America's #1 Mortgage Broker

I know how tough it is for Realtors to convince sellers that they need to reduce their price to be competitive in a slowing market.  Apparently, sitting NAR President, Tom Stevens needs to read his own press.

NAR president Thomas Stevens said sellers need to lower prices to current market conditions if they want to sell within a reasonable amount of time. "In some areas, home sellers are not making sufficient adjustments in their listing price, so their homes are staying on the market and contributing to the build up in inventory," Stevens said.

Another quote in another article last Sunday, he said:

"Pressure is being felt in the housing market due to rising mortgage rates," said NAR President Thomas M. Stevens. "With rising interest rates, homebuyers have become exhausted financially, which explains why sales have tumbled in higher-priced regions of the country."

He said housing prices are expected to continue to have a limited fall throughout 2006, and sales will continue to slip through 2007.

But alas. NAR President, Thomas Stevens isn't really following the advice he doles out to the press.  As the lead cheerleader for NAR. Mr. Stevens is telling sellers that they should lower their expectations.  The Washington Post reported that President Tom listed his Great Falls. VA home for $1.45 million last October (that's 2005) and it has remained on the market for over 355 days without a price reduction.

Mr. Stevens recently appeared on CNBC to discuss the softening market.  He was unaware that the reporter from CNBC was tipped off about Mr. Stevens uh, (how shall we say this?), lengthy listing time for his home.  The response was not that of a polished negotiator or seasoned professional.  He blamed his woes on his "lengthy travel schedule" and choosing to "refuse the good advice of his listing agent".

In the Washington Post article of September 2, 2006, Mr. Stevens was quoted as saying, "Who knew last September how long this trend would continue?".  He lamented, " What I should have done was listened to my agent and cut the price by $50K-$100K early on and the property would have sold last October. "

I guess the topic will be...um...taboo at the NAR convention this November in New Orleans?

Full-service real estate brokerage is becoming a more difficult business.  There are firms who market themselves as discounters and charge as litle as $299 to list the property in the Multiple Listing Service.  Franchises like Help-U-Sell, and companies like iPayone have exploded in popularity these past 4-5 years as the market got hot.

"Full-service" real estate brokerages have gotten in on the act, also.   Big names like REMAX, Prudential, Century 21, Keller Williams,  Realty Executives, and Coldwell Banker.  Not true you say?  Very true, I report.  Here's how they're doing it and here's how it affects you.  Many of these firms' franchises have adopted the 100% shop concept where the Realtor pays a small fee per transaction.  Many of those fees are as low as $150 in some markets.  The concept is that they can hire experienced agents and provide less marketing help.  The reality is that the franchisees aren't judicious about whom they hire.  The long and the short of it is that they need bodies to make their business model profitable.  Here's the kicker:  the parent company (or franchisor) can not dictate fee schedules to independent franchisees; it's called price fixing and it's illegal.

So, how does that affect you?  You're all excited because you just signed on with REMAX Main Street brokers, an established office with the internationally recognized brand of the balloon.  You are excited because you're paying a monthly "desk fee" of $1500 and 100% of the commissions go to you.  You operate just as you have as a full-service, 6% broker but keep a whole lot more after your desk fee and franchise fees to REMAX.  However, a not so successful Realtor signs on with REMAX Elm Street Brokers in the same town.  The worst part is that that Realtor lives in your neigborhood.  He is advertising a $299 listing with the full benefits of REMAX.  Each listing appointment you call on questions why you are "overcharging" them when REMAX clearly charges $299.

Does the customer distinguish between the two separate brokerages?  Absolutley not!

The solution is the ability to "offer" the same program via the "Menu of Services" approach. Items to include on your menu are not limited to but can include:

1- 800 call capture technology to measure which advertising is effective and which isn't

2- Hand-delivered Open House invitations- discounters rely on the internet to advertise

3- On-line open houses available 24/7

4- Direct Mail postcards with different amounts for different prices (100 for 6%, 500 for 5%, etc.)

5- Broker's Open Houses with food and entertainment offerings.  Brokers sell houses, ads don't .

