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Issue 055 February 2012

For Mortgage Origination Professionals

“A Better Home For Your Branch”

Our program was designed to be ‘BETTER’. Better people, better tools & better products. We believe in long-term relationships with our partners and that’s what makes us better.

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Six Referral Marketing Mistakes How many of these are causing you to work harder than you have to?


FEATURE ARTICLE! Mortgage-Whacked Security An underwriter's take.


Why Cap Rates Won't Save You This Time Evaluating a good commercial deal.

Up 50 Bringing The Rear Dale Westhoff, Credit Suisse Group AG.

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Issue 55


February 2012

Mortgage-Whacked Security An Underwriter's Take. Esperanza Creeger

NICHE REPORTS prime & FHA Commercial REVERSE MORTGAGE Construction/Rehab HARD MONEY JUMBO Service Providers

Publishers Robert Pegg David Pegg MANAGING EDITOR Stewart Mednick


Siz Referral Marketing Mistakes


Chris jones branch manager city first mortgage services Listen up.

Doren Aldana mortgage marketing coach How many of these are causing you to work harder than you really have to.


Tools and Strategies to Fall in Love With Leif Boyd american pacific mortgage

26 30


Keeping up with the Jones



note from the founder

Why Cap Rates Won't Save You This Time


online lead generation

Jeremy Cyrier president mansard Evaluating a good commercial deal.


Appraiser Sound off


tip of the month


What's your mortgage IQ?

Man on The Hill Marc Savitt President National Association of Independent Housing Professionals Presidential broker bashing backfires.

February 2012

45 50


Associate Editor Cathy Johnson Web COPY Editor Aileen Marshall ACCOUNTING MANAGER Shawna Ingram Advertising Director Jessica Grizzle Advertising sales Heather Bopp Production Manager Henry Suchman Production Assistant Dawn Exner Cartoonist Martin Bradford COLUMNISTS & Contributing Authors Martin Andelman Doren Aldana Leif Boyd Esperanza Creeger Jeremy Cyrier Karen Deis Tommy Duncan Chris Jones Chaibia Sarhrou Marc Savitt

pg 40 pg 40 pg 41 pg 41 pg 41 pg 41 pg 42

“A Better Home For Your Branch”

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Published monthly by BODA Publishing, LLC PO Box 494, Bentonville, AR 72712 Phone: 866.964.2695 Fax: 703.991.2362 Email:

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THE NICHE REPORT POLICY The information and opinions expressed by contributing authors and advertisers within The Niche Report do not necessarily reflect those of BODA Publishing, LLC employees and should not be considered as endorsed or recommended by BODA Publishing, LLC.

Note from the Founder

We are on the right side of winter. This means our busy season is fast approaching. And as always this issue is packed full of content and articles to help you succeed. It also means that our favorite conference is getting closer – The MBA NJ’s 29th Annual Regional Conference of MBAs at the Trump Taj Mahal Casino Resort in Atlantic City, NJ. I say it every year, if there is only room for one expo/conference in your schedule for 2012, make it this one. If you’re there, please stop by and say hi and pick up the most recent copy of TNR. This issue brings us EJ Creeger with our Feature article on an underwriter's take on how “whacked” the loan programs were when these major Wall Street firms were rolling them out and incentivizing every LO and broker in the country to push them on borrowers who barely knew how to comprehend a vanilla 30 year mortgage. We also have a phenomenal column from Marc Savitt where he sternly points out how the administration has been “broker bashing” without doing its homework. He has since been able to change their minds – anyone see The State of the Union address? I like to try and convey inspiration and passion into these Founders Forwards each month. Sometimes it can be difficult with all the negative press that we get bombarded with daily involving our industry. Between news of rising foreclosure rates to Obama’s announcement of a special Mortgage Fraud Unit (just what we need; yea right) from his State of the Union address, it’s hard to stay focused and remember that opportunity and optimism can always prevail. Opportunity in the way of tweaking your business model to one that helps borrowers win that REO or Short Sale. Opportunity where you leverage low rates to help a homeowner refinance. There is Optimism, in the fact that there is no better time to be a loan officer in this industry because everyone else has been filtered out. More optimism, that our associations such NAIHP (National Association of Independent Housing Professionals) were able to sway the White House and Mr. Obama from using the words Mortgage Broker as a derogatory term any further (now using the word Lender). If you’re a depressed, negative person, this is not the business for you, especially not now. Your clients and team need to see that you are committed to this 100 percent, with not an inkling of doubt. Be optimistic, see the opportunity. Keep up the fight!

Robert Pegg Official



Six Referral Marketing Mistakes How many of these are causing you to work harder than you really have to? (part 1 of 6)

by Doren Aldana





t has been reported that over 80 percent of Mortgage Professionals fail within their first two years! That’s a staggering statistic. My hunch is, most of these mortgage professionals throw in the towel, not because they dislike the business, but because they cannot afford to eat. I know several cases where they exit the business with their families in total financial ruin. Of the remaining 20 percent who manage to survive in the business past the first two years, the average mortgage originator only makes $45,000 per year and only the top half (10 percent) make over $85,000 per year. As you can see, the odds are clearly stacked against them. So, what is it about the top 10 percent highest income earners that allows them to enjoy financial prosperity, while the other 90 percent struggle to eke out a meager existence? Is the difference found in their education, intelligence, skills, timing, work habits, contacts or luck? Perhaps. What I can tell you with absolute certainty is this: After coaching hundreds of mortgage professionals since 2005, I’ve observed that the single most important success factor separating the top dogs from all the rest is… 10

February 2012


EFFECTIVE MARKETING! Unfortunately, most mortgage originators are entering the business completely clueless about how to market themselves in today’s hyper-competitive marketplace. Most are driving with their eyes closed – it’s no wonder so many crash and burn! But here is the good news: If you avoid the following six deadly referral-marketing mistakes, you are guaranteed to tip the scales of fortune in your favor.

Mistake #1: Neglecting Your Database One of the most costly mistakes I see mortgage professionals fall prey to is their tendency to myopically focus on acquiring new clients and in doing so, they neglect the only true asset they will ever have in their business: their database of clients and referral partners! Think about it. What other market likes you, knows you, and trusts you more than your own happy clients and referral partners? Nobody! – they’re your raving fans. Yet how many of them get pushed to the side and neglected due to your “busy schedule?” When was the last time they received a meaningful communication from you by email, phone or direct mail? Every month that goes by that you ignore your database it could be costing you thousands of dollars! Case in point:





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the National Association of Realtors performed a study that resulted in some interesting statistics on the correlation between number of mailings and marketing results. Here’s what they found: • Sending fewer than eight mailings a year yields minimal results. • Eight to twelve mailings a year generated a 200 percent increase in results. • Increasing from twelve to eighteen mailings per year increased results by an additional 200 percent! What does this mean? Simply put, if you are not consistently staying in touch with your database, month after month, you are leaving thousands of dollars on the table! In fact, studies show that it costs 5-10 times more to acquire a new customer through advertising than it does to market to your existing clients. Why pay 5-10 times more when you don’t have to? The truth is people hate being ignored and if you are not continuously staying in touch they are likely to get poached by your competition. If you want to build a predictable, profitable and salable mortgage business, you can’t afford not to develop a consistent follow-up marketing system. So, if all this is true, why are not you investing more time, energy and money to mine the gold from your client database? Perhaps no one has taught you the importance of it and shown you how to do it - until now! If you will make a study of it, as I have for the past five years, you will find that Top Producers are more likely to be using a mix of both email and direct mail in their follow-up marketing campaigns. Why would they bother spending their money on direct mail when email is “cheaper?” Simply put, it pays better. With that said… Here are the three most important keys to a Top-Flight Follow-up Marketing System: 1. Monthly Direct Mail Newsletter. If you want it to be read send it by direct mail. If you do not care if it’s read or responded to, send it by email. It’s as simple as that! Your newsletter should be going out to three different segments of your database: prospects, clients, and referral partners. The key to follow-up success is consistency. Commit to sending your Monthly Newsletter out to these three groups every month like clockwork until they die, buy, or tell you to stop. Content is king when it comes to the success of your newsletter. If your newsletter is even remotely irrelevant, boring or dry it will quickly meet its fruitless fate in the 12

