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Issue 033 April 2010


Buying 10 The Decision Not the same as yesteryear.

Shhh ... Frank & Bringing Many Light 50 23 16 How Brian Speak up the Rear: Bulbs Does it Take to Change an Investor? by Mandelman.

Policing ourselves.

John C. Courson CEO, Mortgage Bankers Association.

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Issue 033

April 2010

How Many Light Bulbs Does it Take to Change an Investor?


pg 43 pg 43 pg 44 pg 45


10 13

The Buying Decision David K. Lal President National Real estate council Not the same as yesteryear.




Frank Garay & Brian Stevens Think big work small Policing ourselves

09 28 31 34

From the Blog


Shhh ... Frank & Brian Speak

Naomi Trower mortgage broker and owner Premier Equity Group, Inc. & Premier Realty Group What does social media mean for mortgage anyway?

April 2010

Bringing Up The Rear: John C. Courson Martin Andelman Mandelman Matters CEO, Mortgage Bankers Association

Online Lead Generation Dennis Yu ceo blitzlocal What should my website cost?



39 46


ACCOUNTING MANAGER Shawna Ingram Advertising Director Jessica Grizzle Advertising sales Heather Bopp Production Manager Henry Suchman Production Assistant Dawn Exner COLUMNISTS Martin Andelman Karen Deis Frank Garay Stewart Mednick Adam Quinones Brian Stevens Naomi Trower Dennis Yu CONTRIBUTING AUTHORS Joe Murin Ed Connor David K. Lal

NEW! Capture PURL Visits + Send Mobile Messages + more! Along with the Inbound Call Tracking System, you get the new C l i e n t C l i c k i n g TM dashboard which captures each PURL visit with their corresponding FICO data, including mortgage balance and current lender name. It will also capture email address and mobile number via permission based software. You can even send a mobile message to your PURL lead right on screen.

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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:

SUBSCRIPTIONS This publication is intended for real estate finance professionals. If you are a mortgage broker, lender, loan officer and you do not currently receive The Niche Report, please send your name, company name, and address to Send address change requests to Remember to include the old address. To opt-out of receiving The Niche Report, please send your request, including name, company name, and address to

ADVERTISEMENTS To inquire about advertising in The Niche Report, please call 866.964.2695, or send an email to Visit our website, to download a copy of our Media Kit.

EDITORIALS / ARTICLES To submit an article for consideration in The Niche Report, please send an email to or call 866.964.2695. We are interested in original writings relevant to mortgage brokers and other real estate finance professionals. If you have a comment or question about an article or editorial published in The Niche Report, or if you have a suggestion for a topic you would like to see featured in a future issue, please send an email to

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.


2010 could be the turnaround year for the economy. It could be another great depression. Government budget short-falls for 2011 could be worse than this year. In the early years of this century, the real estate/mortgage industry carried the economy when the stock market, job market, and gross domestic product were all dropping in the same direction as in 1929. We faced a similar situation in 2008 and are still struggling to climb out of this current hole called recession. The difference between now and seven years ago is the position and health of the housing market. Because the real estate/mortgage industry was so powerfully healthy with the “refi-boom,” many banks became uber-competitive and created what Greenspan dubbed as “exotic loans.” Being a mortgage broker myself, I clearly remember a rep from a mortgage wholesaler coming into my office with the exciting news of their newest loan program. A potential homebuyer need not have any credit… none, could have no money down, qualify for 103 percent financing on ‘non-traditional credit’ and make interest only payments for the first five years. I am sure many of those loans and others are the crux of foreclosuremania. I never did originate a mortgage with that program, but I did utilize many pay-option variable rate programs for investors and refinancing home owners. Needless to say, none of these mortgage companies are in business today, including Countrywide, Greenpoint and DecisionOne. I still have the staplers, backscratchers, squishy balls and a drawer full of pens to recall glory days. That is all I want from those years. With new restricting regulations, foreclosures at record high and the sub-prime dinosaur in the Museum of Mortgage History, we are redefining our industry again… again… again. What this means to all of us still standing is to establish the norm; a new reference, by which future years will be compared. We need to perform our jobs with pride, ethical compassion, professional rigor, and reclaim the title of ‘trusted advisor.’ This leads me to our feature article this month, from Mandelman, who gives us a different view on investment strategies. Forget everything you’ve been told, from the time you were a kid, about diversification and keeping your money in the market long term. He will certainly wake some folks up. In this issue we launch the highly anticipated premier column from the guys of Think Big Work Small – Frank & Brian. You won’t want to miss what they have to say about their visit to Washington DC for the NAMB legislation conference. We also are launching a new column titled From The Blog. I will be picking one post per month from our recently launched TNR Blog to publish in this very magazine. This issue has Naomi Trower, a social media guru to the mortgage industry, talking about what this concept means and how we can utilize it to roll with the changes. Get used to seeing and hearing about Naomi, she is a classic overachiever and a rising star. Cheers!

Stewart Mednick


The Buying Decision Not the same as yesteryear By david k. lal


he buying decision today, is made very differently than it was years ago. The modern client wants to make the buying decision on his or her own after weighing all the facts. Pushing a client to make a buying decision with the hard sell tactics or clichéd closing questions will only alienate you from your prospect. Abandon such strategies immediately. Understand that your future clients will make the decision to buy, sell, borrow or invest, on their own, after they have considered all the facts. After your prospects have gathered the necessary information to their satisfaction and processed it in a logical manner, they will arrive at the only logical conclusion: They must take action to buy, sell or borrow and most importantly, they must use your services. In order to allow your prospect to draw the appropriate conclusion, you must control the facts. That’s right; YOU must be the primary source of information for your prospect. Controlling the facts is a responsibility that you must take very seriously. It is your obligation to provide accurate information in a manner that is consistent with your client’s goals and one that leads to a sale. Focus on the facts that make your point, but don’t make the point. When you control the facts and present your prospect with options and choices in a way that the only logical conclusion to be drawn is to buy from you, they will buy from you!


April 2010

ESTABLISH YOURSELF AS A LEADER Your prospect must come to accept that you are an excellent source of information. To do this you must establish yourself as a trusted authority on your subject by calling attention to your achievements and standing in the community. Your prospect must see you as a professional on par with their doctor, CPA or attorney and put as much weight on your opinions as they would on the information they receive from these other advisors. You must change from a run of the mill realtor or loan agent to an industry leader. Examine your past accomplishments, your current affiliations and various roles. What can you say about all of these achievements that will shine the brightest light on you? Modesty or inadvertent disregard of their own accomplishments keeps many agents from taking their rightful place as a respected professional. Stop being so modest and begin to toot your own horn. CONTROL THE FACTS When your prospect accepts your authority in the industry, they will be happy to rely on your opinions and your advice. Dispense your advice and facts as undisputed information – but nothing more than information. Let the prospect draw the obvious conclusion. Many agents try to too hard to convince prospects to choose this or that, let the prospects make up their own mind. Trust that an intelligent prospect will make an intelligent choice based on right the information. Your job is to supply that information. Know your facts thoroughly. Present only the relevant facts. If the all the facts are not in your favor, present the negative or contrary facts first, get it out in the open and then provide the facts that will offset

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it. Don’t try to ignore or whitewash information that will not support your case, present it. By sharing all the information you further establish your creditability as a leader.

CLOSE THE DEAL Assume the sale, make plans to list, take the application, etc. Assume that the prospect drew the same, obvious, conclusion as you did, until they tell you otherwise. Be prepared to walk. The less you sell, the more your prospect will want to buy. For example, (this is an over simplification, but you will get the idea) if your prospective buyer/borrower wanted to buy a home below market value with good appreciation, you may provide data regarding the advantages of buying a short sale, the risks of poorly executing a short sale, selected strong neighborhoods, and the advantage of buying a short sale today, the mistakes that are made by novices and the huge ramifications of those mistakes. Explain how to avoid the mistakes and share details of what you have done and what qualifies you to help have assisted your past clients to make the wise choices. Establish your authority. After your authority has been fully established, your client will conclude that he should buy a short sale, right now in one of the select neighborhoods and you, as the short sale expert should orchestrate this transaction. As luck would have it, you or your associate have a short sale listing available right now in the right neighborhood and you are able to begin the loan pre-qualification right now. People want to work with industry leaders. People want to receive the best available advice and information; people want to make up their own minds. All you need to do is help the process along. How have you changed your marketing strategy from a few years ago? Email me your story so I may include your success story in a future article. David K. Lal is a licensed broker, a frequent trainer on real estate matters and a consultant to top producing mortgage and real estate professionals. Lal currently serves as the president of the non-profit, National Real Estate Council. Join other top agents in a twice a month free Power Conference Calls to learn new strategies, marketing and legal updates at training. Lal can be reached at or by calling 888-97-4-NREC.

Online Lead Generation

what should my website cost?

If you’re baffled by the bits-and-bytes geekspeak about driving mortgage leads from the Internet, I’m hoping this article simplifies things for you and makes your day. You can get a site for free, or pay $50,000 for a custom design. What’s the difference? Where are you getting snake oil versus necessary value? What questions should you ask in building or upgrading your site, and how does a nontechnical person manage a technical process? This article will help you understand some of these issues so you can be informed when talking to your web designer. No more feeling like you’re bringing your car to the mechanic, praying that you’re not getting ripped off.

