Ken "Yes You Can" Cook

It was June 18th and Europe was at war. The French army had marched through the region and wrecked havoc on many cities. The year was 1815. Under the leadership of Napolean they army marched against the "aggressor nations" as they were attempting to mobilize for an assault on Paris. In a town called Waterloo they found a great surprise: the liberators may have appeared unprepared but they delivered the final blow to Napolean's army.

The British suffered huge losses in the battle.

A financial market panic caused a liquidity problem.

Baron von Rothschild saw an opportunity and uttered his now famous and oft quoted (and misquoted) statement: "Buy when there is blood in the streets, even if the blood is your own." We call it contrarian investing. It is my personal style of investing and today, there is much blood in our streets. It is the blood of the American tax dollar - it is our own blood.

Is real estate a safe investment?

Historically speaking real estate is a sound investment. Most of all it is lasting. As a general rule real estate doesn't fall into the sea - although that does happen. Stocks go up and down in value, generally require all cash purposes, generally are not under your control, cannot be improved for better value, generally cannot be leased or tenant occupied.

Real estate can be all of the above. Financed, improved, let to tenants.

Many people do not know that you can hold real estate in your self-managed retirement accounts. IRA real estate investing has kicked up a few notches as of late and there is much opportunity on the market today which make this a very valuable prospect. Single and multi-family housing as well as commercial properties have dropped in value significantly nation wide.

While many people are unaware of this tactic at all most are unaware that your retirement account can be the source of the down payment and it can be the mortgagor to finance properties held in it. Yes, it is a fact. With as little as 30% down payment coming from your self-directed retirement account you can achieve a long term, conventional style loan, to acquire and hold properties in your retirement account.

The loans are slower to get closed but just about as fast to get approved. They are made to the IRA and the rates are very reasonable for non-recourse investment grade loans.

THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.

EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.

Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors

Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender

When some people say "creative finance" they mean "mortgage fraud". You do it and I catch you and you pay. When I say "creative finance" I mean getting financing by thinking outside of the box but within the law. To help you get focused let's first give some examples of mortgage fraud that some people would class, wrongly, as creative finance:

1. Making a false statement on your mortgage application. This would include saying you occupy or intend to occupy the property as your primary. It would also include overstating your income, assets or employment. A very common piece of mortgage fraud is for an investor to say they receive $XXXX in rent every month when in actuality they receive $XXZZ per month.

2. Providing false income documents. These are very easy to disprove today but people still try them. They think because they go online and buy them from someone online there is some magic way to make them harder to detect. Uhm wrong.

3. Providing false tax documents. Yes we actually got a set of 1040's that were completely falisified. When the Loan Officer asked the borrower to sign a 4506T she asked to speak with me. When I asked her if it would be a problem she said, "Well, yeah." So she left and I sent her file to Agent Law at the Atlanta Field Office.

4. Borrowing the down payment from some other source and indicating it has not been borrowed. Which leads us to the correct use of borrowed down payment.

One great form of creative financing is to borrow your down payment from a friend, family member, your retirement account or any other source. If the money is borrowed there will need to be a letter explaining how it is to be repaid. If you borrow it from a family member they can ask for repayment however including "when the propery is finally sold or refinanced" or "never, it is a gift". The latter is what is called a "gift letter".

Most people falsely believe than you cannot borrow your down payment when in fact you can borrow your down payment. The catch comes when adding the repayment to your debt-to-income (DTI) ratio. If there is no repayment required or repayment is required when you sell or refinance then it does not affect your debt-to-income ratio. If you borrow from your retirement account and your payments back to your account are, for example, $100 per month then that 100 must be added to your debt. So long as your DTI still fits into the guidelines of the loan you will still get your approval.

Another from of creative financing I am seeing today includes trading in your current house. Many builders are accepting trade-ins and allowing a portion of the equity to offset the purchase price. A builder friend/client in my area recently accepted the equity of a home as a trade in and the balance in cash. The builder ended up with a lower monthly payment ona vacant home and sold one with a higher monthly payment (his construction loan) and claimed a sale at nearly full retail.