February 2012

recycle bins of the world. Here are seven tips to protect your newsletter from becoming a resident of “Dullsville”: Tip #1: Use exciting and compelling headlines – i.e., “9 Secrets to Make Your Home Renovation Pay For Itself!” Tip #2: Make it look like you did it yourself. It shouldn’t look mass produced. Tip #3: Write in a personal tone as if you were writing to a friend – not too formal or stuffy. Tip #4: When applicable, end the article with a specific call to action – i.e., “call today!” Tip #5: Make it entertaining - i.e., quizzes, trivia, recipes, Sudoku, interesting news, etc. Tip #6: Include photos, cartoons and white space to please the eye of your reader. Tip #7: Use blue handwriting font on the envelope and mail with a live stamp (not indicia). A true direct response newsletter is not, nor will it ever be, "professional." There should be no articles about technical items, written in technical jargon. If you do talk about something technical, translate it into layman terms, and when relevant add stories, humor or sentiment. 2. Weekly Email Tips. If you would like to supercharge your follow-up marketing results, send your contact list a weekly email tip in addition to the monthly mailing. 3. Phone Calls. Once per year, mail out a postcard inviting your clients to call you for an “Annual Mortgage Review.” For best results, follow-up with a phone call. Your objective is simple: find out if their mortgage is still up to date and whether or not it makes sense to refinance, do a debt consol, finance a renovation, etc. This is also a perfect time to ask for referrals! If implemented correctly, your follow-up marketing system can become your most profitable marketing weapon – feeding you a steady stream of repeat and referral business! Consider it like the superglue that keeps your clients and referral partners bonded to you for life. • Doren Aldana is considered by many to be Canada’s leading Mortgage Marketing Coach. Since 2005, he has been dedicated to helping mortgage professionals attract more clients with less effort, regardless of market conditions. Aldana is also the author of a new 3-disc DVD/CD set titled, “7 Secrets to Attract More Referrals on Autopilot.” To pick up your free

Facebook Ads 101 – Part 1


eople treat Facebook as an authentic extension of their daily lives. This is a place where they connect with their friends, family and coworkers. They talk about their likes and interests, and they share what’s on their mind. People don’t come to Facebook to get a home loan or to look for homes for sale. That doesn’t mean that you cannot get them interested in what you have to offer, you just have to do it the right way. Many people might not realize this, but Facebook has reached an estimated $4.27 Billion in advertising revenues in 2011. This evidence reinforces the fact that there is money to be made with Facebook ads. If this weren’t true, marketers would not be spending their time and money on it. This article is packed with information that you need to know about Facebook Ads. After reading this, you will have a new appreciation for the advertising power that Facebook offers you. Let’s get started! I stated above that people don’t come to Facebook with a ‘buying mindset’. However, when done right, you can still get them interested in what you have to offer. Now, you might be asking yourself, “What does she mean by ‘when done right’?” Let me use a brief analogy… 14

February 2012

Facebook is like a huge party. Imagine you’re at this party, hanging out with your friends and you’re having a good time. You came to this party to get your mind off of work and to connect with friends. You are in a conversation with a friend and all of the sudden someone comes to you and says, “Hey, my name is Steve, I’m a very honest loan officer. I’ve been in the industry for 20 years and I can get you pre-qualified for a home loan.” Now, even if you were interested in buying a house, you would probably not hire him because you don’t know anything about him, other than the fact that he’s a stranger who disturbed your conversation in order to sell you his product. Now, imagine if the same person went to the host of the party (Facebook) and found out everything about you. He found that you’re in your thirties, married, and that you like the movie “The Godfather”. Basically, he found out everything he could from what the host knows about you. In this scenario, Steve comes up to you, and starts talking about what really interests you. You’re in the middle of a conversation, when he makes you an ‘offer you can’t refuse’. He says, “Let me treat you to a drink. Oh, by the way, I also have this free report that’s a real life saver, if you ever

are looking to buy a house in the near future. Also, I’d love to send you some cool tips from time to time, if you’re interested.”(Basically, ask for the prospect’s email address.) Do you see the difference? This is exactly what separates a successful Facebook Ad campaign from a failure. In order to get a Facebook user interested in what you have to offer, you have to show interest in them first. Show them that you care. Give them value, engage them, and prove that you’re not just another sales person trying to get their money. Having this approach will help you get their interest, which will lead to sales. Goal: Before you place your ad, you need to have a clear idea of what you want out of it. Do you want to increase your page ‘likes’? Do you want to create buzz around an upcoming event? Do you want to get buyer leads? Targeting: You must be very clear on whom you want your ad to be displayed to. Let’s say you specialize in first time home buyers. You need to do basic research to learn more about your target market. I found a study that was focused on ‘First Time Home Buyers’. It shows that 46% of first time home buyers were married. Also, 51% of them were between the ages of 25 to 30. The good news is that Facebook allows you to laser target this exact group of people. If you just closed a deal with someone who works for a certain company, for example. You can create an ad that targets their co-workers, and then drive them to a page that has a video testimonial of their happy coworker in his new house. Do you think that will generate some interested prospects? Laser targeting is not only more effective and displays only to people who are more likely be your future clients. It’s also a lot cheaper than advertizing to a broad audience. Designing the ad: Now that you know your goal and your target audience, you can start designing your ad. To run a FB ad, you need to have an account. If you don’t have one, then you need to create a user or a business account. To create your first ad go to Click on “Create an Ad” button to get started.

This will take you to a page where you start designing your ad. Destination URL: The first thing you need to do when designing your ad is to decide on the destination. Where do you want to direct your prospects after they click on your ad? You can choose to send traffic to an external web page or to an internal Facebook destination. That can be your page, group, event or application that you administrate. Depending on what destination you choose, the input field displayed to you will be changed. So, make sure to choose the destination before you start filling out the other fields. Here is a small trick, I always choose an external URL even when I’m sending visitors to my Facebook page. Here is why: when you choose an internal URL, Facebook will automatically make your page name the title of the ad. You definitely don’t want that, you will understand more when we talk about how important the title is to your ad. So, basically I choose an external destination, and I copy and paste my Facebook Page URL in the URL field.

The market is saturated with advertising. Your target has been exposed to thousands of advertising messages from direct mail to TV commercials to email ads and the list goes on and on. All of them are trying to grab your prospect’s attention. For your ad to grab the user’s attention, it should be very COMPELLING!! Let’s talk about the 3 parts of your ad starting with the most important: Image: The image is the ad for the ad. Its role is to capture the user’s attention in a fraction of a second, interrupting whatever he / she is doing and making them curious to see what the image is about. You can’t expect that to happen from a plain, regular image.


Remember, not everybody will respond to the same image. Try to get multiple images and test them to see which one gets more clicks. There are a lot of royalty free image websites where you can find free images. For example: and It has been proven that pictures of attractive women have a higher response rate by both men and women. Basically, you can’t go wrong with choosing an attractive woman as your image. Title: Now that you have grabbed their attention with the image, you need to get them interested in reading the body of your ad. You only have 25 characters to do that. You can talk about a benefit, a problem that they need solved, or something they’re passionate about… Get creative and always test. Body: The body of the ad should have an offer and a clear call to action. Offer a white paper, free report, free video series, etc and then ask them to take action. “Click here for immediate access,” as an example. After they click on your ad, they will be directed to your landing page, where you have to deliver your promise. Supposing that you direct them to your Fanpage, you should have a very clear call to action for them to “Like” your page so that you can keep communicating with them on Facebook and sending them your status updates. However, you must also have an opt-in form to capture their name and email address so that you can put them into your sales funnel. This part is critical and can’t be overlooked! I have clicked on many ads that have taken me directly to a Fanpage’s wall. There was no call to action for me to ‘like’ the page. Also, there was no way to capture my name and email address. Basically, the business owner was just wasting his money running those ads. Take a lesson; this is a perfect example of what NOT to do. It is very important to have a custom designed landing page on your Fanpage if you’re driving traffic to it. This is not only for branding, authority and credibility… but, also to have the opt-in form I previously mentioned for list building. Facebook will ask you to target your ad, we’ve already touched on this. You can target by location, demographics, interests, education, work, relationship, language, education, or workplace. Next, you need to decide on your campaign budget.


February 2012

I suggest starting with $10 per day, if you’re new to Facebook ads. This will place a limit to what Facebook will charge your account per day. Choosing between CPM or CPC. Cost Per Click (CPC) is the maximum amount you will be paying every time someone clicks on your ad. Cost Per Impression (CPM) also called Pay Per View (PPV) is the maximum amount you will pay for getting your ad to be viewed 1000 times. I suggest you start with CPC, that way you only pay when someone clicks on your ads. Once you start seeing a good number of clicks, then switch to CPM. Remember that when making your bid, you’re bidding against other advertisers; Facebook will display the ads of whoever bids higher. They will give a suggested bid; try to go 2 or 3 cents higher than the minimum suggested bid (it works for me!). Facebook will give you an option to create a similar ad. Try to create at least 5 similar ads where you only change the image, the title, or the body at a time. That way you can see which combinations are working better and improve them. The more clicks your ad gets the more Facebook will reward you and reduce your CPM or CPC. Once your ad is approved, Facebook will send you a notification email with a link to your ad manager. Try to regularly login to see how your ads are performing. The key here is to test, test, and test again! I know that Facebook Ads can be a little intimidating, so I wanted to leave you with a valuable resource that I know you will appreciate. My ‘Facebook Ads Checklist’ is a quick reference to all of the critical elements of your Ad. It can save you hours of stress and hundreds, if not thousands of dollars in mistake ads. Get it NOW at: . Thank You and Good Luck!

