David Saks

A REALTOR®  posted a blog suggesting that Active Rain points were useless, misleading and ego driven. I disagreed and responded to him. I wanted to share my response with you, my friends and colleagues.

Thanks to all for taking a moment to consider my thoughts, and share yours. -David-

The point scoring system is very crucial, has great significance and clearly identifies the mutual and reciprocal action of our members and their interaction.

The point system also clearly demonstrates the act of sharing in the activities of a group, more specifically any Active Rain group.

As a condition of sharing a common interest with others including our fellow realtors, mortgage brokers, stagers, appraisers, home inspectors, attorneys, educators, and our other colleagues, we are rewarded with points demonstrating our cooperation, camaraderie, and any quality of affording easy familiarity and sociability with our interests.

Through our associations, we add to this the quality and condition of being honored, esteemed, respected or well regarded by our peers and prefects. 

I have an obligation to my profession of which I am very proud to belong.

The point system clearly represents something that serves to indicate or suggest the level of interaction each honorable Active Rain associate and member has with other members of our profession.

This system is also derived from a series of observed facts; can reveal relative changes in an agents level of professionalism, serves as a healthy indicator and a function of time spent in the industry, and may reward our members ultimately as an informal recommendation to a potential future employer, a buyer, a seller, or any other client or customer.

It may further serve as a healthy indicator of an agents qualifications, their level of spirited cooperation, the level of respect earned from their associates and colleagues, and their dependability.

Thanks for your consideration and participation in Active Rain.

The kitchen is the most used place in the home.

So the way it's set up has a huge impact on the floorplan of the house.

The most critical aspect of the kitchen is what we call a work triangle, which is created by the refrigerator, the oven and the sink.

What the designer relies on, primarily, is the distance created by these three points on the work triangle. 

This can translate into the difference between a great kitchen design and a lousy one.

If the distances between these points are too small the kitchen is cramped and might pose some hazards; if they're too wide you'll feel like you have to go to the store to get the ingredients back to the stove. 

It's been said that homebuilders feel that the best distance between these points in the work triangle is seven feet.

This makes the area comfortable and safe.

What are your thoughts about the kitchen?

What in the world are you going to do when you get turned down for your loan?

Well, there might be several options available to you. Just because the lender denied your loan it doesn't necessarily mean that your chances of obtaining a loan have been flushed down the toilet.

You should always ask the lender to give you the exact details of why you were turned down for the loan.

It might be something that you can remedy so that the loan might be resubmitted to the underwriter for reconsideration and eventually approved.

Usually, if the lender isn't willing to help you solve the problem, or if the problem just can't be corrected, you'll most likely get a written statement declaring that your application for credit has been denied, with the reasons for the denial included.

I think that's the law, actually.

Legal Eagles chime in here.

If for some reason you still believe that you can qualify for the loan go to another lender and tell them in clear and understandable language why your were denied by the other lender.

The original lender that turned you down might even want to try and help you find another source of money, if they're interested in helping you and increasing their reputation as good guys.

If the new lender thinks that the loan might be done, request that the the original loan application with the first lender be transferred from the original lender to the new lender.

I'm not absolutely sure, but I don't think that the original lender is required to transfer your loan application unless your applying for a VA or an FHA loan.

Help me out here, lenders !

Loan denial won't affect your credit.

I don't think there's anything in your credit report to indicate that you've ever been turned down for a loan.

Keep trying.

How has the lending scenario changed in the last four years? What are the forecasts for the days ahead?

We all know the drill.

There are just too many shysters and hucksters out there who get their jollies off on preying on anybody and every body, whatever their reasons may be, and usually it's because the poor borrower doesn't have enough good credit or enough income to qualify for a normal mortgage loan.

Let's refer to this shyster as the "BAD DEBT LENDER" who says that he'll make the loan with 'no money down', and will refinance the poor borrower's house and finance the cost of a loan into the mortgage amount.

Can you believe that the cost of the loan could actually be equivalent to a huge number of points added to the loan in order to close on a desperate borrower.

How about 10 or 15 points added to the cost of the total loan amount ? Good grief !!!

It happens.

What about interest rates 18% and higher? 

They happen, too !!!

Usually the loans done by these shysters are smaller loans somewhere in the 5 thousand to 20 thousand dollar price range.