Government housing grants and down payment programs. While seller funded DPA has been attacked and at least dealt a temporary defeat other less regulated forms of DPA still exist. Talk with your local mortgage broker (not bank or direct lender but broker) about your options.

Quit claim transfer. Although FNMA and FHLMC demanded an end to what they call "wrap around" mortgages or "subject to" deals the most important thing to them today is to get repaid. While the "could" call the not due through the process of activating the Due On Sale Clause (often referred to in error as the acceleration clause) it is highly unlikely they will do so in the current financial environment. Contact a local real estate attorney about how to structure these.

Seller financing. If the seller has the ability to offer true financing which means the property is titled in your name as the mortgagee and the seller becomes the mortgagor then you are doing a true seller finance. Many builders and big volume investors are in the position to do this today.

Family loan. If you are from a large family or have a family member with the means they may be able to purchase the property for cash (at a fantastic deal I may add) and let you repay them on terms just like a bank or lender would do.

Rent to own/Lease to own. I always recommend having a reputable real estate attorney look over the terms of the lease with you to make sure you are getting what you think. Unfortunately a trick of many investors is to wrap you up so tightly into a lease with an option to purchase that you lose your deposit and your tenancy at the end of the first term.

Why did I say call a broker instead of a bank or lender? Believe it or not in many states the broker is more regulated than the bank or lender. In most states, for example, lenders and banks can get a "pass" for being a federally chartered institution and their employees, too, are exempted. Most important to you at the borrower level is that once a lender or bank has said "no" that's the end of the line. Go to another lender or banker and start all over. With a broker the switch to a different investor can be seamless. There is also a false belief that all brokers cost more than all banks or lenders because brokers are "middle men". There is no basis in truth and a study of over 1,000,000 closed loans bears this out.

Whatever you do, shop. If your agent has recommended only one lender find the other two on your own. But do your homework and become an educated borrower. Many national advertisers are well known in the industry for bait and switch tactics. Read this recent post for a little insight there.

There are ways other than calling a broker, bank or lender to get financing that are ethical and legal. Stick to the law and ethics and you won't have to wonder who is calling or knocking on your door.

See you at the polls in November. I dare you to vote for inexperience in a time like this.

THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.

EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.

Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors

Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender

It happens. And if you don't have a very firm grasp of the onion like layers of the loan process it is very difficult to understand why. Therefore to begin let's look at the steps in the process of a loan:

1. Loan Officer accepts an application from the borrower. In the case of a local broker the LO is the person who will be your liaison for the duration of your file. For the national behemoths the LO is more like an operator who just accepts your order.

2. Your credit history is examined and a preliminary credit decision is issued. While this is not your approval it is erroneously referred to as an approval even by people in the industry to get you on the hook. When you hear anyone say you can get an approval in as little as 15 minutes you should hear the sound of the hook sinking into your mouth. What you actually get at this time is a "pre-qualification". It's not worthless but it's not worth a loan ... yet.

3. Your file, now known as a "1003 and credit" is exported into an underwriting engine either through a third party provider or inhouse. Most underwriting engines are provided by a mortgage insurance company, GSE or government program. A "conditional approval" is then received or some other level of approval or denial is issued. This approval is better than a pre-qualification but in the vast majority of cases this is still not good enough to let you stop working (as a borrower).

4. You are given a list of "stips" which are stipulations required to fulfill the approval. If you and your property can meet the stipulations of the approval then all is good! In about 40% of the files on people with good credit, income and assets, and a property acceptable you'll get to closing with no bumps. If, however, even one stip cannot be "cleared" the file may be "dead". Dead means the approval turns into a denial.