Chaibia Sarhrou is the CEO of CS Social Media, an Online & Social Media Marketing company specializing in the Mortgage and Real Estate industries. She has consulted with many top producing agents and speaks at Real Estate and Mortgage companies to educate them on monetizing their Social Media efforts. Chaibia can be contacted at

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Mortgage-Whacked Security An underwriter's take by Esperanza Creeger


ver a 25-year career in mortgage lending, I observed that loan officers shared an almost universal preference for originating loans with as little documentation as possible. Is it any wonder that alternative products such as “lowdoc,” “no-doc,” and “no income-no asset” took off so precipitously during the hybrid mortgage boom? Just preceding the “boom time,” those of us who nostalgically recalled tried-and-true methods of risk-based underwriting shook our collective heads in incredulity as the menu of non-traditional loans grew more diverse and risky. I witnessed the pressure applied by loan officers to provide them the tools and products

they felt they needed to compete and win on the street ultimately lead to management’s decision to utilize rogue mortgage loan products. A palpable, strange dichotomy existed where, on one end of the spectrum, real estate sales professionals, loan officers, retail, and wholesale sale managers – tasked with enriching the company’s bottom line – enthusiastically promoted, utilized, and were completely enamored of hybrid mortgage loan products. On the other end of the spectrum, however, mortgage loan underwriters – tasked with assessing risk in order to protect the company and investor bottom line – were, eh, not so much enamored with the introduction and intrusion of this

new and ever-evolving mortgage beast. By doren aldana Mortgage loan underwriters, a rather perspicacious lot, suspicious of anything resembling a free lunch, well, they had their doubts all along. With squintyeyed suspicion, mortgage loan underwriters nonetheless dutifully performed their due diligence on every file, underwriting each loan package in compliance with program guidelines established, and then firmly entrenched in the mortgage lending industry by the creators of this financial Frankenstein. I recall that time, harkening back uncomfortable memories of the debacled 125% CLTV second mortgage boom and bust (another brilliant idea that ultimately led to the demise of many mortgage lending shops whose owners woke up one day to find they had to pay points to get those loans off their books). I was dispatched in the third round of layoffs in that era. We who were actively working the mortgage lending front lines and real estate sales trenches were not privy to the covert, back-room machinations going on at the time in the wood-paneled, book-lined, private offices on Wall Street. In my view, and in the view of many others long-in-the-tooth in mortgage lending, Wall Street deal makers set up the industry to buy into the notion that a new brand of collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), et al., containing a patchwork quilt of securitized mortgages of varying levels of credit risk, were legitimate, low- to moderate-risk investments. In an excellent two-part column written for Bloomberg, “Ending the Moral Rot on Wall Street, Part 1,” author William D. Cohan referenced various investigations into the scandal of this century and the shocking acts of irresponsibility those investigations uncovered: Each examination revealed layer upon layer of behavior that should make us seethe with anger. [ ... ]. Also the business model that encouraged bankers and traders to take asynchronous risk with other people’s money with the knowledge that by the time things went wrong, billions of bonus dollars would be paid out, and no effort would be made to hold anyone accountable. 1 On its face, the mortgage-backed securities at issue with their novel, catchy acronyms, appeared to be relatively safe bets. The collateral (the residence) used to secure the underlying debt would provide some form of hedge against potential future losses. For example, if the

borrower defaulted on the mortgage, the home, acquired through the foreclosure process then liquidated at market, would recompense the investor to, at minimum, cover the principal balance owed against the property plus any peripheral expenses incurred by the investor. Losses realized in the CDO, CMO, et al., MBS pool would be ameliorated by virtue of the inclusion of prime, A-paper mortgages in the same MBS pool (prime paper is associated with relatively low risk of mortgage default). The industry placed a high degree of confidence in the ratings agencies’ final assessment of the revolutionary products. According to the staid, neutral ratings agencies, these new investments on the block were determined to be safe, sound, and worthy of AAA ratings. A win-win all around, right? Uhm . . . wrong. A clear-cut conflict of interest existed where the ratings firms “were paid by the sellers rather than the buyers. Some of those mortgage securities turned out to be worth less than buyers thought.”2 Entranced by the sexy new moneymaker, industry movers and shakers, quasi-government sponsored enterprise organizations, and those who just plain should have known better, fell hard. Had anyone thought to run their brilliant idea past a dozen or so seasoned mortgage loan underwriters before unleashing the sly beast on consumers, industry and the world, I might be writing a very different article today, or none at all. Tragically, the calls for tightening of rules and more oversight went unheeded in favor of expediency and profit. Messengers of the impending disaster faced hostility and were labeled “difficult” by those with vested interests.3 One sunny Monday morning in 2007, a corporate email essentially announced the end of a happy and fruitful relationship. The mortgage company that I had devoted seven productive years to had just filed for bankruptcy protection. The titanic alternative-doc, subprime mortgage market imploded, tanked, and sucked us down the drink with not a single lifeboat in sight. Game over. . . Old-school deliberation paid off for some captains of industry who saw through the lie that was mortgage pyrite then wisely responded, “Thanks, but no thanks.” It can be said that Traveler’s Insurance Chief Executive Jay Fishman’s decision to forgo participating in the MBS folly was due, in great part, to a traditionally conservative approach to investments in general.4

This whole deregulation thing, well, it seems that plan did not work out so well for the American economy or for the global economy. When you ask foxes to guard the hen house whadda ya’ get? A bloodbath. Yet, some still have not learned a lesson from this tragic American tale. Case in point: Taken from a New York Times article, Binyamin Appelbaum reported, “Last month a senior House Republican, Representative Darrell Issa of California, nevertheless dispatched letters to 150 companies, [ . . . ] asking them to identify federal regulations that are restraining economic recovery and job growth.”5 Really?!?! What is the definition of insanity? Doing the same thing over and over again and expecting a different result. Mortimer B. Zuckerman, Editor-in-Chief for U.S. News & World Report, succinctly stated, “The world of finance will never escape the existence of fear and greed. The appropriate degree of regulation will clearly be needed to prevent the kind of excesses that have now put at risk the entire economy.”6 Well said, Sir. May your words of wisdom infiltrate the Washington and Wall Street conscious collective to stave off future runs on mortgage pyrite.

1 William D. Cohan, “Ending the Moral Rot on Wall Street, Part 1,” Bloomberg View. 8 Aug. 2011, 9 Aug. 2011 <> 2 Michael Barone, “The Old Economic Rule Doesn’t Work.” U.S. News & World Report Sept.-Oct. 2008: 26. 3 Michael Scherer, “The New Sheriffs of Wall Street.” TIME 24 May 2010: 22-27. 4 Nathan Vardi, “Wall Street’s Honest Man.” Forbes 28 Feb. 2011: 70-77. 5 Binyamin Appelbaum, “G.O.P. Asks Businesses Which Rules To Rewrite.” The New York Times 5 Jan. 2011: B1+. 6 Mortimer B. Zuckerman “Wall Street’s Day of Reckoning.” Editorial. U.S. News & World Report Sept.-Oct. 2008: 9294.

Esperanza J. Creeger was the bond program administrator for the Western Division of American Home Mortgage. Esperanza authored an e-book, “Industry Guide to First-Time Homebuyer Programs.” Espie currently lives, works, and writes in Dallas, TX.

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Aggressive Litigation of Appraisers Slows Housing Recovery by tommy a. duncan


n analyzing factors regarding the slowness of the current Housing Recovery, one needs to look no further than the FDIC. FDIC policies are at least partially responsible for slowing the Housing Recovery by encouraging appraisers to low-ball their valuation reports. The FDIC’s overly aggressive tactics in suing appraisers who provided valuations for failed lenders, which the FDIC has since taken over, is not only hurting the appraisal profession as a whole, but also hurting consumers and borrowers. It is slowing the housing recovery because it is encouraging appraisers to low-ball valuations in an effort to avoid being named a “defendant” in FDIC lawsuits years down the road should the lender fail. Most people, those not employed by FDIC, realize that the lending issues that most directly impacted failed banks were caused by sloppy loan underwriting and misrepresentations by originating lenders and borrowers about credit, employment and occupancy — not any failure by appraisers. When a borrower fails to make the very first payment on a loan, it is not an appraisal problem.

