible. Perhaps even a bit of humor. They are written for the generally intelligent layperson, and they pull no punches. Most of them can be read in a break at work.
As I said, my background is very strong on the loan side. I also act as an agent. I specialize more in working with potential buyers than with sellers, but I am set up for both. If you have a property you wish to sell, you could do a lot worse than bringing it to me. I'll ask you what your needs and wants are and do an honest analysis of your situation before I start making recommendations, and the recommendations I make are always tailored to your individual situation. If you're wanting to buy, even better, because I know better than almost anyone else what kinds of loans can and cannot be done, and I'll stick to showing you properties within your budget. Buyer or seller, I'm always working to get you the best possible price, and I never work both the buyer's side and seller's side of the same transaction. That way I'm always doing my best for whomever I'm representing. When I find a buyer for a property I listed, I'll refer them over to another agent. My loyalties are never split.
I do my loans, both purchase money and refinance, on a much tighter margin than almost anyone out there, and I guarantee my quotes. This means that not only am I going to give you a cheaper tradeoff on the rate and cost of the loan, but that what I tell you at the start is going to be what you end up with. I'll tell you about a loan I can deliver, not a teaser quote just to get you to sign up. You won't suddenly be paying $150 per month more than I said, or have $12,000 added to your loan above my quote. When I guarantee a quote, I'll pay the difference, not you (there are some limitations that I'll be happy to explain). I also further discount my rates if I'm acting as your agent on the purchase. It means nobody is really going to beat my rates on a purchase, and it saves both of us a lot of aggravation. I work with over eighty lenders, and most of them give me better rates than they give their own loan officers, because they don't have to pay me when I'm not doing loans. This also means I can really find the loan program that best fits your needs.
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Dan Melson Author Page
The Man From Empire
A Guardian From Earth
Empire and Earth
Working The Trenches
Preparing The Ground
The Book on Mortgages Everyone Should Have!
What Consumers Need To Know About Mortgages
The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
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