From step one to step four as many as 23 people touch the loan. No your loan officer does not work alone nor do they disappear when you hang up the phone only to reconstitute on demand when you need to speak with them. Just as real estate agents don't actually live at the Open House and you don't beam into existence just to do your job. The long road leads to the point that there are many "moving parts" to a loan most agents aren't even aware of. That is not a slam on them just like it is not a slam on most loan officers to say they have no idea how much work the average real estate transaction requires on the sales side.

A great rule of thumb is to wait for the words "Clear To Close". If you hear those words before you, as a borrower, have sent copies of your paystubs or tax returns, copies of your bank statements or an appraisal has been done then dismiss them as rumor and tell your loan officer/processor/CSR you don't believe it is possible to have a clear to close at this point. Exceptions include refinancing at the same lender where your existing loan is or refinancing from an FHA loan to an FHA loan.

Of course there are always exceptions and a good mortgage broker will often do a lot of things you never know about in the course of getting your loan to close. They may take care of some of the stips on their end without your input or knowledge. Yes I *always* recommend dealing with a broker or a lender who also brokers. Why? A denial from a lender like Countrywide or Wells Fargo is a denial for you. A broker or brokering lender, like my Novation Mortgage (licensed to do home loans in Georgia and Florida and commercial nationwide hint hint) can simply move your "file" to the next investor and get it closed without you ever knowing provided the interest rate does not change. A high volume broker can save you money, time and much stress.

See you at the polls in November. I dare you to vote for inexperience in a time like this.

THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.

EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.

Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors

Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender

The majority of news "sounds" bad at first hearing, reading or seeing. There is alot of truth to the fact that there is bad news today - scary news.

But take some joy because here are FOUR absolutely wonderful POSITIVES about today's economic situation:

1. Housing prices are lowered in the vast majority of markets.

For all the people who could not afford the home they wanted 24 months ago the news is great. With 20% down they can get a home with fixed rates in the high 5% range. (Our rate today in Georgia with no bait and switch misleading ads or quotes is 5.875 with an APR of 6.010 - for the AVERAGE borrower. Your rate may be lower or your rate may be higher based on the risk you pose to the lender.)

2. Rural property loans are still available with no down payment for qualified home buyers.

For the nay sayers the problem today is not "these crazy no down payment loans" the problem, in part is loans to unqualified buyers through non-conforming (sub-prime) loans. The people those loans were made to did not deserve the loan. These USDA insured loans are made ONLY to people who can demonstrate their ability and willingness to repay. It is not a sub-prime loan made to someone with bad credit, shaky income and a home they can never afford. Rates are low and fixed. (Available in Georgia and Florida by calling 866-946-0120)

3. Bank REOs are everywhere at literally 60 cents or less on the dollar of actual value.

These are not just for real estate investors. They are for anyone looking to buy real property. They also are not limited to residential properties - many commercial properties have also been returned to the bank through foreclosure and deed in lieu. I will be covering this more and more in the BlackBelt Real Estate Investor's Workshops and Seminars as time rolls on. Just download the free e-book called "Ten Mistakes Every Real Estate Investor Makes" to get started.

4. We WILL recover and this is no time to be afraid to buy the home you need.

The people of the United States are not all greedy, arrogant, ignorant, fools. Just most of us. The few who are not will now do our best to take over while the rest stand like deer in the headlights. There is no reason to have any fear about buying a home today. Even if the value were to decline another 10% over the next two years (which in light of current events is highly unlikely) it is still better than throwing your money down the apartment rent waste disposal. And, AND the value will eventually recover. Values have consistently climbed over the long term since people started keeping track.

See you at the polls in November. I dare you to vote for inexperience in a time like this.

THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.

EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.

Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors

Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender

It happens. All too often if you ask me. A borrower believes they are doing the right thing by shopping around. They call one of the big guys who advertise on TV. They call a local bank. They call a local lender.

There are generally 5 reasons why a loan officer stops answering calls and emails:

1. They are dead. This is an acceptable excuse.
2. They quit or were fired. In this case someone else should have contacted you.
3. You are impossible to work with. In this case their "me" should have called you. That's my lovely job.
4. They lied to you and nothing they told you can happen.