Borrowers do not fail to make their house payments due to either the appraiser or his appraisal. Loans do not go into default due to the appraiser or appraisal; loans go into default because borrowers fail to make payments. In 2011, the Federal Deposit Insurance Corporation continued to file a high number of lawsuits against real estate appraisers, blaming them for loan losses of the failed lenders that the FDIC and other agencies supervised during the mortgage bubble years 2004-2008. Most of the FDIC’s recent lawsuits concern loans made or purchased by IndyMac or loans made through Downey Savings. Even though the FDIC has sued or threatened to sue hundreds of appraisers, the FDIC has almost never filed any form of disciplinary complaint against appraisers for any alleged USPAP violations. The reason is that the FDIC’s only purpose in its professional liability actions is to try to recover money from a defendant. As a general rule, if there’s no money to recover, the FDIC has no interest in pursuing any action. However, in the FDIC’s 12 most recent lawsuits, filed in November 2011, involving 29 California appraisers who


delivered appraisals to Downey Savings, the FDIC’s failure to report the defendant appraisers to the State Board may also be due in part to a nagging suspicion on the part of FDIC attorneys that the California Appraiser Board might find the FDIC complaints against the 29 appraisers to be without merit. This would not be a good thing if you are planning to make those same appraisers defendants in a lawsuit. In the FDIC lawsuits against the 29 Downey appraisers, FDIC attorneys demonstrated once again that they either do not understand or are intentionally misrepresenting to the court the purpose of an appraisal – it is not a guarantee of value in a down market. An appraisal is a time-specific opinion of value – nothing more, nothing less. Appraisers are not fortune tellers. Appraisal reports do not, and are not intended to, predict home values six months, one year or five years from now, and yet FDIC attorneys are seeking to hold appraisers, or rather appraisers’ E&O carriers, accountable for their lack of clairvoyance. A little background might prove helpful in order to fully appreciate “the creativity,” so to speak, exhibited by FDIC’s attorneys in the Downey appraiser lawsuits. Downey Savings had an appraiser panel; they did not use an AMC. Downey Savings is the all-too-familiar story of a lender being willing to buy loans from mortgage brokers without any checking or quality control of the accuracy of information submitted by the broker regarding the borrower’s financial qualifications. Every (yes, E-V-E-R-Y) loan at issue in these lawsuits contained lies or fraud with respect to the borrower’s income or assets, which meant that ultimately borrowers could not afford the loans and defaulted. Obviously, they too lacked clairvoyance. Curiously, the FDIC acknowledges in the complaints that Downey relied on the financial representations made by the borrowers and confirmed by the brokers in making its determinations to approve and fund the loans that constitute the basis for the FDIC’s claim against the appraisers. And

yet, despite that admission, FDIC looks to the 29 appraisers as guarantors for the entire unpaid loan balances, unpaid interest, and foreclosure costs. Remember what was said earlier about the FDIC’s sole purpose in pursuing litigation being to recover money? The borrowers involved in these loans are broke; appraisers, on the other hand, carry E&O insurance. The FDIC has not sued any appraiser officials or managers at Downey Savings. The FDIC lawsuits against the 29 Downey appraisers seek to hold appraisers liable for things most appraisers would not normally expect — such as failing to provide analysis of whether the appreciation of a comparable sale “was sustainable or the product of real estate speculation.” Admittedly, the FDIC attorneys are 100% correct in this allegation; however, they are 100% wrong that an appraiser’s failure to speculate on either buyer’s or the market’s motives for home purchases being a USPAP violation, gross negligence, or for that matter, any negligence at all. A standard residential USPAP-compliant appraisal report does not provide that level of analysis. That level of analysis is better handled by a Tarot Card Reader, not an appraiser. The FDIC also accused one appraiser of being grossly negligent because he used one comp that was over six months old. In another complaint, the FDIC contends the appraiser was grossly negligent because his comps were more than one mile from the subject. The FDIC’s overly aggressive litigation tactics hurt not only the individual appraisers, but also the appraisal profession as a whole. Many of the companies providing E&O insurance to appraisers have not only raised their rates, but implemented exclusions for claims made by the FDIC. Some appraisers are leaving the profession due to what they see as increased liability risk, particularly in light of lower appraisal fees from many AMCs. Many more appraisers are coming in “low” on value, practicing defensive appraising, which is the inevitable result of the FDIC’s overly aggressive litigation tactics. The FDIC needs to be aware of the harm that it is causing by filing lawsuits against appraisers simply because they are easy prey and have E&O carriers who might pony up money to FDIC. Defensive appraising is slowing the housing recovery. It hurts lenders and borrowers alike, and the FDIC only has its own lawyers to blame.

Tommy A. Duncan is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 591-2528.

Tools and Strategies To Fall in Love With by leif boyd


f January is all about making (and keeping) New Yearâ&#x20AC;&#x2122;s Resolutions, then February is all about love, with Valentineâ&#x20AC;&#x2122;s Day. As Sr. Vice President of Production and a loan originator, I know the importance of starting out the year with strong numbers. Although I have used many of the strategies below throughout my career, there are a few new tools available that promise to breathe new life into businesses this year and beyond.

Using Technology to Build Relationships Over the last few years it has become even more labor intensive to process and close a loan. These changes have required many loan originators to spend more time behind their desks, giving them less time to market their branch and meet with clients and referral partners. Marketing is the art of staying in touch with current clients and referral partners while reaching out to prospective clients. Using technology helps loan originators do their jobs more efficiently by saving time, money and resources. Although a variety of tools exist in different forms across the mortgage industry, American Pacific Mortgage recently

launched APMConnect for loan originators. APMConnect provides a unique set of tools that streamline the business process. Traditional Marketing. Using hard copy marketing materials is still an important tool for loan originators. With APMarketing, loan originators are able to self-fulfill and customize more than 400 different items. They can have fliers emailed to them, mailings sent out automatically to their databases or materials printed and sent to their office. This simple tool helps loan originators get the customized marketing materials they need quickly and helps them reach out to clients more effectively. Mobile. A December 2011 article in PC Magazine found that approximately 44 percent of Americans now own a smartphone, up from 18 percent just two years ago. As more people adopt smartphones there are new opportunities for loan originators to reach out to them. Developing a mobile website may be a good first step, but it presents challenges too. These challenges include limited functionality, the need for a cell phone signal or Wi-Fi and requiring customers to type in a full URL every time they want to visit. Many companies across all industries have quickly learned that mobile applications are one of the most effective ways to reach customers and stay top-of-mind.


From department stores to restaurants and gyms, companies are fulfilling the promise that “there’s an app for that.” Applications live on smartphones, can be accessed from anywhere, are constant reminders that a business exists, and provide new ways for businesses to interact with their customers. Perhaps one of the best features of an application is that it allows a business to send “push notifications” to everyone who downloads it. These notifications can range from a coupon for a restaurant to a reminder about refinancing a loan. For loan originators the possibilities are limitless for what these applications can do. American Pacific Mortgage recently released APMobile, an application that is customized for each branch that requests it and includes contact information, resources and calculators. Tablet Computing. From the iPad to Kindle Fire, tablets are changing the way we look at computing. These devices have the power to help loan originators move out from behind their desks and into their client’s workspace or a local coffee shop. The mobility of tablets provides loan originators with the ability to take everything they need to their clients and referral partners. Although it is still in development, we expect APMyTablet to provide loan originators with the tools they need to get out from behind desks and do business where

clients are – a return of the road warrior. Falling in love with these technologies and learning how to effectively use them to support a loan originator’s business will lead to stronger client relationships and increased revenue opportunities.

Building Relationships Technology and the tools it offers can open up new opportunities to build relationships. The mortgage industry, like many others, is based on relationships. A successful loan originator is often the one who has the most time to spend with his or her clients. When spending time with clients there are a few things that every loan originator needs to know and do: Listen. Just as one listens to a spouse, child or other key individuals in one’s personal life, it is important to listen to clients. Learning to listen is one of the most essential skills a can develop to improve business. Listening is the opposite of “selling by talking.” Taking the role of listening attentively and actively to the person speaking helps sellers learn about their customers’ needs. Listening and actively establishing relationships with customers helps build rapport and foster long-term associations. Loans are closed based on the loan

How we see it


February 2012

originator’s ability to listen to clients and fulfill their needs. Build. Many companies understand that their best customer is a repeat customer. It is no different for a loan originator. Attending networking events, using lead generation software and sending leads to your referral partners are all ways to help their businesses succeed. As they get more business, they will send more business to the loan originator that helped give them the initial leads. Plus, when a loan originator helps a referral partner’s business grow, their peers will ask how they did it. Word-of-mouth advertising is one of the most powerful forms of advertising.