And on top of these shenanigans the crooked lender can get some unsophisticated borrower, who can't do the math, suckered into paying some "nonrefundable application fee" knowing full well that the borrower won't be approved for a loan.

The poor suckered borrower loses some money that they can't afford to lose and the lender has swindled them.

What's really sad is that the lender knows that the borrower can't afford any additional debt, or any mortgage for that matter, and the crooked lender has taken advantage of their terrible misfortune.

The scumbag lender knows full well that the borrower will ultimately default on the loan.

The crooked lender also realizes that they've found easy money because they can foreclose on the property when the borrower defaults.

Because the loan amount is usally a low amount, the crook can then resell the property at a profit.

We sometimes refer to this crime as 'loan sharking', and it's the most unethical, monstrous and heinous kind of lending.

Most loan companies try to stay with the program and adhere to the laws, and remain ethical.

When they deal with higher risk borrowers, the rates for those borrowers are usually higher.

Remember : Ethical lenders will not consciously overcharge their borrowers.

What are your experiences with bad lenders?

Mortgage brokers do exactly what their title says, they broker loans for lenders to the borrowers.

Mortgage brokers traditionally work what we refer to as the the wholesale lender, and they work as many of these wholesale lenders as possible in the process of trying to obtain the cheapest money.

What the mortgage broker actually does is present the wholesaler's price to the borrower to which the mortgage broker also adds their own fees in the form of fees for originating the loan, fees for any additional discount points that they might work into the loan for the borrower. and other miscellaneous fees.

Can you identify some of those miscellaneous fees?

Wholesaler's usually don't have the kind of overhead that a mortgage broker will have to run the business, so the wholesaler can discount the loan price to the mortgage broker so that the mortgage broker can add fees to the loan and still be competitive with other lenders.

One important aspect of the mortgage broker is that they may offer a very wide range of products both residential and commercial.

The mortgage broker has become a very important player in the lending arena today because of the dramatic increase in the purchasing of wholesale mortgage loans.

Because of their popularity, much more regulation is being sought to insure the quality of loan origination through the mortgage broker.

We hear all too frequently these horror stories about borrowers going to shady brokers who make these wild promises about ridiculous loans that don't exist and collect bogus fees including nonrefundable application fees for the loans.

Even worse than that are these incredibly tragic stories about  borrowers dealing with mortgage brokers who didn't know enough about mortgage lending to see throught the loan process correctly.

The results, because of the mortgage broker's inexperience, have dealt severe blows to unsophisticated borrowers.

Some mortgage brokers have even gone so far as to take loan applications without knowing whether or not they can find a place for the loan.

The problem with this creepy scenario is that the fact that the loan can't be placed isn't revealed to the borrower until the last minute after the broker has exhausted all of the options to try and secure the loan, and in reality hasn't got a lender to work with.

The borrower has lost valuable time.

Check out the broker real carefully before making any loan applications.

The best mortgage brokers can be your life line to a real healthy financial situation ,making your future a great one and will help you sleep better.

The worst mortgage brokers can destroy you and your family and cripple you financially.

What are your experiences with mortgage brokers? Mortgage brokers, I invite your comments.

A mortgage banker is, and may actually be, a separate company completely unaffiliated with any other company, thing or any entity which is perceived or known or inferred to have its own distinct existence (living or nonliving) for the purpose of originating loans. :-)

This is a thing which, by the nature of it's own existence, needs to have enough of it's own capital to buy, sell and service the loans it makes.

This very fact alone is a determining factor as to whether or not investors in the secondary mortgage market will have anything to do with it (help me with this one, loan pros).

Also, because of this fact the mortgage banker usually has some kind of a connection with another source of money like a bank (duh), a credit union, an insurance company or maybe even Walmart or some other humongous retail store.

Mortgage Bankers work real closely with what we commonly refer to as the secondary mortgage market selling the loans it makes to investors or creating securities backed by the loans it makes called mortgage backed securities.

The mortgage bankers have the distinction of being able to fund and close the loans on their own and, at their discretion, hold on to them until they're sold off.

They can also buy loans from other sources and pool them with any of their own loans and sell them into the secondary mortgage market as well.

I could fill up library stacks with information about mortgage backed securities, or MBS for those interested in the technologistics of the trade.