6- On-line transaction management

7- Digital docs on CD for record keeping 

Let me show you what a "menu might look like":

$299- listed on the MLS

$299 plus a 3- above plus an offer of co-brokerage to the buyer's agent

$299 plus 4% - above plus contract negotiation and disclosure package

$299 plus 5%- above plus 500 just listed post cards and three open houses

$299 plus 6%- above plus call capture technology, virtual tour, broker's open, 6 open houses with print advertising, 100 just listed post cards and 100 just listed postcards to area agents

$299 plus 6.75%, -above plus digital docs CD at closing and on-line transaction management

People like menu of services and it gives you an opportunity to defend your full-service commission while "competing" on the same level as the Realtor who takes advantage of the 100% concept.  Most people understand that ther' no free lunch.  They want the home sold by a professional and they like to think they got a "deal".  The menu of services allows you to retain your integrity while building value to your service offering. 

I'm going to defend this product, well, a little bit. Roberta Murphy, one of my favorite hometown Active Rain Realtors posted a blog about neg am loans calling for stricter underwriting guidelines.  I essentially agree with her but want to explain a few finer points of neg am loans.

Firstly, let's start calling these products by their true names: either deferred interest loans or negative amortization loans.  Why am I being a stickler for that?  The "Option ARM" name was coined about 8-9 years ago by Washington Mutual in order to downplay the "negative connotations of the product's real description".  Countrywide called it the "PayOption ARM" and World Savings renamed it to the pick-a-payment loan.  Sounds nicer than "negative amorization" doesn't it?  Thank the marketing department of WaMu, World,  and Countrywide for that twist.

READ ON 

Tonight I released the beta version of our new website about trust deed investing.

I built it through register.com with their 5-page now website kit.  I have no doubt that it looks amateurish to all of you e-pros out there but I got it upand running within 2 hours.  I had nothing before.

I spend a lot of time on the phone and in person networking with investors and brokers to build my private money lending business.  Now I have something to show people.  It may not be perfect but you all know the old saying..."An imperfect plan today is better than a perfect plan tomorrow (or whenever we get around to it)

I'm not a tekkie.  I'm a mortgage broker.  I'll appreciate any comments you folks might have.

www.SoCalDeeds.com 

I have news for you out there.....THE MARKET HAS SHIFTED !!!!!   It's no longer a seller's market.  Listing agents that are unwilling to go the extra mile will perish.  The buyers' agents have the control; just like listings' agents had control two years ago.

If you want to effectively CLOSE a deal, you're going to have to make it easy for LAZY buyers' agents to get buyers into your properties. 

Let me offer a few suggestions:

READ MY SUGGESTIONS 

Realtors should ask for a copy of the appraisal, both lising agents and buyer's agents.  If you are unclear about whether you have access to it, have the buyer and the lending institution sign a waiver before you execute a contract.  they waiver pierces the "privacy issue" we lenders love to throw in your face.

Who owns the appraisal?  The lender own the appraisal; the borrower pays for it and is entitled to it after the loan funds or is declined.  Lenders have 90 day to furnish it to the borrower.  The waiver, accepted by the lender and borrower requires immediate access to the appriasal report.  I always e-mail everyone the appraisal but I have the borrower sign a release at loan application.

Appraisals are opinions of value and limiting conditions of that value by a human being.  They are not an edict from the Almighty above.  They are folded, spindled, and mutilated by 1-3 people before the value is accepted (especially nowadays).  Underwiters disagree, alter, and guess about value after reading an appriasal report. The LO usually makes them see it thir way with more comps, better narrative from the appraiser, begging, pleading, and cajoling.

Here are the quick things you should look for.

I see the growing irritation with mortgage brokers in your blogs and I can't help but think there are some common problems here that can be solved.  Here are six tips that will help you have a smoother transaction and will win you a "partner for life":

1- Allow your Loan officer to get an underwriting commitment from a lender BEFORE you load the buyers into the SUV to look at homes (nota bene:  I didn't say Hummer this time).  An underwriting commitment for credit and income approval allows the BUYER to be pre-approved.  Only the appraisal. title report, HOA questionnaire, or termite report can screw up the deal at that time.  It tales longer but you'll be able to close in 1-2 weeks after you've done that.

Hard Money Lending is exactly what it sounds like; loans that are hard to do.  Many borrower's needs fall out of the mainstream loan guidelines and they often need a "short-term" fix.  Now I want to be clear, this is not an advertisement for my private-lending practice; it is meant to be educational so that Realtors know that there are other options out there and mortgage brokers might expand their horizons to fill up their pipeline.

A private loan is essentially someone with a lot of money lending to someone who needs it and can't get it from banks or mortgage companies.  Most of my investors are older, retired, well-heeled, and smart.  I have learned more about "true" underwriting in the past few years than I have in the nine years in the  preceeding.  Investors are sharp and know how to mitigate loss.  They are also quirky and their quirks tend to match up with their life experiences.