Engagement Taking advantage of technology can help put the loan originator in front of customers in a non-threatening way. Successful loan originators can “pop the question” creatively, while also providing information that customers may find interesting. Posting on Facebook everyday about loan rates probably will not increase business; however, posting interesting community and industry information invites customers to engage on a regular basis. This engagement helps to build loyalty, and when they are ready to start the loan process they will know whom to contact. Successful

loan originators also engage with their clients and referral partners offline through customized marketing materials and in-person meetings over coffee, lunch or in the clients’ offices. Being engaged is about growing a relationship and about looking toward building a stronger future with them. Embracing these tools and strategies can help loan originators increase their love for the job while helping them build a stronger, more secure future for themselves, their clients and their branch. Like any strong relationship, being successful requires putting in the hours, putting others first and learning from mistakes. Those who put in the effort will be rewarded for their endeavors with strong, lasting relationships that help build their business throughout the life of their career. Since joining American Pacific Mortgage (APM), Leif Boyd has taken an active role in overseeing all aspects of mortgage origination including the oversight of the production department and 112+ branches. In addition to the responsibilities of business development, APM's branch network reports directly to him. For more information about American Pacific Mortgage and the services it provides please contact Leif at or (916) 960-1325. (NMLS# 225906)

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Why Cap Rates Wonâ&#x20AC;&#x2122;t Save You This Time Evaluating a good commercial deal by jeremy cyrier


he past several years have been forgiving to commercial real estate investors. You could go out, buy a building, lower the rents, and sell the property for more than you paid for it. Huh? Sounds strange, doesn't it? Imagine this, you're a savvy real estate investor who's interested in purchasing a 40,000 SF office building located minutes from the highway and is 100 percent occupied. The asking price is attractive â&#x20AC;&#x201C; it's priced on a 9 CAP rate. It has a net operating income (NOI) of $600,000 and your 70 percent LTV debt will cost you seven and half percent. You pay $6.6M for it. Now, looking at this deal, you know two things for sure. The CAP rate is far higher than the cost of leverage on the property, so there's a pretty good bet that you're going to be cash flow positive right out of the gates on this one. The second thing you know is that you've got a full building, teeming with strong 26

February 2012

tenants that are paying on multi-year leases. Looks pretty good, doesn't it? So you buy it. You collect your cash flow each and every month. Things are going great. Then the market begins changing. Another investor has seen that you're 100 percent full and charging great rents, so he decides to build a new 50,000 SF office building two blocks down the street. It's one of those new "green" buildings with modern architecture, the latest amenities, and guess what, your new neighbor's going to be charging 10 percent less rent than you are. Worried? You should be. Over the next year, your building begins to increase in vacancy as your tenants let their leases expire and move down the street. The remainders start picking at your rents trying to renegotiate their rates, because they figure you're getting anxious and are afraid they'll leave too, if given the opening. You rewrite the leases, keep the building, and now have 85 percent occupancy. Your net NOI is $442,000. Nasty, you're now out $158,000 per year.

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Then some guy who says he's from San Diego calls you and makes you a cash offer. He offers you a 6 CAP or $7.36M. He figures that he's not going to earn 6 percent during the next 12 months in the stock market and is betting that he'll be able to sell your building to the next guy for even less than a 6 CAP without doing much to it. Guess what? You just hit it big. You're now going to sell that building for more than you paid for it, grossing $700k, despite the fact that you were collecting less rent and experienced an increase in vacancy over the past few years. You just made money to take your building the opposite direction you were supposed to. This story ended in the third quarter of 2007. How about now? Bad news, the marketâ&#x20AC;&#x2122;s changed and those CAP rates are going up, which means that values are going to be coming down. You'll no longer be able to buy a building and expect to sell it for more than you paid for it, even if your operating fundamentals deteriorate, because investors see that the future is

uncertain and they want their initial investment back faster. If you're buying on CAP rates today, you should know that you may be buying yourself a major problem. CAP rates give you a glimpse at one year's operating performance for your property without taking into consideration the cost of financing, reserves, commissions, taxes, or most importantly, the overall holding period. Be warned, there are better tools out there for evaluating deals. And if you're just using the one that worked for the past seven years, you may be unpleasantly surprised at what you don't get in return.

Jeremy Cyrier, CCIM, believes that actions without meaning are worthless. He is the President of MANSARD, a Massachusetts commercial real estate marketing and brokerage firm and is a member of the CCIM Institute faculty. You may reach Jeremy at or at http://www.

How we see it


February 2012

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man on the hill

Presidential Broker Bashing Backfires by Marc Savitt


n July 21, 2010, Congress sent the final version of the Dodd-Frank Act to the President for signature. Surrounded by then Senator Chris Dodd and House Financial Services Committee Chairman Barney Frank, the President signed the bill into law. A key component of the law was the creation of the Consumer Financial Protection Bureau, better known as the “CFPB.” Although the CFPB became operational exactly one year later, it lacked the authority to regulate non-banks, due to not having a Senate-confirmed Director. On December 8, 2011, the Senate attempted to take up the nomination of former Ohio Attorney General Richard Cordray, as President Obama’s choice as the first CFPB Director. However, by a vote of 53-45 a procedural motion to begin debate on Cordray’s nomination was defeated. That same day President Obama held a news conference where he lashed out at Republicans and MORTGAGE BROKERS. During his remarks the President once again singled out mortgage brokers and payday lenders as the root cause of the financial crisis. From the podium in The 30

February 2012

White House Press Room, Mr. Obama, referring to the importance of the CFPB’s authority over non-banks, stated, “A key component of that was making sure that we have a consumer watchdog in place who can police what mortgage brokers and payday lenders and other non-bank financial entities are able to do when it comes to consumers.” Apparently, the President never heard of the SAFE Act, RESPA, TILA, ECOA, the LO Comp Rule, Appraiser Independence (HVCC), state laws and a host of other rules and regulations governing mortgage brokers. If he had, he would have known mortgage brokers are the most highly regulated segment of the financial services industry. During the Q&A part of that same news conference, the President again blamed brokers for consumers losing their homes. “So let's just take a very specific example: All the families out there who have now lost their home, after having paid their mortgage over and over again, because they were told that they could afford this home; they didn’t understand all the documentation that was involved -- this was peddled deliberately to them, even though a mortgage broker might have known that there was no way that they could keep up with these payments -- and now they're out on the street because nobody was making sure that there's fair play and fair dealing in the mortgage industry on it. Now, why wouldn’t we want

man on the hill to have somebody just to make sure that people are being treated fairly? Especially when not only is that family affected, but our whole economy is affected.” How many times do brokers need to say, they never developed a single-loan program, wrote guidelines for those same programs, or underwrote and approved any consumer’s mortgage? With respect to the documentation “they didn’t understand” and was “peddled deliberately to them,” those would be your forms, Mr. President. In addition, Georgetown and Harvard studies support broker claims that they weren’t responsible for the financial crisis. The Georgetown subprime loan study specifically states, by using a mortgage broker, consumers will save an average of 1.13 percent on their APR versus a bank-originated mortgage. The Harvard study goes even further by saying that mortgage brokers were not responsible for the financial crisis. On January 4th, Mr. Obama made a recess appointment and named Richard Cordray Director of the CFPB. On that same day Mr. Obama twice singled out mortgage brokers as the predators. However, during a stop at the Cleveland, Ohio home of William and Endia Eason, the truth caught up with the President. While sitting at the kitchen table in the Eason home with the couple, Director Cordray and Deonna Kirkpatrick, Communications Director of an Ohio non-profit agency, Mr. Obama told a gaggle of press a horrific story endured by these home owners, who almost lost their home in a foreclosure. According to the President, the couple’s “trouble began in 2001,” after their home was cited for a housing code violation by the City of Cleveland. A mortgage broker came knocking at their door and told the Easons they needed a loan to get the work done. He further quoted the broker as having said, “The Easons would go to jail,” unless they made the changes. After telling them it was too late to back out of the loan process, the broker talked the couple into borrowing $80,000 to repair their steps, garage and roof. The President continued the story by saying, after having lived in their home for 30 years, they suddenly found themselves owing almost $80,000. When they failed to meet their payment obligations, the lender started the foreclosure process. In desperation the Easons contacted a non-profit that specializes in helping victims of predatory lending. The President went on to say, with the help of the nonprofit they were able to convince the mortgage company to write off part of the mortgage loan and back away from the foreclosure. Lastly, he stated, the mortgage broker made $4,000 from the deal and walked away.