How to know when your loan officer is dead.

Call the office and ask if they are dead. If the receptionist says they are dead - they are probably dead. Ask for a new loan officer.

How to know if your loan officer quit or was fired.

If the receptionist says they quit or are "no longer with the company" - ask for a new loan officer.

How to know if you are impossible to work with.

If you have no or very few friends, are on your third marriage and none of your ex's are dead, if you think everyone sucks and all professionals are idiots - seriously, go somewhere else. Oh, if you think getting the lowest interest rate is all there is to a loan - do the same. Call the loan officer who ...

How to know when your loan officer lied to you

This is not fool-proof but it's a good measure. (A) Never shop for interest rate or closing costs first. Those are very important but not by any means the most important. The most important is getting YOUR rate and YOUR closing costs. Yes, almost every deal has a different number based on YOUR scores, YOUR property, YOUR income, YOUR assets, YOUR job history and a few more YOURS. Besides, if you don't qualify the interest rate is pretty much a moot point (B) Be suspicious of the loan officer's rate if it is lower than what you would see advertised at Bankrate.com - Bankrate has become more accurate over the years even though their accuracy is only an aggregate of what we call "lowballer". (C) If you call ANY mortgage company and ask for a Good Faith Estimate and they send you one without asking any questions ... it's probably not yours and it is DEFINITELY not accurate.

When is a Good Faith Estimate Accurate?

A GFE should ALWAYS come with a Truth In Lending (TIL). You should never trust a GFE until you have submitted all of the documents requested on the "findings", an appraisal of your property has been completed and submitted, your credit history, income history and assets have been validated and a few more little things have happened.

Ken - You're A Scammer and a Liar

Hmmm. So I believe in providing honest and accurate information to my clients. Sue me for being honest and accurate and not sending you a good faith estimate until you have completed an application and I have examined your credit. Here is the REAL truth: a GFE/TIL is trash until the application has been approved. I have NOTHING to hide. I will not publish my closing costs because the government considers that COLLUSION and PRICE FIXING. But I will tell you when we compare our ACTUAL APR's to the APR's you see advertised on Bankrate - we're right there in the game. So how can it be that I occasionally lose a client to an interest rate 2 points lower than mine? (Hint: not ONE TIME has one of those loans ever closed at the quoted rate without some other HUGE factor like discount points or a rate buydown coming into play.)

So how are you supposed to shop?

Do your homework. Understand rates and how they are affected. One simple litmus test is to call around and ask for a rate quote. If they spout off an answer without asking you ANY questions - hang up. Here are the minimum questions you should be asked:
Is this for a residential or commercial property?
Are you buying or refinancing?
Is it for your occupancy or an investment? (Don't lie - that's mortgage fraud).
What is your credit score?
Are you self employed, 1099'd or W2'd?
Have you been on the job for at least 2 years?
If not, how long have you been in this line of work and have you had two years of consecutive employement?
What is your average annual income?
Will anyone else be on the loan with you?
-All those same questions for them.
Is this a single family home detached? (Condo, quad ...)
If purchasing how much down payment will you be making?
What is the sales price of the home?
If refinancing what do you think the value of the home is today?
What is the payoff on your existing loans?
How much do you want to borrow?
... at the very MINIMUM they should ask you these questions to deliver an accurate guess.

You can't believe the big guys just because they are big. I got a call from a lender (a big one that loans country wide) offering me a 4.5% rate locked for 5 years. Sounds good, doesn't it? So I played dumb. The operator who called me doesn't know me from Adam so I say, "Wow! Aren't rates in the 6's?" He says yes they are but because we are so big and we do so much volume we have programs the other companies can't do. "Really? Tell me about this loan then."

Cutting to the chase: He knew I had equity and this is a refinance. I'm currently at 5.375% so he had to find a lower number or I'm not interested. 4.5% is lower than 5.375% even if it's only for 5 years - I agree. Since this is a refinance and I have equity in my home I won't have to "bring anything to the table to close". I let him keep talking to see if he told me why. He didn't - in fact he started asking me qualifying questions.