The Bottom Line Unless you have unique needs—some special requirements for your site that no other mortgage broker

in the country has—there’s no need to custom-build anything. Almost everything you can ask for has already been built out there and it’s free, despite what someone will want to charge you for. And since BlitzLocal is in the business of charging for services, why would we reveal this to you? Because you should only be paying for two things: advertising (to get people to your site) and training/support (when a human must get involved to troubleshoot something, create some artwork, or do some other non-automatable task). Everything else should be free. This wasn’t the case three years ago, by the way, before the explosion of open-source software that now powers most of the Internet. Like nearly everyone else, you’ll probably want: To update the site content yourself as easily as sending an email: That’s where open source tools like WordPress come in handy. This pre-built website framework (called a content management system) is used by the largest sites on the planet. It’s free, has no catch, and offers thousands of more free templates you can choose from. WordPress has put many web designers out of business, as firms can get better quality pre-made sites for FREE. Plus, you’re not locked into an expensive maintenance contract any time you want to make a small


Online Lead Generation

change (more on this below). To get lots of targeted traffic: What good is a beautiful, information-rich site if nobody can find it? Many firms will charge anywhere from a couple hundred dollars to a few thousand dollars a month for something called SEO (Search Engine Optimization), which is the promise that you’ll get found at the top of Google when someone searches for “Denver home loans”. Don’t go for that. To get people to your site, you have to either purchase advertising on Google, Facebook, or elsewhere (called Pay Per Click marketing) or you have to rank for it by getting people to link to you. Since you’re looking for mortgage leads, your best bet is to use a free SEO plug-in (more below), get other sites to link to you, and do some advertising. In short, don’t pay anyone a dollar for SEO services if you’re a mortgage broker. SEO is valuable, for sure, but generally not affordable or viable if you’re not a national chain in this industry. A killer landing page: Once you get someone to your site, you don’t want to waste that hard-earned visit. The page better not look like one of those generic ones seen on parked domains. It should have pictures of you (so they know you’re real), testimonials of your clients (to build trust), and your phone number better be HUGE and in the upper corner of your site, and again at the bottom. You should shoot for one phone call generated for every 10 visits—any less than that and you might have a “conversion” problem with your landing pages – that is, a page that isn’t compelling or clear enough to get the visitor to do what you desire. A social presence: Doing most of your business via word of mouth? Great! Now make sure that you’re integrating Facebook and Twitter with your site so that your website can be your ally to help spread the word about your business. Have your friends and friends of friends think of YOU when it’s time to refinance or get that commercial loan. Tracking: Do you know how your website is performing -- where people are coming from,


April 2010

what they’re doing on the site, how your various marketing campaigns are doing, how many people are filling out contact forms, how many phone calls are coming in? Google Analytics, like WordPress, is FREE, easy to use, and also the best tool out there. No catch, really. For call tracking, you can even use Google Voice, which does message transcription for free, too. Software, for the most part, is now free. What you should be paying for is advertising and certain kinds of labor. If you’re paying someone to build software for you, something is likely wrong. You’re probably building a custom inferior copy of something that is already out there for free. And your “custom” software suffers from debilitating bugs, since it hasn’t been battle-tested by millions of users. Plus, you’re not in the business of building custom websites. You’re here to drive leads and service clients. If you wanted to be the best cab driver in New York City, would you set out to build your own automobile? No, you’d focus on offering the best service and being the most knowledgeable. As a mortgage professional, you will win on service and great information, as opposed to having unique website coding. Here are the kinds of things that you would pay for in building and managing your website: Hosting: You have to have your site somewhere—and you don’t want to be in the hosting business, trying to deal with maintaining your own servers. Choose bluehost, dreamhost, or GoDaddy for between $5 and $10 a month—most will install WordPress for you for free and you can easily pick what template to start with. Design: Not talking about $50,000 design projects, though our firm certainly does those for some large brands who want to pay and need to be unique. For you, consider getting a custommade landing page that has your images and your content for perhaps $100 via elance. com, or another freelancer site. There are folks who make skins for WordPress for a

Online Lead Generation

living and it’s worth $100 for you to do this. Maybe get some banners made for $20 each. The trick here is finding a good designer and knowing how to manage them. Look at their portfolios and feedback ratings to tell. If they’re based in the United States, expect to pay about 5 times as much. There are pros and cons here. You can get great work offshore provided you are VERY specific about your requirements—ideally, by asking them to mimic someone else’s design you like, then tweaking from there. Advertising: This is where you should be spending most of your money, but not before you have a site worth sending traffic to. Don’t turn on the faucet until you know that the pipes aren’t leaking. The evolution of free software has gone from basic infrastructure (operating systems and web servers) to point solutions (content management systems and analytics), but hasn’t gotten there for advertising tools yet. Thus, you’ll have to pay someone to run your advertising for you or learn how to do it yourself.

websites, coming from an experienced “mechanic” who’s aware of what things should cost. Remember: websites and software are free, while advertising and labor are not. The keys to a successful site are advertising effectively to bring in qualified visitors to a website that has trustworthy content that you’ve written. If you’re not a mortgage broker and you want to build something truly custom, these rules don’t apply. You’ll just have to see what software is available out there that already does what you want.

About the author: Dennis Yu is Chief Executive Officer of BlitzLocal, which specializes in online lead gen for businesses that have a local presence. He is an internationally recognized author, having appeared on CBS Evening News, National Public Radio, KTLA, Entrepreneur Magazine, and other outlets. His blog is at and you can reach him at

If you don’t want to find a hosting company, hire a designer, and find someone to run your campaigns, there are firms that will do all of this for a management fee. Even if you plan to hire someone, I’d recommend that you learn about how these processes work. It will help E X P R E S S you better understand what your firm is doing for you and identify where you’re not getting the right service, being overcharged, or why, after the project’s done, Amazing Software ~ Current Guidelines you still might not be getting a good return on your Automatic Calculations ~ Accurate APR investment. e-Flyers Imagine you’re going to a car dealership to get Beautiful New Mediterranean Style Home Family Oriented Floor Plan & Park Like Setting AND your oil changed. They want to charge you $3,000 to change your oil because they want to make some custom Printable PDF’s oil for your car ($2,000) and bring in a mechanic to do this ($1,000). Assuming you don’t have an exotic, which often do have $1,000 oil change bills, you’d Mortgage probably look at the sales rep and ask “$3,000 to change Flyers the oil on my 2007 Toyota Camry? Could you break e m o etting tyle H ean S Park Like S that down for me?” And if the mechanic replies with te erran Medith Large Priva w e N ful n wit some mumbo jumbo about how your car is a very Beauti ted Floor Pla Orien y il m Fa sophisticated machine that requires precise care—plus Uncle Sam has $$$’s for you! asks you if you value your safety and that of your children, such that you want to get your oil change done right, what do you say? OSIIs now the rig I hope this is an eye-opener for you on the cost of ht ti m

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These credits apply directly against income taxes owed, and may actually create a refund for some homebuyers.


First time homebuyers* did you know that you may be eligible to receive a tax credit up to $8,000? Now is the time for you to achieve the dream of homeownership.

Step up buyers** are you looking to buy a bigger home? You may be eligible to receive a tax credit up to $6,500! Move up to the home you have always dreamed of.

Call me for details.

How many light bulbs does it take to change an investor? By Martin Andelman


f you're old enough to remember the 1980s, you've undoubtedly heard the conventional wisdom about retirement investing from a slew of financial advisors. Here's how it goes: Invest in equities, through quality mutual funds, diversify properly relative to your tolerance for risk, hang in there for the long-term… don’t panic and everything will work out fine… you'll achieve your financial goals and enjoy a comfortable retirement. Or something very close to that, right? Basically, ever since Oliver Stone's movie Wall Street, we've all been told that the stock market will go up and it'll go down, but over the "long-term" we’re all but certain to do better investing there than anywhere else. Today, something like 75% of all Americans are invested in the stock market in one way or another, and they do so believing that this is the path to accumulating

the amounts they need to retire comfortably. Americans invest in the stock market through their employersponsored retirement plans, their IRAs, their pensions, insurance policies, and more. It's become accepted conventional wisdom: If you want to invest for the future, you need to have most of your savings in stocks. It seems like a maxim that’s been around since Aesop’s Fables, but that’s simply not the case. Consider that in August of 1982, the Dow Jones Industrial Average hit 772, but by that year's end, an interest rate fed Bull Market was born and it would last for an astounding and unprecedented quarter of a century. On October 9, 2007, the Dow Jones Industrial Average closed at a record 14,164.53. Seven hundred and seventy two to fourteen thousand and change? Now, that’s what I call a bull market. So, what is the definition of a bull market? That one

is easy. Mandelman’s Dictionary defines “bull market” as: A temporary condition that makes investors feel like geniuses. Well, the proverbial jury has now been in for some time and I'm sorry to say that the news is not good: We've been lied to. Deceived. Misled. Manipulated. And, as a result, our ability to save the amounts we need to retire comfortably is… well, shall we say… somewhere between lacking and nonexistent. We've been confounded by charts. Stunned by statistics. And buffaloed by B.S.