If in fact the Easons were victims of predatory lending, those responsible should be punished. The Easons and the non-profit never mentioned the name of the broker or brokerage. After looking into the matter, here’s what we found. A mortgage broker was NOT involved in any predatory act against the Easons. Within minutes of the story breaking, one of our members emailed me the public record of the Eason’s property lines, dating back to 1974. That record confirmed a broker was not involved in any 2001 mortgage transaction. In fact, the only time a broker was involved was in 2004, when the Easons received an FHA reverse mortgage. The Eason’s lien record showed 55 results, including IRS tax liens. One of those liens was recorded in January 1995, followed by the property being deeded over to another individual. That same individual deeded the property back to Mr. Eason two months later. Absent the broker who originated the reverse mortgage, it appears the liens shown on the record were made by banks and finance companies. One would think the President’s staff would have vetted the Easons, before exposing the President. As a 30-year veteran of the mortgage industry, I’m tired of getting blamed for the actions of others. Some say it’s a misconception about who a mortgage broker is and the White House didn’t do it deliberately. Even if that’s true, the misconception has caused mortgage brokers to be targeted for most of the onerous rules, regulations and legislation we have today. As an example, we have HVCC and LO Comp. NAIHP has met with The White House regarding this serious matter and is working with them on a “clarification.” Additionally, we have a scheduled meeting with the new CFPB Director set for January 26th. Interestingly enough, The White House has asked to join that meeting. Lastly, NAIHP is about to launch an all-out media campaign to correct the misconception that brokers caused the financial/housing crisis. If you’re interested in joining our media campaign, please contact Marc is the President of the National Association of Independent Housing Professionals. Previously, he served as the 2008-2009 President of the National Association of Mortgage Brokers. He also held the positions of NAMB’s Presidentelect, Vice President, Director, Chairman and Founder of the Consumer Protection Committee, and was awarded NAMB’s highest honor, Broker of the Year.


keeping up with the jones

listen up by Chris Jones


eriodically (meaning as often as possible) I go to the local Realtor Association home tour. I like looking at homes; I especially like looking at them with experts that can tell me useful things about what I'm seeing. The attendance is fair-to-middling, which is mystifying to me, but the people who come are real pros. Anyway, this last meeting I was asked to sponsor the event. You know how that works - you bring the donuts and milk and juice , and you get to make a speech. These are almost never effective - a topic for another time - so rather than blathering on about rates and programs and service, oh my, I decided to ask the Real estate agents what they thought about loan officers. The good news is, I survived. Anything that doesn't kill you makes you stronger, right? At first, they couldn't believe I was serious, that I really wanted to know. But then I told them that I would 32

February 2012

put their answers, verbatim with no editing, in this article. So they sat forward and let me have it. Here are some of those answers, with my commentary following.

"Don't lie to me." Frankly, I wasn't much surprised about this one. It seems so terribly obvious that one shouldn't lie to people, especially those that are supposedly on one's own team, but apparently this message needs delivering, because every single head in the room nodded, and there were a few fervent Amens. I would imagine that few of us actually set out to tell boldfaced lies, but what about what we here call "forecasting," where we say something like "the underwriter is working that file right now," when the hard truth is that we think the underwriter will get to it sometime today? That's lying. We need to never do this. I realize that we're under a lot of pressure to deliver outstanding results in a tight market, but lying is a risk that cannot be afforded, even where we're talking about non-compliance-related little white lies. Just tell it like it is.

keeping up with the jones "Talk to me like I'm an adult, not a six-year old." My first reaction was "then don't act like a sixyear old," but being in a semi-hostile environment I bit my tongue. Good thing, too, because I was wrong. It doesn't matter that there are real-estate "professionals" out there that clearly don't read their own documents. It doesn't matter that some of them are doing the transaction more harm than good. There is no case in which treating people with respect will produce worse results than insulting them. No case. Recently I had a transaction which very nearly fell apart because the buyer's agent simply did nothing at all. His broker, one of the biggest shots in town, called my team and drilled us for the delays, which were caused entirely by them. I called him back and explained the situation to him and told him that I refused to allow him to treat my team in that way. I wasn't rude. It is possible to be firm without being condescending. Eventually we reached an understanding, and then this broker saved the deal with some timely intervention. People will surprise you. Give them a chance to do it.

"Communicate what's going on with the file." Self-explanatory. I know that we all mean to do this, but it gets late, and it's a weekend, and we've already talked to them once today, and besides we told the borrower the status. Still, make the extra call. You want more business, don't you? You think you're going to get it without doing more work? Not gonna happen. Make the call. I asked this directly, too: "You want me to call you and tell you that I don't have anything to tell you?" "Yes," she said, and there were nods all around. Remember, they have to call some people, too, and they'll appreciate not having to make stuff up. "Know something about your programs before you sell my clients a pile of %*(&#." Oh, baby, did the fur fly on this one. Nothing, it appears, makes the Realtor more upset than our telling the client that we're doing a particular kind of loan, only to have to switch it because the home or the borrower can't make that program work. This is mostly professionalism, and we have to be vigilant to program changes all the time. Never, ever sell a program you can't deliver. Many times,

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keeping up with the jones especially shifting from governments to conventionals or vice-versa, there's a boatload of extra work for the Realtor to do. Ask all the questions, right up front. Besides, the beginning is the place where everyone is the MOST motivated to tell you whatever you want to know; exasperation comes later.

"Understand what your real timeframes are, not the timeframes you wish were true." Brokers, especially, have to be careful about this, but it's big for all of us. Timelines change weekly. Underwriting can take a long time, and those timelines have to be written into the purchase contract. Extending is not just a hassle, it also jeopardizes the borrower, the earnest money, and the home. Overestimate if you must, and be clear about what time you really need. ALSO: right after this (see below) one of the Real estate agents said, "and if it changes, tell me about that right away." "When you develop a problem with the file, tell me about it immediately." Riffing off the previous one, there were a good few minutes of chat about this. They all said they wanted to know every time there was a problem that had any

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impact at all on the timelines. They did not necessarily want to know that the 4506-T was rejected because the borrower's middle name didn't match, if that problem got fixed and we were waiting for the appraisal anyway. But if the credit supplement is delayed and that might affect the projected close, even by a day, they want to know. Right then, not when the solution has been found. They'd rather have the bad news (although I suspect that they won't remember that in the moment itself ).

"Assume there's something that I can do to help, and let me do it." This one I was most curious about. In my office, I'm the quarterback. I go into every transaction with the mindset that I am the one that is ultimately responsible for everything. But it occurred to me in this discussion that the good Real estate agents also have this mindset. If they're good, they want to help, and in a lot of cases, especially with title companies, they can make things happen faster than we can. Take the risk that you'll look like you're not Superman, and ask the Realtor to fetch stuff. They want to. No, really. They told me so. Now, obviously, your results will vary. Your Real estate agents will want their own set of things. Here's my recommendation: take this article to them, have them read it, and ask them what they want. How do they want you to communicate with them? How often (we had a few minutes on that one, too) do they want to hear from you? What are the specific land mines you should watch out for? That should help make things go a great deal more smoothly. So to all my peeps at the North County Home Tour, here you go. Come on back next month, and I'll tell you what we think of you. Chris Jones is a branch manager with City First Mortgage Services and a ten-year veteran spanning the best and the worst of times in the industry. He is the author of the forthcoming book, Mastering the Six Channels of Marketing, a look at why most loan officers can’t even get their mothers to call them back anymore. Chris arrived in mortgages after careers with tech startups, stockbrokering, and running a presidential campaign. He’s a sought-after speaker and a part-time opera singer, which he insists isn’t as impressive as it sounds. Chris and his wife Jeanette live in Lehi, UT with their eight children. He can be reached at 801-850-3781 or at

Tip of the Month

Tip of the month "The Formula" by stewart mednick


am in a recycle mode. I have been writing this column for over four years and I know there are many out there that have not been subscribers that long and have missed out on many great TIPS over those years. So, I am reprinting many older TIPS. This was originally published

in May, 2008. I have received many emails and phone calls from across the country in response to this column over the last several months. The general complexion of these communiqués is the same: HELP! So I decided to talk about the basics as I have in many training sessions, college classrooms and consulting gigs. Early on in the sales process, the loan officer will have to talk to the client over the phone or in a faceto-face meeting. The first moments of the first contact are vital to success. The next few interactions are just as vital. How does a loan officer develop a trusting relationship with a client that will lead to a closed loan

and referrals? Let me talk about the first step in doing so. This is what I simply call ‘The Formula.’