Let me give you some examples where hard money loans are appropriate and the type of investors I match up with the loan:

READ ON: 

I blogged earlier about the Realtor/LoanOfficer title so many agents have on their business cards.  In essence I asked:

What is so wrong about Realtors who originate loans (or vice-versa)?

Here is a summary of what you told me: 

1- It is a conflict of interest:  Realtors lose their objectivity if they perform both functions.  

2- Specialization:  Realtors need to specialize in selling homes, loan officers in financing them.

3- Some of you thought it violated RESPA (it hasn't since 1983 by an order of Congress)

4- The mortgage people didn't seem to care.

So why does your broker have an "in-house" mortgage company? 

In short, your broker has an in-house mortgage company because they just can't make any money on real estate brokerage?  No way?  Way!  Commission splits have been rising exponentially for the past 15 years.  The introduction of the 100% model combined with discounting pressures has had broker/owners scrambling for ways to increase the bottom line by offering a "one stop shop" for customers.

How much can the broker really make off of an ABA with a  loan company? 

Well, that depends.  If it's the Coldwell Banker/Century 21 model, not a lot.  the originating broker makes about $300/transaction.  Now if your office is a 30 agent office with 8-10 loan a month, that may pay the salary of a receptionist (whi is helpful)

I had an ABA with 3 Keller Williams' offices in Phoenix.  I paid "rent" to the office, had a separate entrance, and operated as my own business.  I still had to hustle and my rent was "all-inclusive" (phones, fax, copies, interne at $2,000/month per office.  When I operated by myself, it was a great deal.  When I hired loan officers, I didn't make any money.

I was proposed a "partnership" with the real estate brokerage because they were convinced that they were missing out on thousands of dollars in profit.  This was the greatest thing that ever happened to me.  We split "profits' aftet the loan originators, rent, and all of the incidentals were paid.  I made more and the brokerage made about what I was paying in rent.  the broker had more of an incetive to engourage the agents to utilize our services.

California's largest brokerage, Prudential California Realty (owned by Warren Buffet controlled HomeServices of America) owns a mortgage banking and brokerage firm called First Capital.  I have seen nothing that suggests that this common ownership is anything but a benefit to the consumer.

How about title or escrow services? 

In California, many brokerages have in-house "escrow" companies.  In fact, the term "virtual escrow" has popped from title companies to capture the title policies.  This platform transfers some basic escrow functions to the broker and allows them to be compensated for it. 

Does this violate RESPA? 

Absolutely not if it is done correctly.  Section 8 (c)(4) of RESPA provides for these ABAs if they meet a safe harbor test.  It is required to use the HUD disclosure for each customer diclosing compensation or ownership.

Summary: 

Real estate brokerage is a low margin business today.  Experienced, consistent producers are demanding (and getting) splits of 80-90% as well as increased services.  Big shops that have over 100 agents can afford to operate on brokerage alone.  Small shops where the broker produces are able to operate on brokerage alone.  It's the 10-60 agent shop that needs to find alternative revenue streams to make a profit.  ABAs are here to stay.  If done properly, they offer a tremendous resource for a consumer.

An article from your California Loan Connection. 

More good information on America's Most Opinionated Mortgage Broker.

This topic tends to be a hot one.  Many folks will say that performing both functions is a conflict of interest.  I have never pursued selling homes because I don't want an appearance of impropriety to my good Realtor clients (they feed my family and send my little girl to private school).  Personally, I don't see the conflict of interest.  If anything, I believe that a Realtor may be the better choice to find financing for the buyer.

Some people have said that HUS disallows it.  That is just not correct.  HUD issed a ruling in 1999 that said that no employee of a HUD- approved lender could have a real estate license.  Well, in California, there was an uproar because many loan brokers fall under licensing by the Department of Real Estate.  HUD backed off of that requirement in 2001.

Here are the basic rules for compensation to Realtors for loan brokerage:

1- It must be disclosed to the buyer that the Realtor may be receiving compensation for loan origination.  It must be disclosed on the purchase agreement and loan disclosures.

2- The Realtor must perform 3 of the 13 origination functions as defined by HUD. 

3- The Realtor must have an employee/employer relationship with the mortgage brokerage lender; inasmuch, they're paid W2 wages for their commission.

4- Fees charged for loan origination must be consistent with fees charged by the other originators at their employer.

I hope we hear from agents on both sides of this issue. 

An article from your California Loan Connection. 

More good information on America's Most Opinionated Mortgage Broker.