Avoiding Future Financial Shock If you're under forty years old, chances are there's no talking to you about investing for your future. If you're over forty, you're looking at 65 as being just around the corner, and it's now critically important that you take a moment to take stock. No, not buy stock JP, I said take stock. As baby boomers, our retirement years are approaching faster than any of us wants to think about. If you don't start to scrutinize your views on, and skills related to investing for your future years, then what's in store is likely to come as quite a shock. To avoid that future shock, we need to better understand how we all got here, so we can change the way things go, going forward.

Understanding Bubbles… We seem to have a love-hate relationship with bubbles. It all started in mid-1980s, when "greed was good," corporate raiders were modern day cowboys, and junk bonds meant that money was flowing through Wall Street like lava from Mt. Vesuvius. Of course, much like what happened when Vesuvius erupted above the town of Pompeii in 70 AD, it all soon came to a standstill. The "Black Monday" market crash of October 1987 signaled the end of an era. Drexel Burnham Lambert, Mike Milliken, Charlie Keating, Ivan Boseky, and the other names that had by then permeated our lexicon as being leaders of American business, all ended up to be major disappointments, to say the least. The bubble popped, S&Ls went under, and suffice it to say… it was a real mess that was certain to trigger a bad recession. All of a sudden we went from thinking that having a new BMW was cool, to viewing a mini-van and a savings account as much cooler. Then, after weathering the recessionary storm of the early 1990s, we saw little company named Netscape go public, and soon three initials were on everyone's mind: I, P and O. Everyone was "doing it". We heard stories of business plans written on napkins by college drop-outs raising innumerable millions, our neighbors all seemed to have bought Cisco Systems at $6 a share, and tiny AOL,

who was attempting to wallpaper the planet with free CD ROMs would soon be buying out media mega-giant Time Warner. It didn't make a lick of sense to many people, me included, but the stock market was flying high, a "new economy" had supposedly arrived, and early retirement became the buzzword of the day. Cab drivers were day trading, and just about everyone over the age of 18 had a stockbroker on speed dial. Never mind that Alan Greenspan was warning of irrational exuberance and Warren Buffet was sitting on the sidelines. Never mind that the companies we were investing in didn't make any money. Other people at least appeared to be getting rich, so in the spirit of Sutter’s Mill, we jumped in with both feet. Then, on April 10th, 2000, the bubble popped… again. American consumers lost $7.3 trillion as a result, and prayers rang out across the land. We promised God that we would only buy bonds for the rest of our lives, if Cisco would just come back to $84 a share, even for a moment. IPO, as it turned out, didn’t just stand for Initial Public Offering. It also stood for: It's Probably

Overpriced. When the dot-com bubble popped in 2000, the United States was plunged into a recession that many feared could become quite serious, as the prospect of "deflation" came into view. But, the Federal Reserve under Greenspan, determined to avoid a replay of the 1970's economic malaise, lowered rates and opened the floodgates of capital. Almost overnight, real estate became our saviordu-jour, and soon it would be our homes that would save us from ourselves. Someone that lost his or her bet that would reach $400 a share, could still be assured a comfortable retirement simply by owning a home and perhaps investing in a duplex. Or, as my good friend Ernie Banks of the Chicago Cubs might have said back then: It’s a beautiful day for an open house… Let’s buy two. (Sorry Ernie, I couldn’t help that.) "Real estate is by far the safest investment you can make. Housing prices will never fall like share prices." That was the thinking way back then, remember? " may go to zero, but a house simply can't do that." People ignored anyone suggesting that yet another bubble was in the making. And when I say “people,” I’m including the Chairs of the Federal Reserve Bank, among

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countless others. The fact that housing prices had fallen after previous booms, such as in 1990, didn't seem to matter. "This time is different", was the thinking of the day. Of course, that was exactly what the stock market analysts had said in the latter half of 1990s, but we didn't seem to remember that far back for some inexplicable reason. Here's what the venerable Economist magazine printed in May of 2002: IF THERE is one single factor that has saved the world economy from a deep recession it is the housing market. Despite the sharp fall in share prices and a worldwide plunge in industrial production, business investment and profits, consumer spending has held up relatively well in America, supported by low interest rates and the wealth-boosting effects of rising house prices. Over the 12 months to February average house prices in America rose by 9%, the biggest real increase on record in America.

Yes, we were all blowing hot air into yet another bubble and by 2005 that bubble was approaching the size of Saturn. Here's what the Economist wrote in June of 2005: PERHAPS the best evidence that America's house prices have reached dangerous levels is the fact that house-buying mania has been plastered on the front of virtually every American newspaper and magazine over the past month. Such bubbletalk hardly comes as a surprise to our readers. We have been warning for some time that the price of housing was rising at an alarming rate all around the globe, including in America. Now that others have noticed as well, the day of reckoning is closer at hand. It is not going to be pretty. How the current housing boom ends could decide the course of the entire world economy over the next few years.

Never before in history of the world had housing values gone up so fast, so much, and for such a long period of time. The rising property prices that had helped prop up our economy after the dot-com bubble burst in 2000, but it was about to get ugly. According to estimates published by the Economist in the second half of 2005: The total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, which is an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stock market bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.

Of course, by the time 2007 appeared on our

calendars, the real estate bubble had popped over a year before and many of us, for THE THIRD TIME, were again trying to get the gum out of our collective hair. The economic crisis we now face, as a result of the giant real estate bubble having popped, has decimated our wealth, and has only just begun to destroy our national psyche. So, three bubbles… we're three for three. What's next? Are we waiting for yet another GET RICH NOW, ASK ME HOW OPPORTUNITY, through which we can finally catch up so we can retire in style? Or will we finally learn that we can't afford any more of those fabulous, sure thing opportunities? It is the view of many self-proclaimed "experts" that it is we investors that are the culprits. We, as the thinking goes, are our own worst enemy. It is simply human greed that creates the bubbles that cause us such financial harm. And therefore, since greed is here to stay, we are doomed to repeat our past behaviors. But is this easily reached assumption really true? Are we really just greedy opportunists receiving our just desserts as the bubbles we create inevitably pop? The answer is unequivocally "let's hope not". (866) 355-9944 Mortgage Insurance Agency, Ltd. is the largest writer for Surety Bonds and E&O & Fidelity policies across the country. State LicenSe Surety BondS

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There's no question that greed is an inherently human trait that we are all capable of exhibiting under the right circumstances. But, to assume that greed is what fuels our collective investor psyche in my mind is simply too cynical, along with feeling like a conclusion far too easily reached. Consider, for example, that most of the people that saw their 401(k) balances decimated as a result of the dot-com bubble's demise weren't being greedy when they jumped on the technology bandwagon. Greedy people, one would think, would be more careful… more crafty. Greedy people don't leave 75% of their retirement investments in their own company’s stock, and then sink the rest into a technology growth fund. I would tell you that it’s not greed that drives us to our lemming like self-destructive behavior. People jump on such bandwagons, not because they’re greedy, but because they don't want to be left out of what everyone else is doing, and from which many appear to be benefiting. Being left out sucks… big time. We hated being left out in elementary school and high school, and we don't like it any more as adults. No one wants to be the one still looking for an empty chair when the music stops. The feeling of being left out, like greed, is a basic human trait, but it's much more commonly shared than greed. There are unquestionably some among us that are greedy, but none of us relishes the idea of being left out. So, while we do provide the air that inflates our market's bubbles, it's not being driven by all-too-human greed. We are simply trying to ensure that we are not left out of a party to which so many of our peers appear to have been invited. Human traits, such as greed are not things we can change… such traits can only be controlled to varying degree. However, human beings will never like the feeling of being left out… not even for a moment. With all of this in mind, it shouldn't be difficult to imagine how investment bubbles keep happening around

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the kitchen tables across this country. "Honey, we should buy more technology stocks… Joe and Mary bought more technology stocks… why can't we buy more technology stocks? Or, more recently: "Honey, we should buy another house… Joe and Mary just bought another house… Tom just bought a place in the desert… everyone but us has at least two houses… shouldn't we buy another house? We don't want to be left out!!"

Left Out of a Financially Secure Future During the technology bubble of the last half of the 1990s many of us were contemplating an early retirement as a result of what looked like was newfound investor prowess. Today, we're not entirely sure that we will be able to retire at all, and few of us can remember the name of the last stockbroker we used. Just try mentioning that you received a "tip" from a broker at an upcoming social gathering and you'll quickly see how risk averse we've actually become. Oh sure, we haven't appeared to be all that gun shy these last few years, but that's only because we were floating around in the real estate bubble. But make no mistake about it… those that jumped into real estate were driven by a need for the assumed relative safety of the real estate market. No one thought investing in real estate could be overly risky because everyone was doing it, and because houses, regardless of their purchase price, could not end up being worth nothing, as was the case for shares of and Home Grocer. Those that got into real estate later in the game, however, did so not out of greed… but to ensure that they would not be left out. Numerous studies conducted after the dot-com collapse support this hypothesis. For example, many people reported feeling much less embarrassed about losing money on a popular stock that half the world owns - like AOL or Yahoo - than about losing on an unknown or unpopular stock. As long as everyone's losing… or winning… we're okay with it. This is another example of why we're terrible at investing: We buy what's "hot". All data shows that money flows into high profile mutual funds much faster than the money that flows out of underperforming ones. As a result we continually buy high, and sell low… and it would seem are destined to do so. There are many other aspects of human behavior that impact our ability to invest effectively. Some studies show that we're more scared of losses, than we are happy about gains. Anchoring is the concept that shows that

people tend to place too much credence in recent market events and opinions, and ignore historical, long-term averages and probabilities. And most of us are just generally overconfident. Countless studies show that people generally rate themselves as being above average in their abilities. We often overestimate the precision of our knowledge, and our knowledge relative to others.