Benefit – Cost = Value This is not a unique concept; it is a basic marketing concept that is all too often overlooked. I have taken this basic analytical equation and created a meaningful social tool to aid in relationship development. This formula should be looked at like a battle line drawn in the sand straight through “cost.” Cost is a constant. Cost may fluctuate from company to company, broker to broker, but the actual cost of doing business is about the same across the board. If we keep origination at a constant, say one percent, add processing, underwriting, title fees, government fees, and closing fees, the good faith estimate should be similar from company to company. Sure, many companies add junk fees and higher origination, but that is another discussion. Cost can also be measured in non-monetary terms such as the time involved, emotional elements, travel time


Tip of the Month to meet or to attend the closing, or the customer’s effort to gather necessary documents. Regardless with whom the customer does business, the cost of doing business is a constant, which establishes the variables within this equation to be benefit and value. What do you have control of as a loan officer? Benefit. What is benefit? It is anything the customer receives in an exchange as a result of the cost of doing business. Control this variable, and you have the key to meaningful contact with customers. If there is no benefit, there is no value. Look at the formula again: If benefit is zero, then subtracting the cost of the transaction, there is a negative value. If the benefit is equal to the cost, then there is zero value. However, if the benefit is substantially greater than cost, then the value is great. What is value? It is the customer’s perceived benefit in the transaction. The LO has no control over what the customer perceives as ‘of value.’ However, the LO does have control over gaining the necessary information from the customer to know what they hold dear in the transaction. The customer’s goals for the transaction will define his or her baseline for value. In other words, if they get what they want as a minimum, then that is zero value. Anything they get beyond that is a value–added proposition. The more benefit provided to the customer, the more perceived value they gain in the transaction, and the greater chance of getting them to sign an application. Now that the basic formula is laid out, how do you glean information from the customer so you know what their unique definition of value would be? This is where I always insist on meeting a client. I would typically drive to their house after business hours to meet with them. Many times this is not necessary, but for the busy professionals that have no other free time during the

week, you just added a huge benefit by visiting them at their convenience. Or perhaps it is just enclosing a cover sheet with a brief, easy to understand definition of the documents when you mail or email them to the customer. Benefit can be a number of simple, easy to employ actions, based on customer needs. The most important and best way to start growing benefit with a customer is to simply employ active listening techniques. When you talk to a client for the first time, listen to them. Establish what their motives are in the transaction. A motive is an internal energizing force that orients a customer’s activities toward satisfying their needs or achieving their goals. There may be multiple motives that will inspire a customer to act upon originating a mortgage. By knowing as much as you can about the customer, you will be able to add maximum benefit to the transaction; therefore, adding maximum value to them. In future articles, I will cover more detail on customer types, active listening techniques and nonverbal communications, all of which help to define a customer’s motives, or needs and goals. Couple this with the “Two Minute MingleSM” (see Tip of the Month in the December 2007 issue of the Niche Report) and you have a powerful combination for developing an adaptive technique to interact with your clients. Email or call to tell me how this technique works for you. Stewart Mednick is a seasoned mortgage banker and published author. His writing focuses on relationship development, personal empowerment, customer satisfaction, marketing and sales techniques. Stewart is available for marketing consulting, personal coaching and training sessions. If you have a comment or a question for Stewart, contact him at 651-895-5122 or


What's your mortgage IQ? BY karen deis

Well, the final number of rule change articles we wrote about this year was 259 for the 12-month time period. Or an average of 21 per month. Or 1 rule update for EVERY “working” day! Whew! I predict that you will see a “slow down” of brand-new changes – because as the agencies work through the rules already in place, you’ll see some “tweaks” or “FAQ’s” because the rule was not clear enough to begin with. Hope your 2012 is your best origination year ever, because if you know the rules, you’ll rule your real estate market!

have passed before you can get a case number and take an application to refinance the property. You can only refinance the principal balance of the mortgage.

FHA Waiting Period to Refinance: What is the shortest period of time that a borrower can refinance after a purchase? Assuming that this property already has an FHA mortgage and you are going to refinance it to another FHA mortgage, there are three scenarios:

Facebook Post: If someone purchased a home and paid cash, the owner must have made 6 months’ payments and 210 days must pass from the date of closing until ordering a FHA case number, to refinance and get cash back.

For a Streamlined Refinance: The borrower has to have made 6 months payment AND 210 days must

FHA Cancellation of MIP: Does the annual mortgage insurance premium automatically stop when you

For a Rate and Term Refinance: You can refinance right away and your LTV will be 97.75% of the appraised value. (Investors may have overlays to this.) For a Cash-Out Refinance: The borrower has to have made 6 months payments AND 210 days must have passed before you can get a case number and take an application to refinance the property. You will be limited to 85% of the lower of the original purchase price or the appraisal.


WHAT IS YOUR MORTGAGE IQ? have78% LTV based on the appraised value or purchase price? The 78% LTV is based on the lower of the sales price or appraised value, as that is what your original LTV was based on as well. Below are more MI details for you. Cancellation of the FHA monthly mortgage insurance premium (MIP) is based on several factors including the loan term, loan-to-value (LTV) and regulations in place when the loan is closed. For loans closed January 1, 2001 or later, MIP will be automatically cancelled when the LTV reaches 78% under the following terms. Loan Terms Longer than 15 Years • To be eligible for automatic cancellation the monthly MIP must have been paid for a minimum of five years. Loan Terms 15 Years or Less • There is no minimum time period for which the

How we see it

MIP must have been paid (five-year requirement does not apply). • If the LTV is 78.00% or less at loan closing it is exempt from MIP. HOPE FOR HOMEOWNERS (H4H) • The MIP is collected monthly for the life of the loan. NOTES • MIP cancellation does not apply to loans that are not insured by the Mutual Mortgage Insurance (MMI) fund. Generally, loans closed prior to January 1, 2001 will not be eligible for cancellation of MIP, which is collected as part of the monthly mortgage payment. • Cancellation of the annual MIP is normally based on the scheduled amortization of the loan. However, in cases where the loan payments have been accelerated or modified, cancellation can be based on the actual amortization of the loan as provided to FHA by the servicing lender. • Mortgage insurance may also be terminated via payment in full, conveyance for insurance benefits, or voluntary termination upon agreement between the borrower and lender. • Although the MIP is cancelled, the contract of mortgage insurance remains in force. Refer to Mortgagee Letter 2011-35. Compliance Appraisal Disclosure: Are we allowed to tell the listing realtor what the home appraised for? All documents associated with the bank and borrower within a file are confidential. Technically, you may not release anything without the written consent of the borrower.

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WHAT IS YOUR MORTGAGE IQ? Facebook Post: Just wanted to let you know that lenders are not allowed to tell a listing or selling agent the appraisal value without written consent from the borrower. Fannie Condo Occupancy: Can you help point me in the right direction on this? My underwriter is telling me that Fannie & Freddie now require a 70% owner occupancy ratio on condos as opposed to the previous 51%. Can you verify that? 70% of the units must have been conveyed or under bona fide contract to owner-occupant principal residence or second-home purchasers for a New Condo Project. 51% occupancy requirement comes with Established Projects for investment homes and does not apply when borrower is purchasing a principal residence or second home. Fannie/Freddie Income Trust Account: I have a borrower with an automatic withdrawal program from his trust account in the amount of $5,000 per month. Are we allowed to use this as income for qualifying? Fannie guidance suggests a two-year history will be required – they require two years tax returns in the event the Trust documentation doesn't provide information about the historical level of distributions. A three-year continuance is

required as well as evidence of the amount, frequency and duration of payments. Freddie guidance is clear – evidence of the amount, frequency and duration of payments. Historical receipt is not required. A three-year continuance is required. In this case, Freddie is more lenient than Fannie. Fannie/Freddie Realtor Pays Closing Costs: If a real estate agent gives the buyer a credit at closing to offset closing costs on the HUD, is it limited to the “contribution” limits? Yes – and yes, the contribution is limited to typical seller concessions limitations, depending upon the down payment and loan type.

Written and contributed by Karen Deis of Provided monthly by www. – interpreting the Rules and Regulation Changes for loan officers, processors, underwriters, and owners/ managers. Mortgage Talking Points TM, charts and checklists included.