"Wait a minute", I said. "You mean you don't know if I'm qualified for that rate but YOU called ME and offered me a rate???"

Mmm, hmmm. So I asked what the qualifying score would be: 720. And my maximum LTV? 75%. And when the rate adjusts in 5 years - what is the cap? 3%. Mmmm, hmmmm. And since par is currently 6.25% on a jumbo loan how does the loan get to 4.5%? Oh we buy the rate down for 5 years. "Who's we?" We, it turns out, is me.

So how much will this buydown cost "us"? Well, it's 2% per year for five years so about $65,000. Mmm-hmmm. And if I pay off my loan some other way within that five year period, how much of my pre-paid interest (buy down) do "we" get back?

He didn't know. He guessed however much was left. HE WAS WRONG - they would keep it all.

Oh, then there were the almost 3% in lender/closing fees. So another $19,500. No I didn't need to bring anything to closing because they would be increasing my loan amount by $84,500.

So how are YOU supposed to know when the loan officer lied?

ASK POINTED QUESTIONS AND INVESTIGATE THE ANSWERS
Assume that if their deal sounds too good to be true it is. Ask other professionals what they think. PROSECUTE LIARS WHO LIE TO YOU ALL THE WAY OR BAIT AND SWITCH YOU. Sue them. Seriously. If loan officers and banks got sued more often for lying to clients to get them to "sign on the dotted lign" this would be a better country.

A couple of days ago I shared a story with Jeff Belonger how I offered a client a 6% rate on an FHA fixed 30 cash out loan on a $165,000 refinance on a primary duplex. Closing costs INCLUDING all lender fees, appraisal, pre-paid taxes and insurance were about $6700. Not bad at all. The client stopped responding to me until I caught him on his cell phone. He had decided to go with a larger MUCH larger bank who quoted him 5.625% with NO closing costs and the bank would buy his rate down to 4.25% for the first year - costing him nothing.

Jeff is probably still giggling. I'm still waiting for the client to call me back because I made him promise to remember that he was given the truth and a fair deal by me and that the other company lied to him. The problem is when that happens it usually is discovered too late. The offending company then says, "Oh, we're sorry. Here are the real numbers and they are about what the original guy quoted but we can close it for that." So instead of the client doing what I would call the "right thing" and coming back to the honest lender with high integrity, they go ahead and fuel the fire - thus proving dishonesty works in America if you do enough television and radio advertising.

It's called BAIT AND SWITCH and, evidently, it still works. While I don't have any information to provide to the FBI I see it happen regularly and it's always the company with the high integrity that loses. So my advice to you? I have none. I lose deals all the time because some other person lies and I refuse to and I will fire a loan officer before they can hang up the phone if I hear them do it. In fact if you call me and ask for a rate I give you a speech followed by a request for a loan application. If that's not how you want to do business, fine - call the liars. Their ad will run while you are on your way home tonight.

See you at the polls in November. Vote for higher taxes and more regulations - vote Obama/Biden.

THE OPINIONS IN THIS COMMENTARY ARE STRICTLY KEN COOK's PERSONAL OPINION AND NOT REFLECTIVE ON ACTIVE RAIN, NOVATION MORTGAGE, or ANY SPONSOR OF THIS WEBSITE.

EDUCATION BEATS LEGISLATION EVERY TIME. Get your clients, friends and family members to a LENDER RUN home mortgage seminar as soon as possible.

Copyright©2008 Ken Cook. Georgia and Florida real estate investment loans, FHASecure and FHA Home Loans, nationwide commercial hard money and small business loans, non-recourse loans for real estate investors

Novation Mortgage, 2501 E Piedmont Road, Suite 201, Marietta, GA 30062 Georgia Residential Mortgage Licensee 20014. Florida Mortgage Broker Business MBB 0703760 FHA Lender - Equal Housing Lender