We're human, and therefore… we're doomed? It would be easy to reach the conclusion that as flawed human beings we are doomed to repeat our failures as far as investing or preparing for our future goes, but I don't believe that has to be true. I believe that, by understanding our inadequacies, we can overcome our established tendencies. The Solution: Change your view of what you don't want to be left out of… It's time to take hold of the law of nature that dictates that we, as human beings, don't want to feel left out, and harness its power to our advantage. We can learn from the past… if we want to. Consider this: What's the one thing, more than anything else, that you don't want to be left out of: A comfortable retirement, right? Imagine being left out of that. Imagine watching your friends and relatives vacationing together, while you remain at home constrained by a budget far less than you lived with throughout your working life. Perfect. Now that you have the time to travel, you can't afford to. Imagine what it would be like to run out of money long before reaching your life expectancy… your last ten years of life spent struggling to exist below the poverty line. Are you imagining the horror of that situation? Good. Now, compare that with feeling of being left out of buying Cisco Systems at $6 a share, or not buying real estate when everyone else was. If the latter is a pinprick, the former is amputation of both your arms and legs… right? Once you realize that the most important thing not to be left out of is your own comfortable retirement, you can begin to change your perspective on what you need to do differently in order to make sure that you're not.

financial goals, it's the long-term performance of our investments that reigns supreme? And it makes sense, on the surface anyway. Of course you should take steps to maximize your ROI, right? If you see one fund doing better than another, it stands to reason that you should put your money where the returns are higher, assuming the risk of doing so is not significantly greater. Doesn't it? I'm not at all sure it does, how about that? In fact, I'm pretty darn sure it's all a pile of crap. ROI is investment advisor horsepucky, nothing more. It’s twaddle, of the highest order. I'm going to tell you something you may not have considered before: Chasing ROI is a fool's errand… a waste of time… essentially, it’s entirely pointless. Why? Why would it not matter what your ROI, or return on investment was? How can that be? Is that what you're thinking? Because that is what you should be thinking… that's certainly what I would have been thinking before I spent almost all of 2008 intensively studying the markets as related to retirement investing. Now, I'm thinking very differently. ROI doesn't matter for several reasons. The most important one is that your up years don’t really matter nearly as much as you probably think they do. In reality, it's the down years that kill you. If you had invested over the last 25 years in order to earn just a 3-4% annual return every year and never a penny more, but you could skip all of the down years… chances are you'd be a lot better off today. The other reason that attempting to maximize ROI isn't so important is that we are terrible at it. According to John Bogle at Vanguard, between 1980 and 2005, the average annual return was 12.3%, but the average investor earned just 7.3%. Here we go again… we love to buy high and sell during the fall of ‘08. Consider what Warren Buffet had to say about the - continued on page 41

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Policing ourselves by frank garay & brian stevens


t’s 11:30pm on Sunday the 21st of February 2010 and we’re sitting in the Sacramento Airport waiting to catch the redeye to Washington DC for the National Association of Mortgage Brokers 2010 Legislative & Regulatory Conference. Both of us were very curious as to what we would come away with from the conference however, our discussion at the airport mainly revolved around how silly the pairs figure skating costumes looked while we watched the Olympics from the bar. Brian says “they may as well make standup comedy an Olympic event”. He can be a little critical after a couple of whiskeys. Having been to a conference or two in our careers, we had typical expectations. You know the good old “hang in there” “you’ll get through this” “only the strong survive and that’s YOU” kind of stuff. But NAMB managed to line up a cast of speakers that shed some very interesting light on real status of our beloved mortgage brokerage industry. In fact by the end of the conference we came away with some sobering realizations and in all honesty, a glimmer of hope. The first thing that was very apparent was that NAMB has its problems. The bombshell that’s ripped through the industry has taken its toll on them for sure. They’re down to little more than 5,000 members and to make matters worse, there’s plenty of turmoil between NAMB and the state associations. To say that tensions were high in their delegate council meeting would be an understatement at the least. To give you an example, there were several people from the California Association of Mortgage Professionals

(CAMP) present in the room, but they were not represented as part of the council. Recently CAMP and NAMB have had a falling out, which is unfortunate, since now is a time for the industry to be as united as possible. The leadership at NAMB does realize that they need to find a way to restructure and revitalize the association and it appeared to us that NAMB is fully aware that membership is critical to their effectiveness. Even FHA Commissioner David Stevens remarked that NAMB needs “more weight” behind them when it comes to getting things done in congress. This is pretty apparent considering that although they have been successful in getting some amendments into a few bills, NAMB hasn’t been able to stop or change any of the recent thorns in the side of the industry. It certainly doesn’t appear to be from a lack of effort, but would seem that it may be due to a “lack of weight” as David Stevens implied. The next thing that became pretty clear was the fact that HVCC doesn’t seem to be going anywhere. We attended an HVCC panel featuring Al Pollard, General Council for the Federal Housing Finance Agency (FHFA) who made it pretty clear to us that even though HVCC is due to sunset in November, the GSE’s are content with the code. In addition, FHA Commissioner David Stevens was very direct in telling us that the days of the broker ordering an FHA appraisal are over. Now before you wind up quivering in the fetal position, it might help to look at things from a different perspective. As we all know, the only entity investing in our Mortgage Backed Securities Market right now is the Federal Reserve. This has kept rates artificially low, which


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has helped the housing market maintain a pulse. A huge part of our recovery is getting foreign and private investors to invest in MBS rather than the Fed’s. Stevens told us that there is pent up capital waiting to invest in MBS, but they simply don’t have the confidence to do so. He said he literally has had China in his office grilling him on what’s going on with FHA because they want to invest, but not until they feel comfortable. So if you think about it, HVCC and the new FHA appraisal ordering process, along with giving YSP to the consumer, NMLS and everything else that is causing us pain, are all items that the fed’s can point at showing foreign and private investors the efforts that have been made to ensure that “quality” is being restored to the MBS market, which in turn would inspire enough confidence for them to invest. Unfortunately it also means getting any of this stuff removed or changed, is going to be pretty darn tough at best. On a positive note Stevens was clear that the mortgage brokerage industry was here to stay. He said that the mortgage broker is critical to the industry as they can mobilize to bring lending to a community much more quickly than a bank. He did however use a quote to describe our situation saying, “everybody wants to go to heaven, but nobody wants to die”. In other words, Everyone is for fixing the problems via regulation as long as it doesn’t affect them.” Seems like a pretty good way to describe what we’re going through. Okay, so where is the glimmer of hope we mentioned in the beginning? Well first of all even though NAMB has its issues, there were a lot of people there that truly care about the industry, who do want to unite and have a strong voice, and we believe that someway somehow they’ll make it happen. Next, we heard loud and clear what ‘s needed in order to restore confidence not only to the MBS market, but confidence in the mortgage industry as a whole, and that would be “quality”. Well, what can we do as individuals to achieve that? Here’s a couple of things. First, make sure that you do your very best on every single loan you originate. Don’t do anything that can be even remotely considered fraud in any way. Cross all your “T’s” and dot all your “I’s”. Deliver good clean files and work with your investors to satisfy any concerns. Another action we can take is to “report the bad guys.” Don’t just get pissed off when some predatory lender tells your borrower that they are going to get a 30 year fixed rate at 3.5%, report them. In order to restore confidence in our industry and to reestablish our reputations, WE need to take the bull by the horns and police ourselves. Let’s face it, there is only so much fraud enforcement out there. But if we all act as enforcement, we can get the bad guys put away a lot faster. And just think about what the media will say when good mortgage people

are the ones busting the bad guys. We at TBWS are very interested in busting the bad guys. We have a big enough voice right now to cause grave damage to a predatory lender very quickly, so if you see anything that needs to be addressed, report them to the authorities and send us an email. We’ll do our best to expose them and rid them from the industry. To report predatory lending contact: The Federal Bureau of Investigation (FBI) (202) 324-3000 – National FBI Financial Institution Fraud Unit. So keep it clean out there and remember, change is up to you on every file you do. (TBWS) was founded in 2007by a group of highly successful real estate and mortgage industry entrepreneurs. Born in the most battered market in the real estate and mortgage industry's history, was conceived after decades of observing how the most successful professionals always seem to work smarter not harder. Frank & Brian can be reached at

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From the Blog

What Does Social Media Mean For Mortgage Anyway? by Naomi Trower


still remember the week when 5 of our main lenders went out of business and my husband and I were scrambling to find new ones to replace them. All of our relationships with account executives went out of the window in an instant. You know how it is…That special relationship that you have with your

specific AE’s. Times are changing… In the mortgage industry and in the way we do business. So what is all this talk about social media? Can you really use it in your mortgage business? Isn’t it just a waste of time? My husband has asked these same questions but after I’ve immersed myself in social media for the past 2 years, he’s starting to come by my desk to find out how I’m sending him all these commercial and residential loan modification leads. Now when I say immerse, I don’t mean to say that you have to be immersed constantly in social media to see results. Most of my social media strategies only take about 30 minutes a day. There is definitely one thing that you must understand: Social Media Is Where The People Are These Days 26

April 2010

Let’s take a look at some numbers: The average U.S. Internet user spends more time on Facebook than on Google, Yahoo, YouTube, Microsoft, Wikipedia and Amazon combined. Think about that for a moment. This statistic is even more staggering: In January 2010, the amount of time the average person spent on Facebook jumped to more than 7 hours.