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BRINGING UP THE REAR - continued from page 50

money and came up with $100,000 in order to invest in the stock market. And we make a nice 10 percent return… so, we now have $110,000. Then one day, I mention that I have a rich uncle from whom I can borrow whenever I want or need to with an interest rate that’s only one percent. My idea is that we borrow let’s say $900,000, so we can invest $1,000,000 instead of only the $100,000 that we brought to the game. So, we invest the million dollars, and once again, we earn a 10 percent return, which is $100,000… and voilá … we’re superstars… we’ve doubled the money we’ve invested… and so we repay my uncle plus one percent interest, and then pay ourselves huge bonuses while telling each other how smart we are. But what happens when our chosen investments not only fail to produce 10 percent returns, but their value falls by 10 percent. If we had invested only our own $100,000, then we’d lose ten grand, lick our wounds and get ready to fight another day. But if we had invested the million bucks that included the $900,000 we borrowed from my uncle, we’d lose $100,000… and be entirely wiped out because we only had $100,000 in the first place. Now consider that we’d borrowed 40:1… so our $100,000 fund becomes $4 million we can invest… and now, should we lose 10 percent on our investments, we lose $400,000… but don’t worry ‘cause we’re too big to fail and the American taxpayer will pick up our $390,000 tab in order to make sure that we don’t threaten the entire global banking system. And that’s precisely what occurred in September of 2008. The banks had derivative securities called collateralized debt obligations or CDOs that they had valued themselves using their own internal models, and then they borrowed against them. When their value collapsed, and their payments came due… we deemed them too big to fail and invented TARP… and we’ve been inventing other, shall we say less televised ways to pump more than $16 TRILLION into those banks ever since. It’s money that our children and perhaps our grandchildren are going to be paying back for a long time to come. Leverage, however, is like financial crack. Once you’ve been on it and experienced its highs, it’s hard to go back to investing money the old fashioned way… especially when you know you’re too big to fail. The temptation must be impossible to resist because 48

February 2012

it might interest you to know that in 2011, margin debt on the NYSE climbed to its highest levels since February of 2008… right before the S&P collapsed in half. And the only time in history net leverage has ever been higher than it is today was back in June of 2007, which was the absolute pinnacle of the most devastating credit bubble the world has ever seen. And that, my financially minded friends, is what is meant by the term, “MORAL HAZARD.” To Credit Suisse’s Bail Bestoff… no, that’s wrong… I meant, Dale Westhoff… we would create moral hazard were we to write down the principal balances of mortgages that are hopelessly underwater. Dale seems to feel that if we did that, everyone and their brother-in-law would immediately start defaulting on their loans in order to get their balances reduced. And before you knew it… we’d have… what’s the word I’m looking for… oh yeah… prosperity? People making mortgage payments again? An actual housing market? Economic recovery on Main Street? Consumer spending? A positive GDP without fudging the numbers? What Dale… what is it you fear, my lad? Earlier this year, in the latter part of January, Dale told Bloomberg… “Reducing mortgage balances is a risky idea that hasn’t been shown to keep borrowers who owe more than their property’s worth in their homes.” Well, gosh Dale… you are obviously quite the research expert aren’t you? That’s true, isn’t it? Did your research point to any reasons why that would be the case? Would you mind terribly if I were to just throw out a guess just for fun? It’ll be like a game show… I’ll take, “Because we haven’t tried it! And make that for $200, Alex.” Dale also said… “We’ve never done this before; we don’t know what the risk is.” Brilliant, Dale… that’s my boy. So, I guess reducing principal balances hasn’t been shown NOT to keep people in their homes either, isn’t that right Dale? Did you forget to tell Bloomberg that part, Dale? How about this for a headline in an upcoming story I’m working on now… “Non-recognition of Losses and 0% Interest Loans Don’t Help Banks.” Suspending accounting rules is a risky idea that hasn’t been shown to keep banks that borrowed more than their assets are worth from becoming insolvent, according to

BRINGING UP THE REAR Credit Slush Fund PIG. Are you feeling me, Dale? Here’s the thing, my boy… I think you’re the moral hazard here, would you like to know why? Because although you failed to mention it, I happened to be doing some reading the other day and wouldn’t you know it… Credit Suisse was in a bit of news. Nothing earthshattering or even unexpected, mind you… but news nonetheless. Apparently, right before you made your foolish comments about homeowners and moral hazard, saying that principal write-downs won’t save homes, Credit Suisse had just won the bidding process and as a result bought $7.014 billion in face value RMBS (“Residential Mortgagebacked Securities”) from the Federal Reserve Bank of New York. The New York Fed bought the securities from AIG and had them in their Maiden Lane II, which is the New York Fed’s… what do you call that sort of entity… shell company? So, when Maiden Lane II bought the assets, their face value was $39 billion… and they paid $20.5 billion. Now their face value is just over $7 billion and Credit Suisse paid… oh dear, wouldn’t you know it… darn the luck… the NY Fed says the actual price you guys paid won’t be disclosed until April 16, 2012. Why is that, Dale? Why can’t the Fed disclose how much the Credit Suisse bid was until April 16, 2012, when the sale was made on January 19, 2012? I’m sure there’s a perfectly good reason don’t get me wrong… I’m sure it’s just something to protect the interests of U.S. taxpayers. Always looking out for us, aren’t you, Dale? So, I hate to even mention it, but does the fact that you guys at Credit Suisse are running around like vulture investors trying to scoop up distressed residential mortgage-back backed securities at bargain basement prices bother you at all… I mean, considering that at the same time you’re publishing supposed “research” under headlines that include the one I’m referencing now, “Mortgage Principal Cuts Don’t Help Homeowners, Says Credit Suisse?” The only reason I’m asking is that Laurie Goodman of Amherst Securities was quoted in that same Bloomberg article and she said… “Amherst’s (Laurie) Goodman says that principal reductions are needed to avoid 8 million to 10 million more distressed-property sales.” See, she said that, I’m pretty sure, because she felt it would be a bad thing to have 8-10 million more distressed

property sales, but it looks like Credit Suisse wouldn’t actually mind at all if there were lots more distressed property sales, since Credit Suisse is scampering about in the night buying them for pennies on the… no, that’s not right… for some undisclosed amount to be disclosed on April 16, 2012. The suspense is killing me, Dale. I wonder if Credit Suisse overpaid for the distressed assets they bought? Any guesses on how it will turn out? Care to know what else Laurie Goodman said about this topic? Me too… she said… “We have shown that, even controlling for all other factors, principal reductions are more effective. Realize also that banks are doing it on their own portfolios and have been for years. Why would they continue if it was not more effective?” Oh, Dale, Dale, Dale… so the banks have been doing principal write-downs for loans in their own portfolios for years, isn’t that fascinating? So, it must be that principal reductions are only an effective methodology for preventing foreclosures when we’re talking about portfolio loans on a bank balance sheet. The whole moral hazard thing only makes principal write-down ineffective when the U.S taxpayers are on the hook for the losses… and when Credit Suisse might get a chance to buy the distressed assets at pennies on the… ooops, forgot… can’t tell until mid-April. Congratulations, Dale. As rear ends go, you have no peer.

Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on ML-Implode called Mandelman Matters. He also publishes a Monthly Museletter and you can follow “Mandelman” on Twitter. Send your responses to

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Bringing Up the rear Dale Westhoff, Credit Suisse Group AG BY MARTIN ANDELMAN


t takes brass petunias to be a banker these days and come out in opposition to writing down mortgage balances for homeowners hopelessly underwater because of “moral hazard.” And yet, that is precisely what Credit Suisse’s global head of structured products, Mr. Dale Westhoff has done. In January, he was interviewed for a story on under the headline: “Mortgage Principal Cuts Don’t Help Homeowners.” The term, ‘moral hazard,” just everyone understands, is a term used in economics or finance, and it’s what can occur when one party is making the decisions about investment risk, while another party is on the hook for the losses should those decisions go awry. You know, like if I were deciding where to invest money, but you had to cover my losses when I chose to invest in Lehman Bros. and Bear Stearns. I’m trying to think of a good example that everyone will understand… hmmm… there must be something that would work… oh wait, I know… exactly like today’s banks… the ones that

have been deemed too big to fail, and too big to jail. Today’s too big to fail banks know that the government won’t let them follow Lehman’s path to bankruptcy, so they take on more risk than is prudent. And when their leveraged bubble du jour pops, we-thepeople spend years trying to get their gum out of our collective hair. In the parlance of Wall Street, taking on risk means taking on leverage. Leverage is Wall Street’s euphemistic word for borrowing or debt, so when a Wall Street banker says his firm is leveraged, what he means is that the firm is investing using borrowed money. As long as the chosen investments are increasing in value, or at least can be reported as increasing in value… everything’s fine. When the market realizes what’s happening, investors start to get nervous, so they start moving money out of riskier investments into more defensive positions, which in turn increases the risk of staying put to other investors, and at some point everyone rushes to get their money out before there’s no money there to get. Here’s a quick example, just to make sure we’re all on the same page about this topic. Let’s say we pooled our - continued on page 48


February 2012

(Missing Something?)

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February 2012 Loan Officer Edition  

The Niche Report - February 2012 Loan Officer Edition