When mortgage bankers buy loans from other lenders they generally do this through an entity they create called a wholesale division.

This gives the mortgage banker the opportunity to get their hands on loans at reasonable prices without having to shell out cash to an originator, and frees up the money they need to make more loans. Wow, who would have thought of that !

What else can you tell Active Rain about the Mortgage Banker?

What are your experiences either as a mortgage banker or an investor working closely with mortgage bankers?

What in the heck is the margin?

The margin is a fixed percentage and a constant amount that is added to the index (see last post) to determine what an interest rate will be for the next period of an adjustable rate mortgage, or as an example, in one year.

Most of the ARM margins vary somewhere between two and three percentage points.

Lets use an example of 2.25 % for the purposes of this discussion.

Using an initial rate of 7.50% with the One Year Treasuries Securities Index (see last post), if you add the margin of 2.25% you have a new adjustable rate of 9.75%.

Check with the lender to see what the margin is. What else can you think of that should be considered when addressing the margins application to the loan?

Lender's have had to have some kind of way to determine what the rates are going to be for adjustable rate mortgages.

We could say that rates are determined by the costs of Milk Duds or Junior Mints at the candy counter at the theater. If that were the case, no one could afford a loan. :-)

The reality of the matter is that the rate is based on what we call an Index.

What we perceive to be the most common form of index in the United States is the index of the United States Treasury Securities .

One examp-le is what we refer to as the One Year Treasuries Securities Index.

This is essentially a digest of the rates on one year treasury securities adjusted to a constant maturity level, or the date upon which the financial obligation has to be repaid.

Some other indexes which you might want to study, by searching the web for additional information, include:

FHLBB : Federal Home Loan Bank Board Index

COFI : The Costs of Funds Index

LIBOR : The London Interbank Offered Rate

TABAPI : The Tennessee Averaged Bicycle Air Pressure Index (no such thing, just funnin' with you)

All kidding aside, the Treasuries Securities Index is by wide and far the most widely accepted and used, changes once a week and is reported by the Fedreral Reserve Bank.

The adjustment of the amount on any adjustab;e rate mortgage is at the mercy of the direction of the index in any week that the lender makes a change in the rate.

Spend quality education time talking to about the index.

Can you add any other indexes the list?

I wanted to provide you with a list of what I believe might be some of the important factors that cause lenders to set their interest rates the way that they do. I discussed these factors with clients, customers and colleagues in days gone by. Feel free to add anything to the list that you believe should be included.

1. Market Rates.

2. Local competition.

3. Competition within your region.

4. The feelings lenders have about the direction that the rates are going to  move.

5. The amount of insurance they have to cover their losses.

6. Whether or not they need the business.

7. If they're making money.

8. If they're losing money

9. If they like your hair.

10. How lucky they think thay can get with the rate.

Don't take all of the above too seriously. I know that denying a loan based on the appearance of hair is illegal. Have you heard similar ridiculous reasons for denying a loan?

What do you think affects the lenders rate ?

It's simple !

You just pay more discount points in order to get a lower interest rate.

Most lenders seem to agree that there is no absolute as to what to consider the costs to be in the final analysis.

The rule of thumb is that 1 point (1 %) is equal to a one-eighth (0.125%) of a percentile drop in the rate.

Checking with the different lenders is a good idea to see what the competition standards are for the moment.

You might find that the costs are much less, depending on the level of competition between the lenders.

For example, a lender might lay this on your borrower:

10% with 1 + 0 (1% origination fee + 0 discount points)

9.875% with 1 + 0.25

9.750% with 1 + 1.00

9.625% with 1 + 1.75

9.500% with 1 + 2.25

The math is a collection of arbitrary numbers.

If you want to break it down you'll disvover that you've got to put up 2.25 % of the loan to get a half point shaved off of the rate, which, in this case, amounts to about .22 percentage points off of the rate for each additional buy-down point your willing to pay.

The cost is a bit more with each increase in the rate reduction in this example. 

The advantages of the permanent buy-down are a set rate and payment for the life of the loan. Not only does the borrower get a cheaper rate, but the additional advantage of having a lower payment.

The disadvantage is the additional cost for the lower rate.

It's important that your buyer has an experienced Realtor and a great lender who understands this process.

What have been your experiences, as lender or agent?