As you can see with this chart, Facebook has recently surpassed Yahoo in visitors to their site. Facebook currently has an Alexa ranking of 2. They are the second most trafficked website next only to Google!

From the Blog

MLD Mortgage, Inc. Expand Your Earning Potential

Most of my leads come directly from Facebook Advertising which is a lot less expensive than Google Adwords but there is definitely more of an audience that will click on our advertisement for commercial relief or when is the right time to refinance webinar advertisement. It is so much easier to target a specific audience with a FREE webinar using Facebook Advertising especially since there are 39 BILLION page views per month. Don’t you want to get your business in front of these people? As you can tell, Facebook is a powerful platform to market your business if done correctly. Twitter is also another powerful social media network but most people aren’t sure how to use it most effectively. Be sure to check out my previous post to learn more Twitter strategies. Also follow me on Twitter to get an idea of how to use this platform. In addition to obtaining new consumer clients, social media is a great avenue to establishing relationships with new account executives and creating new business to business contacts. Have you started your social media campaign? Let us know in the comments which network appeals to you the most. Stay tuned for more articles here on The Niche Report to give you tips and strategies to market your mortgage business via social media. Naomi Trower is a mortgage broker and owner of Premier Equity Group, Inc. & Premier Realty Group. She has been training her brokerage team of loan consultants & real estate agents on social media marketing. She is available for consulting on Facebook, Twitter, LinkedIn, Wordpress blogging and Active Rain Marketing. Contact her at for further details. She also has a comprehensive guide featured at

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Appraiser Sound off

Big Rant and a Small Rave by Ed Connor


his article will try to address misconception that are floating around, rather than calling for action by appraisers to protest Cuomo’s Governors race or to join/form a Guild in their state. Nor will I get into how unlimited taxpayer funds are being used to purchase MBS’s that no one in the world will buy. The Government is buying, with our money, exotic mortgage instruments that nobody wants? Yes. Neither will I go into how distasteful it is for me that brokers and realtors have to stake their local reputations and livelihoods on an unknown quantity like the AMC picking the appraiser by lowest fee instead of competence. 1) The HVCC (Home Valuation Code of Conduct) is illegal. Although the HVCC was issued in part by an administrative agency of the federal government, it did not go through the Administrative Procedures Act (APA) or the Regulatory Flexibility Act (RFA) as required of rules issued by administrative agencies of the federal government. It’s described as a settlement between New York AG Andrew Cuomo and Fannie and Freddie (the GSE’s) so they wouldn’t have to open their books. The HVCC was born out of a fraudulent union of an AMC (eappraiseit) and Washington Mutual Bank in inflating appraisal values – an illegitimate child so to speak, along the lines of the indigenous hill folk in the movie 28

April 2010

“Deliverance”. It’s truly amazing to me that the Attorney General of New York, who is supposed to uphold the law to the best of his ability, would not want his own policy to go through due process to ensure the HVCC protects the consumer. Maybe because he knows that it’s serving private banking interests and doesn’t protect the consumer and hence would not pass due process? That is my guess. Look at his largest contributors and that he was on the board of AMCO (an AMC) and you can understand. The legality of the HVCC has been challenged but answered: “As the GSE’S are in Federal conservatorship (bankruptcy) the HVCC cannot be challenged in any court of law”. Mind boggling, like so many policies of this administration that pays the banks, AKA financial terrorists, ransom in the sum of all the wealth and abundance of this nation. Just $1 trillion dollars could pay for free college and health care for all and much more! But, I digress. 2) In TAVMA’S newest release, “Per USPAP it is the ultimate responsibility of the appraiser to only accept work that s/he is competent to complete.” Wrong again. USPAP states that if an appraiser is unfamiliar with an area they are to notify the lender and if they want them to complete the assignment they must spend enough time in the market to become geographically competent or,

Appraiser Sound off they can associate with someone skilled in that market so they can complete a competent report. Steps taken for competent report completion must be outlined. This is what happens when you let neophytes tell appraisal professionals how to do their jobs. It’s entitlement lunacy! 3) A recent article on AOL was titled “Are Appraisals The New Organized Crime”. The author stated “In 2006 and 2007, the appraiser did 262,000 valuations for Washington Mutual over an 18 month period, and had a total $50 million in earnings, Bloomberg News reported.” It actually was WAMU and the AMC (eappraiseit) that earned the $50 million, not the appraiser, and that’s according to Bloomberg. Per a 2008 FBI report at least 66% of mortgage fraud occurred at the application stage. An appraisers only interest in bad valuations is the promise of steady work at $400 per appraisal. Appraisal fraud is case by case and not industry wide as Cuomo and others would have you believe. Instances of a high percentage of appraisal fraud can be attributed to very few appraisers as so aptly illustrated in

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Appraiser Sound off

the above story and 262,000 fraudulent valuations by one group. 262,000 appraisals in 18 months is 20+ appraisals/hour, without rest, for 18 months! 4) Pres. Obama on TV recently stated that the cause of the financial meltdown was loose lending and borrowers that gamed the system. That shows how out of touch he is! Does anyone

really believe the banks excuse when they said that they thought prices would always go up? I don’t. We know the banks were hedging (shorting) the exotic instruments they were creating and selling, so they didn’t believe it either. The financial terrorists gamed us. Absolutely none of those bad loans would have gone through with proper risk assessment. Banks assumed no liability in the loans they wrote and so had no need for underwriting. The blame is 100% with the banks and their greed. Dave Biggers of WINTOTAL issued a report showing typical fees county by county across the country. Don’t let AMC’s dictate FHA fees! Be the professional!

Ed Conner has 20 years appraising experience and is a recent member of AGA (American Guild of Appraisers). He is the President of Connor Appraisals, Inc. located in Olympia, Wa. Ed can be reached at 360-754-7044 or apprazur@

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MBSWARROOM.COM Revisiting the Interest Rate Outlook by Adam Quinones


n my last column I discussed the outlook for interest rates in 2010. The basic premise of the forecast was: DON'T EXPECT 2009 RATES IN 2010 The general logic behind the anticipated rise is: barring a sudden contraction in economic activity, the worst-case financial scenario has likely been avoided. Several factors can be cited as a source of rising rates, but only few can be mentioned when trying to argue for lower rates. This position is based upon the assumption that while housing is stagnate and the labor market is far from full health, global governments and central banks have formed strategic alliances to ensure financial panic is prevented from spreading. All 'official' attention is focused on stimulating an innovative recuperation and long-term recovery. The road ahead won't be smooth though. Negativity and pessimism will remain uncomfortably abundant for some time. There will be ups and downs from month to month. Progress will be jagged. The only real fix for this crisis is time. Everyone needs time to recover. Confidence, credit, and consumption all must be restored one step at a time. Eventually we will all get used to the new normal, as PIMCO puts it. There is positivity embedded in this projection though. Re-allocating retirement funds and life savings into riskier assets (stocks) will not be an easy decision for nervous main streeters. Risk aversion will stay in style. Demand for the safety of US Treasury securities will remain firm. While rate sheet influential bond yields should benefit from this general lack of investor confidence and conviction, the days of 2009 are behind us and benchmark interest rates are not expected to return to those levels.

HOW MUCH WILL MORTGAGE RATES RISE? Without going into servicing valuations and best execution options, mortgage rates are dependent upon the mortgage basis. The current coupon mortgage basis can be generally thought of as a guidance giver for mortgage rates. In the months ahead, the movement of mortgage rates will be a factor of: 1. The direction and movement of benchmark Treasury yields 2. The perception of risk in holding mortgage-backed securities as an investment (loss of principal investment) 3. Supply and Demand in the agency MBS market The first part of the equation, the direction and movement of benchmark Treasury yields, is a factor of Federal Reserve interest rate policy expectations, stock sentiment, and the political tone regarding the budget deficit. The second part of the mortgage rates equation, the perception of MBS and GSE debt investment risk, is almost entirely a function of the political developments surrounding Fannie Mae and Freddie Mac. While the GSEs remain under the care of the FHFA and US Treasury, let’s not forget, by all measures both institutions are insolvent, and in the absence of the government’s intervention and their semi-explicit guarantee, they would be unable to function normally. At some point their issues will have to be "dealt with". The unknown status of the GSEs (and the health of their portfolios) will add risk to investing in agency MBS and agency debt. That perception of risk will manifest itself via higher mortgage rates relative to benchmark yields (wider yield spreads). The third part of the mortgage rates equation, supply and



demand in the TBA MBS market, is a bit more complicated. Since refinance activity peaked in mid-2009, we have observed a progressive slowdown in loan production. Michael Fratantoni, MBA's VP of Research and Economics, summed up the mortgage environment perfectly: "Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance at today's rates." On the refinance front, demand will be low as most qualified borrowers already refinanced at record low rates while others are still happy to let their ARMs reset at index plus margin (LIBOR still near record lows) This leaves the focus on purchase apps. The mortgage bankers association expects loan production to slow at least 40% in 2010 (from 2009). Based on basic supply and demand theory, if loan production is slow and new MBS supply is muted, less investor demand will be required to stabilize secondary market liquidity and MBS valuations. So while mortgage rates are expected to rise due to political uncertainty surrounding the GSEs and generally higher benchmark Treasury yields, the increase may be less than expected thanks to favorable supply/demand technicals in the secondary mortgage market. This assumes the Federal Reserve has carried out their plan to exit the secondary mortgage market (I wrote this on Feb.24). It also

assumes a stable source of demand will step up to replace the Fed's supportive bid in the TBA MBS market. There are several candidates who are able to assume this role, but they are not likely to do so without reward. Domestic and international banks are a proven resource. Adding confidence to that outlook is the fact that the Federal Reserve's MBS purchases have left the banking system in a highly liquid condition, with U.S. banks still holding more than $1.0 trillion excess reserves at Federal Reserve Banks. These are funds that need to be put to work via lending. In 2009, hedge funds and money managers were net sellers of current coupon mortgage-backed securities. In 2010 it is anticipated these accounts will become more neutral market participants. Assurance of this theory was offered when Fannie Mae and Freddie Mac announced in February that they would purchase "substantially all" seriously delinquent loans from their respective mortgage-backed security pools. These purchases will return principle investment to MBS holders, this is cash that will be available for reinvestment in cash market MBS coupons. While we are hopeful private investors will step up when the Fed exits the secondary mortgage market, we know it will come at a cost. Investors will wait for MBS valuations to cheapen before becoming consistent buyers again. Cheapen as in rate sheet influential MBS coupon yields will widen against benchmark Treasury yields. As of February 24, 2010, the secondary market current coupon (essentially the MBS yield lenders use to derive par mortgage rates after servicing and guarantee fees) was 4.381%. The 10 year Treasury note yield was 3.693%. Yield Spread Calculation: 4.381% - 3.693% = 68.8 basis points When the Federal Reserve does exit the agency MBS market, our inner circle estimates the secondary market current coupon yield spread will widen to 100 basis points over benchmark yields. If the 10 year Treasury note touches 4.00% and the current coupon yield spread widens to 100 basis points, the MBS yield lenders would use to derive the par mortgage rate would be 5.00%. This is the base yield used to determine mortgage rates. If 10 year Treasury yields do touch 4.00% in the months ahead, we expect the average par 30 year fixed mortgage rate to approach 5.50% Adam Quinones is Managing Editor of Mortgage News Daily and co-Founder of the MBS War Room. Matt Graham is the creator of the MBS War Room, a first of its kind service bringing institutional quality market data and analysis to mortgage market professionals.

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Reverse Mortgages: Friend or Foe? Definitely Friend By Joe Murin


have had about all I can stand with the negative press related to Reverse Lending. The fact is we baby boomers are not only continuing to age but we’re living longer. The uncertainty of social security and the rising costs health care weigh heavily on our minds. For those of us with limited income, yet still independent and don’t want to ask our children for help, the reverse mortgage is a perfect solution. How are we expected to care for ourselves if the best invention for financial security is taken away? I have parents in their mid-eighties who, fortunately are in good health and very independent. But when they were facing escalating property taxes, repairs to their home, and annual increases to their supplemental health care coverage, I began to see a change in them that concerned me. Too proud to ask for help, I approached them with the thought of applying for a reverse mortgage. As one could expect it took some time to educate them but they forged ahead. Now, some six months after they closed they are so much more independent and free of the worries that were having a serious impact on their quality of life. I only mention this to get those of you who dismiss the reverse mortgage program as too risky for the FHA and taking advantage of the elderly, to get a grip and look at this wonderful program as a means to provide


April 2010

our growing population a better quality of life while maintaining our independence and self respect. Yes the FHA is going to encounter some risk, all programs do, but as house prices across America adjust as a result of the housing crisis a new basis for value will emerge and mitigate some of that risk. As for the unscrupulous acts of some reverse mortgage lenders, shame on them; however, let’s give the elderly a little more credit that we sometimes do. Speaking from my personal experience with my parents, I do believe that better counseling is needed; however, I have not known the FHA not to invest or require quality in their counseling programs. So yes, there are a few cons to the reverse mortgage but if one were to step back and really look at this program you’d see that the pros far outweigh the cons. As our medical system provides us with the opportunity for a longer life, let’s work diligently as a mortgage industry to create the very best reverse mortgage system that preserves the quality of life for our seniors while giving them the dignity that they deserve.

Murin is a managing director of the Collingwood Group, a Washington-based advisory firm for the financial services industry. Murin is the former President of Ginnie Mae. Prior to that, he served as Chief Executive Officer of Lender Services Inc.

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Rules and Regulation headlines

There were 12 articles and updates this month—down 30% from last year’s updates— but if you’re going to read JUST one article in this issue, it’s the one about the NMLS Consumer Website that has just been released. If you’ve gotten your license, and it does not show up on the consumer site, you’ll need to get in touch with your state’s licensing department and find out why. 7-Day Trial subscription for $1. Official Website For Consumers to Check Your Mortgage License Online Just Released – Has Problems! Is your licensing info on the Consumer’s NMLS website yet? We played with the site and it pretty much sucks. It’s impossible to find “individual loan officers” – and consumers are going to freak out if they can’t find you. Learn a few tricks on how to find your NMLS listing-- to make sure your clients can verify that YOU hold a valid mortgage license. • Problem #1 - Trying to find an “individual loan officer” based on the criteria that is requested, is virtually impossible—unless the data is “exactly” correct. Example: Your name associated with your license is Joseph A. Smith, and you go by “Joe Smith”, they aren’t going to find you. • Problem #2 - If the COMPANY is licensed in another state, with mortgage branches in other states, it won’t show up either. The solution is to just do an “All States” search to find the mortgage company. • Problem #3 - I did a search, by company name, of a very large mortgage company, who we know have had all of their loan officers licensed (around 200 of them). The loan officers’ info showed up alright, but the loan officer name are NOT in alphabetical order. • Problem #4 (and I swear that I’ll quit) - The “search” feature needs A LOT of work. For example, I searched Rivercity mortgage, Wiscsonsin. It did not show up but the mortgage company is in my back yard. When I entered “Rivercity Mortgage, “all states”, it gave me not only Rivercity Mortgage in all the states reporting, it gave me 24 other mortgage companies that did not have anything to do with Rivercity Mortgage. So the consumer, who is trying to find you on the site, will also read the names of your competitors.

Then, here’s what I would do: When you find either you 36

April 2010

company or your personal license, instead of having clients search and find nothing (because if they may a do a search and nothing shows up) include the link to your personal license listing in your brochures and email. MDIA & GFE – Are Your RE Agents Confused Too? There nothing in the new RESPA rules prohibiting the use of GFE worksheet (prior to issuing a GFE) however, HUD has the “practice” on its radar screen! If you are using a worksheet (almost everyone is) you might want to add a disclosure (at the bottom of the worksheet) that this is” NOT a BINDING estimate and is not a substitute for the new GFE”. The Mortgage Talking Points® created for you this month ( for your real estate agents called “How to Adapt to the New Disclosure Rules” is NOT about the gory “details” of MDIA, the GFE or the HUD1. It gives real estate agents tips on how to work with buyers, sellers, title companies and how to insure smoother closings. Hold sales meetings. Email. Give to your title rep. FHA Increases in UFMIP effective April 5, 2010 – ML 2010-02 As FHA works to build the insurance fund to a level that can sustain the current and future losses I, for one, am thrilled they chose this option as opposed to a down payment increase. Hopefully your origination software will be updated for the change but don’t count on it. The upfront mortgage insurance premium on purchase and refinance transactions (including all types of streamline


refinances) shall be increased to 2.25% for loans with case numbers assigned on or after April 5, 2010. This affects all FHA programs EXCEPT: • • • • • • •

Title I Home Equity Conversion Mortgages (HECMs) Hope for Homeowners (H4H) Section 247 (Hawaiian Homelands) Section 248 (Indian Reservations) Section 223(e) (declining neighborhoods) Section 238(c) (Military Impact areas in GA and NY)

Annual premiums will not change. There is no “discounted” rate for counseled first-time homebuyers. Mark your calendars and make sure you are charging the correct premiums come April 5. You’ve also got loan amount and APR issues to contend with if this is done wrong. Hopefully your origination software will be updated for the change but don’t count on it. FHA Waives the 90-day Flipping Policy – Effective 2-1-10 to 2-1-11 We’ve heard from loan officers whose underwriters are “waiting for the official ML” on the flipping policy waiver before they will allow a transaction to be approved under the waiver. “When will we see an ML?” My answer: “Probably never.” Just because policy change isn’t delivered via ML doesn’t make it any less “official”. Effective February 1, 2010 HUD waives the policy making a loan ineligible for FHA insurance if the contract of sale for the purchase of the property is executed within 90 days of the prior acquisition by the seller and the seller doesn’t come under any of the specific exemptions that apply to the 90-day rule. Waiver is effective for one year—expires 2-1-11. Waiver is limited to sales meeting the following conditions: • All transactions must be arms-length with no inappropriate agreements o Seller must hold title o No previous flipping activity on the property o Property must have been marketed openly and fairly via MLS, etc • When sales price exceeds sellers acquisition cost by more than 20%: o Value increase must be documented through rehab costs or explanation by appraiser. o Lender must order a property inspection report and provide to buyer prior to closing. Inspection must cover: • Structure – foundation, floor, ceiling, walls, roof • Exterior – siding, doors, windows, walkways, driveways

• Plumbing, electrical, heating and air conditioning systems • Interiors • Insulation and ventilation • Fireplaces and solid fuel-burning appliances o Inspector does not need to be FHA approved Lender may charge borrower for inspection

The signed announcement from HUD is included for subscribers. Get a copy to your underwriters. We have another Mortgage Talking Points® flyer/email called “Investors Wanted: FHA Issues Moratorium on the 90-Day Flipping Rule” for your real estate agents too! An Updated 1003 Is Coming Your WayEffective 7-1-10. Even though it’s been announced, we still can’t find the updated 1003 to tell you about what changes will be made to the form. “Smooth” is not a word I would use to describe this most recent roll-out. The date effective has moved from January 1st to July 1st and then Fannie came out in November to state they are ready to accept the new information from the 1003 on March 1st. This is interesting only because the document is not effective until July 1st. What does this mean? Well, you may see this document come into use by some investors before July, but I don’t think most will be ready to provide the data and I am not sure the LOS systems will be recovered from the RESPA change. Freddie Joins the Chorus – Just Say NO to FHA Condo Approvals – Effective 2-110 – Bulletin 2010-2 As predicted last month when Fannie bailed on using FHA Condo Approvals, Freddie was not far behind. The odd thing

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about it – Freddie lumped in VA loans as eligible. VA was the first to come out and state that they would not accept FHA Condo approvals…but Freddie will buy ineligible VA loans??? Honestly, I am dumbfounded. What could they possibly mean by including VA loans solely using FHA Condo Approval? You won’t get your VA Guarantee – maybe I’m reading too much into it…asking to be “spoon-feed”. Obviously, they will buy VAGuaranteed loans under the previous accepted practice when VA accepted FHA Condos…and they would not buy new VA loans without the guarantee…just struck me as funny.

USDA Underwriting and Loan Closing Reminders: Multiple Subjects – Jan 20, 2010 RD Instructions USDA has clarified some issues that have come up within the last several months. If you do Single Family Housing Guaranteed Loans, there are some subtle updates covering: Cash Back to Borrower At Closing; Grossing Up Non-Taxable Income; Short Sales. A borrower is allowed to receive in “cash-back” at closing no more than that amount “documented” that they paid-in… typically being items as such as earnest money deposit, appraisal, credit report fees, and inspections….no more!! Double drat!! We’ll have to work harder now. The majority of USDA RD field offices have allowed lenders for years to gross up non-taxable income from 20% to 25%. While this was never technically allowed in the regulations it became a standard for RD loans and only varied based on what a particular RD state office would allow. Bottom line: Breakout the income tax tables and document your calculations for determining the gross-up amount of non-taxable income. Don’t let this “Short Sale” reminder confuse you. Common sense still applies however RD is simply reminding us that a short sale in itself is an indicator of unacceptable credit according to RD regulations 1980-D, Section 1980.345, if the debt is written off within last 36 months. Written and contributed by Karen Deis of Mortgagecurrentcy. com. Provided monthly by - Interpreting the Rules and Regulation Changes for loan officers, processors, underwriters and owners/managers. Mortgage Talking Points ™, charts and checklists included.


TIP OF THE MONTH Lessons on Leadership from Ulysses S. Grant BY STEWART MEDNICK


iram Ulysses Grant (April 27, 1822 to July 23, 1885) was the commanding general of the Union Army at the conclusion of the American Civil War, and the 18th President of the United States. First elected in 1868, Grant served two terms from 1869 to 1877. Grant graduated from West Point in 1843. He ranked twenty-first in a class of thirty-nine students. He might not have been the sharpest knife in the drawer when it came to academics, but as history unfolded, he is certainly revered today as one of the greatest strategist and leaders in American history. Grant was proof that you need not be of scholarly intelligence to be a great leader, you simply need belief in yourself and in the people who surround you. I want to explore a bit of leadership logic and application from a great American that can be used not only in the mortgage and real estate business, but in any situation in life where decisions and actions need to be pointed and swift. Grant demonstrated that to be a leader, one needs to know who you are, what you believe, and where you want to take people. He understood that leadership is the liberation of talent. Grant fully empowered his subordinate commanders and placed a high degree of trust in them. He understood that if people believe they are not trusted, they will never function at full capacity. A large part of Grant’s success was that he was sharply focused and value-based. He always asked two simple

questions: What is our purpose? What is our strategy to accomplish that purpose? Grant’s thinking took the form of a trilogy: Is it simple? Does it make sense? Will it work? The bottom line and the lines above and below the bottom line were, Will what we do help us to win? Grant always seemed to know what were the issues and problems. He had, as most great leaders do, a keen ability to deal with reality. Grant was unaffected by opinion. He dealt with the facts. He was undismayed by disaster and faced his work with great courage and hope. These were perhaps his greatest leadership characteristics, because all other distinguishing traits depend on them. When you get under the skin of a true leader, you find true grit. Grant had strength of purpose, integrity, and the ability to make tough decisions and that he could live with the consequences. He made mistakes, but he admitted them. He refused to be intimidated, realizing that an intimidated chief can never be a great leader because one needs an independent mind to make the right decisions. Not everyone agreed with Grant, but selfconfidence is a part of leadership at every level. Grant developed and utilized a very logical but potent approach to solving problems and making decisions. First, he would determine what the problem is. Believe it or not, fifty percent of solving a problem is determining the problem. Many times, we focus on the symptoms and not the root cause. Once the problem is determined, the resolution options need to be figured out. A list of possible directions for how to cure the issue should be drawn. Many times, the options will be varied depending on what



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outcome is required. So based on the desired outcome, a plan of action is then developed to execute the selected option for problem resolution. The final step is to act on the selected plan. Grant was a great man. He was an average man as well. He enjoyed his cigars, whiskey, and strategy sessions. If I were asked to summarize the attributes of Grant as a leader, I would simply say, authentic. Take a lesson from the life of Ulysses S Grant, and implement something in your everyday life that may make your decision-making prowess a bit more successful and effective. 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

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- continued from page 21

last century and the century ahead in his letter to Berkshire Hathaway shareholders: Over the last century the Dow went from 66 to 11,497. While this may seem like enormous growth on the surface, compounded annually, it's just 5.3% per year. In this century, if investors matched that return, the Dow would close at 2,000,000 by year end 2099.

Two million? The Dow Jones Industrial Average at 2,000,000? I know that's ninety years from now, but still. No one thinks the DOW will ever see two million. The Oracle of Omaha went on to say this: And anyone who expects to earn 10% annually from equities during this century is implicitly forecasting the Dow to reach 24,000,000 by the year 2100. If your advisor talks to you about such double digit returns from equities going forward, explain this math to him… not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland who said: Why, sometimes I've believed as many as six impossible things before breakfast.

Here are the facts about the markets: 1. The return on the S&P 500 Index over the last decade was zero… zip… nada. 2. Let's say you had retired at the beginning of 2000 when you were 65, and you invested $1,000,000 in the S&P 500 Index on January 1, 2000, and taken withdrawals of just 5% a year, or $50,000, to cover your retirement living expenses. Today, you'd have something in the neighborhood of $300,000 by my calculations… a third of what you started with… and you'd be turning 75 years old. 3. Although we enjoyed a bull market that lasted almost 25 years, from 1982-2005, prior to that we languished in a 16 year bear market from 1966 to 1982, during which the stock market's average annual return was -6%... that's negative 6%. And that's according to Art Laffer, the man who's never seen a tax cut he didn't love. (Sorry about that, Art.) 4. Diversification is the cornerstone of Modern Portfolio Theory. Diversify your investment holdings, that way if one investment goes south, the others will reduce the impact of the loss. These ideas also appear to make complete sense, but perhaps there's more to the equation than has been explained to us in the past. Maybe conventional wisdom should be questioned. Why should we accept losses at all? 5. The biggest threats to your comfortable retirement can be thought of as tax risk, longevity risk, and sequence risk. Tax risk is the risk that taxes will be higher in the future, which will eat into your available income during retirement.

Longevity risk is the risk that you'll outlive your money. And sequence risk is the risk of market downturns in the years preceding or immediately following retirement. Taxes… life expectancy… market downturns.

The Real Question to Answer… When it comes to planning for your comfortable retirement, there's really only one question you need to answer: How much money will you be able to receive each month after you stop getting a paycheck from work? However, in order to answer that all important question, there are other issues you’ll need to consider in order to understand something about retirement. When you retire, you move from the “accumulation phase,” and into the “income distribution phase”. And that changes everything because taking withdrawals from whatever amounts you’ve accumulated becomes mandatory… it’s your income. So, even if you’re invested in the stock market, and diversified properly, and are only planning to withdraw 5% a year from a $1 million portfolio… that year the S&P could return -22%, so after taking out your 5%, your portfolio’s value will have dropped 27%. And it’s likely that you’ll never recover… your nest egg will run out before you do just because of one year’s negative returns in the all-powerful stock market. You need to focus on the cash flow your accumulated savings will provide during your retirement years. And not just "maybe” cash flow, but "for sure" cash flow. The kind that used to be called a pension until the Wall Street cabal convinced us, and our government, that the portability of self-directed defined contribution plans was preferable to the stodgy and oh-so-dull defined benefit plans. I saw the movie "Jaws" when I was 12, and as a result was too scared to swim in the ocean until I was 30. I saw the movie "Wall St." when I was almost 30, and as a result I've been losing so much money to land sharks ever since that now I can't even afford to vacation in a locale where I might be eaten by a real shark. It's been a rocky ride, these past 25 years, to say the very least. We've had some good years and some utterly ruinous ones. And only the eternally disingenuous, selfdelusional, and ethically bankrupt pricks who brought us the economic collapse in which we now find ourselves could possibly still have the chutzpah to be perpetuating the idea that the stock market is where we should all be investing our retirement savings. It's beyond being merely bad advice… it’s absolute claptrap. The stock market is equivalent to gambling, pure and simple… except you don't get the free drinks like you do when gambling in


Las Vegas. We all need to come to terms with the fact that WE… and by “we” I do mean you… are at best nothing special when it come to investing, and that even though we may have a financial advisor whose personality we may think we like… it's OUR money and OUR job to make sure we don’t lose so much that we don’t reach OUR goals. You might remember the definition of a bull market: A temporary condition that makes investors feel like geniuses. We need to stop listening to smart-sounding drivel from people in snappy suits about the market’s historical average returns, because historically, nobody has ever earned them. And we better start paying attention to the ubiquitous phrase that follows those historical perspective presentations without fail: "Past performance is no assurance of future results.” I think we should add a few phrases to such disclaimers, like how about: “Returns shown in slide shows are smaller than they appear.” In the U.S. alone there are more than 3.5 trillion books on "how to become a better investor" published each year. That's more than the number published on

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the subjects of "diet and exercise," and roughly the same number written about Real Estate investing in 2007 that claimed it as eminently safe. Haven't we learned enough by now? Are we simply doomed to continually give back all of our gains and then some every few years until our portfolios would have performed better had they been left inside a Simmons Beautyrest®? Are we that pie-eyed? Greedy? Shortterm memory loss? A learning disability? Restless leg syndrome… what's the deal? We have to have learned better by now, right? Oh sure… our "light bulb" is on alright… but even with market meltdowns, irrational rallies, Jim Kramer, and unemployment continuing to go in the wrong direction… and now Americans with dollars soon to be used in some countries as memo pads, too many of us are still sitting at home using that light bulb’s glow to read the list of "Hot Stocks for 2010," in Rich & Richer Magazine. Again? Seriously? Look, I'm no financial genius, and at 48 years old I’m not claiming to know everything about retirement. But I'm damn positive about one thing: Running out of money at 83, and living until 93, would be... let's just say "far from ideal" and leave it at that. So, why don't we do something about our situation? Change our ridiculous and irrational behavior. Dump our investment funds that, in truth, we know nothing about, and start saving for our retirement years through vehicles like annuities that offer guarantees that limit our losses in down years, and life insurance policies that can provide us with a source of funds that can be accessed tax-free. Why that's an easy question to answer: We can't... not right now, anyway. Maybe when the markets come back… don't want to miss the "bounce" don't you know! Well, alrighty then. I guess all I can say is: Hit me. And bring me another one of those cocktails with the little umbrellas in them, would you? Viva Lasfriggen' Vegas, Daddy-O! Oh, and it’s split the sixes, right? Right. Mandelman out. Ergo bibamus. Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on called Mandelman Matters. He also publishes a Monthly Museletter and you can follow "Mandelman" on Twitter. Send your reponses to


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BRINGING UP THE REAR - continued from page 50

Not as I pay. Does that about sum it up for you, Mr. John Courson, you insouciant jackass. Epilogue: So, obviously John Courson’s hypocrisy knows no bounds, but it’s becoming increasingly apparent that hubristic hypocrisy within the Bankster’s various lobbying organizations is endemic. Because of this emerging fact, I thought this month’s Rear has a runner up. Enter Mr. Tom Shaner, the Director of the Maryland Association of Mortgage Professionals. Obviously incapable of generating an original thought, Mr. Shaner, when responding recently to the issue of lenders being pressured to modify mortgages for homeowners, simply parroted the company line about how the homeowners can’t afford the homes in all cases, and about how loan modifications will destroy “the sanctity of contracts” thus ending life in the free world as we know it. Recently he was quoted in a Maryland newspaper: “Maryland is getting a horrible anti-business image. If contracts in this state are null and void when its politically advantageous … people are not going to do business in this state.” Hey Tommy boy… you want to know another time when people won’t want to do business in Maryland? How about after imbeciles like you have ensured that the State of Maryland remains deep in its recession for decades to come… THAT might be a bad time to do business in Maryland. Or how about when the banking and mortgage industry players, all decide to bankrupt our nation’s, and in fact, the entire world’s financial markets through behaviors and practices that should land them in jail. THAT always has the tendency to suppress business growth, don’t you know. Memo to mortgage banksters… the gig is up. Although you can, and I’m sure will, continue to run about saying things that defy all reason in an obvious and heavy handed attempt to fear monger our elected representatives into doing your bidding without concern for this country’s greater good, but it’s not going to work in the long run and the pain that you will endure as a result could last for decades to come. Just thinking out loud over here… not that I’m expecting you to understand or take the message to heart. As a group, you are obviously incapable of shame.

Now in closing, please stand for our national anthem: My country used to be More than an economy Of thee I sing Land where I bought my house When I still had a spouse Next time I’ll vote for Mickey Mouse Or move to Bejing Or maybe that verse should read: Now we pledge our thanks To those that run the banks To take our country back, we may need tanks Let freedom ring Okay? Well, I’m still working on it. Send your ideas to: Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on called Mandelman Matters. He also publishes a Monthly Museletter and you can follow "Mandelman" on Twitter. Send your reponses to


John C. Courson CEO, Mortgage Bankers Association BY MARTIN ANDELMAN


ast year, the CEO of the powerful Mortgage Bankers Association, John Courson, said that underwater borrowers should keep paying on their mortgage loans and “should not walk away from lawful debts”. In the interview, Courson wanted to appear genuinely concerned about this, adding: “What about the message they will send to their family and their kids and their friends?" Obviously, Mr. Courson was not just speaking as a defender of financial institutions. Clearly, he was showing how much he cares for people and their personal relationships. He believes the children are our future. He thinks we should teach them well and let them lead the way. That we should show them all the beauty they posses inside. Give them a sense of pride. To make it easier… let the children’s laughter… remind us how we used to be. Why thank you John… you’re no Whitney Houston, but you’ve got me all teary eyed over here. There’s just one little, teeny-tiny, almost insignificant smidgeon of a problem with what the Mortgage Bankers Association’s CEO was saying: He was (now quite obviously) completely full of beans. This past week, the Co-Star Group, Inc., indicated that it had agreed to buy the MBA's 10-story headquarters building in DC for $41.3 million. The only problem is that $41.3 million comes up a skosh shy of the $75 million first mortgage on the building that the MBA took out from PNC Financial Group way back in 2007, when they purchased the property for

$79 million. You remember 2007, don’t you John? That was the last year that all of those irresponsible homeowners, thinking real estate prices would go up forever, kept over leveraging themselves, buying properties without the traditional 20% down payment. What a bunch of irresponsible idiots, right Johnny Boy? Now that the bubble has popped, those homeowners should just be taking their medicine like men, don’t you agree John? The last thing they should do is walk away from their lawful debts, isn’t that what you said? So I mean, what kind of message are YOU now sending to your family, your children, and your friends by walking away from your lawful $75 million debt? Are they being morally harmed by your decision to stick the bank with close to $25 million? And why aren’t you simply paying your mortgage as agreed, Mr. Courson? Just last year, you pointed out that defaults hurt neighborhoods by lowering property values, so borrowers would do less harm to our society were they just to repay what they owe. You know… like the responsible homeowners. You’re not trying to destroy prices of commercial properties in Washington D.C. are you? And, as I understand it, the MBA also defaulted on their payments and secured a forbearance agreement, prior to the short sale. Well, nicely done, Johnny-O. Maybe you should open a loan mod firm and start helping homeowners. So… I think I’ve got your message, Mr. Courson. I think I know exactly what you wanted to say to your family, your children and your friends… Do as I say. - continued on page 49


April 2010









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TNR - April 2010  

Feature Article How Many Light Bulbs Does it Take to Change an Investor? by Martin Andelman

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