The XBroker: Jeff Corbett (7DS Associates)

Dan Green over at The Mortgage Reports hits on an interesting topic and trend, the speculation of mortgage rate futures. Interest rates have evolved to sprout ‘commodity’ features with the advent of the $6.1 Trillion dollar value Mortgage Backed Securities (MBS) market. The MBS has created liquidity and relative volatility for a typically illiquid security, making it prime for speculation. Inside players are using technical, psychological, and mash-up strategies to make their predictions much like the Buffet, Soros, and Lynch, loyal speculators of the stock markets. Barry Habib offers a fine service called the Mortgage Market Guide (MMG). Part of their service broadcasts live candlestick charts fueled by MBS intraday trading prices. Barry teaches subscribers to watch for ‘patterns’ in his charts that have names like The Morning Star and The Inverted Cross that are purported indicators of pending change (sorry if I didn’t get the names exactly right Barry). While I must confess, I didn’t study the charts to the degree that I could predict a pricing change based on patterns in charts, I did pay close attention to a few, easy to track economic and MBS market indicators. You may Google any of the report names for detailed explanations and actual release dates.

• Jobless Claims Report
• Non-Farm Payroll Report
• New Residential Housing Starts
• Consumer Price Index
• Intraday support and resistance price barometers for MBS bonds

On the short term, each of these indicators will affect rate pricing by either exceeding or falling short of ‘expert analysts’ predictions, literally within 30 minutes of the reports release. For example, if the Jobless Claims Report (JCR) is predicted to be 300,000 and the real number turns out to be 280,000, this would be a direct indication of a stronger than anticipated job market, which translates into a stronger economy, which translates into ‘inflationary economic conditions’. ‘Inflationary Conditions’ = pricing for the worse or rising mortgage rates. Conversely, if the JCR turned out to be 320,000, more people are unemployed than expected, the economy is soft, pricing improves and rates drop. The same dynamic works similarly for all four economic reports, with varying degrees of impact. Intraday resistance is a forecasted price level where the rate of exchange should encounter selling pressure, which should stop the price/rate from rising any further. Support is a forecasted price level where the rate of exchange should encounter buying pressure, which should stop the price/rate from falling any further. Speculators look for resistance and support levels to place orders and thus they become, to a large degree, self-fulfilling prophecies. (Definitions provided by HiFX).

Although self-fulfilling prophecies don’t seem to have a place in speculation, they most certainly do. Typically, once these resistance and/or support levels are breached, a volatile buy or sell pattern ensues, affecting pricing and rates accordingly (buying = better pricing/lower rates, selling = worse pricing/higher rates). For a long term view, one need only ‘zoom out’ and view these reports from a wider date range and ‘watch the trends’ OR pay attention to the Federal Reserve Boards, Fed Funds Rate adjustment policy. The FOMC takes into consideration the above economic indicator reports (amongst other factors) when making their decision on increasing, decreasing or ‘pausing’ the movement of the FFR. Dan took to speculating the FOMC’s recent pauses as a psychological play by the Fed, which seems plausible. While the FFR movement influences some mortgage rates directly, such as a Home Equity Lines, it is truly more of a general economic indicator. Hopefully this information can somewhat tame and explain the arduous process of predicting mortgage rate futures. If you don’t care to follow economic indicator reports in relation to mortgage rate futures but would like to listen to people who do, Bankrate.com enlists a panel of ‘experts’ to weigh in on the matter.

 

As a staunch of time saving technologies over labor intensive practices, I can recommend some nice solutions that have worked tremendously for myself and others.  Ill start with the Digital Rolodex and will get progressively, more progressive.   Tech tools and resources, many of which are by-products of the dot-bomb era, are being configured and woven into existing successful businesses for greater efficiency and reduced costs.  

Couple of things first:  Learning curves are (and should be) very manageable, it doesn’t make sense to implement additional layers of complexity in attempt to gain efficiency, say 6 mos down the road.  You don't have to spend $50-$100k on technology to get desired results. While dedicated servers, thin clients, and robust PBX/T-1 systems are very nice, in 99% of cases it is gross overkill by the business.

Technology upgrades should be viewed as investments that create an immediate and positive return (ROI). If your ROI does not increase within 90 days of implementation, you probably overbought.  The mortgage industry is typically about 5 years behind current tech & CPU power, so the newest and fastest offerings often aren’t even useable to the extent they were intended.  Buy a few levels below the latest and greatest offerings, except when it come to software.  Update your software as new versions are released.  

Cost Per (Customer) Acquisition (CPA) should decrease, almost immediately after initial implementation of the solutions I post. CPA equals Gross Expenses divided by # of loans closed, so if you close 10 loans and your gross expenses are $15k, the CPA is $1500 per loan. Close 10 loans with $10k in gross expenses and the CPA drops to $1000 per loan, a 33% increase in profits.

Optimizing these two ratios comes down to one relationship, time and money. Proper tech upgrades are the best way to spend less time making more money.

The 'Digital Rolodex'

ACT!, SalesForce and a number of other database software programs may be personally configured to streamline Mortgage Broker Customer Relations Management and Marketing to the most efficient of levels.

The toughest part of using a database is creating (a good) one and (initially) remembering to use it every time you have contact with a client and/or something related to their scenario. Digital archiving of files, especially the wealth of information in closed and denied files that lay dead in the storage room, must be a tight process. A database is only as good as the accurate information within it. Misfilings can lead to embarrassing circumstances.

Once created, the cultivation of your proprietary client database creates a powerful marketing resource. Start by cataloging clients by Name, Zip Code, Credit Score, Loan Amount, LTV, and Close Date. Set reminders, layout your schedule on the calender, copy all e-mails, notes, and secondary information: birthdays, favorite sports teams, alma-mater's, and relative personal financial strategies/situations. 

You can develop highly targeted marketing campaigns based on these specific client factors, instead of the usual ‘Rates are low!’, ‘100%/ No Closing Costs’ noise that never permeates a consumer’s conscious.  Get personal with them! Learn to ‘touch’ your clients at least 3 times per year with an e-mail, letter, card, small gift, etc. Stay in their conscious and clients will pay it forward by remembering you every time mortgage enters a conversation. Continued communication is the lubrication to any lasting relationship, especially in the turn-em and burn-em ‘transactional’ mortgage industry. 

The ‘investment’ for a database software license is less than $100 per user per year. Considering time saved and increased client satisfaction/retention/referrals you can receive, the ROI is immeasurable. Take the time to input comprehensive client information into an easy to access database and cultivate that information, you will save untold hours in time and money and watch your referrals go through the roof.

Next: VoIP Business Suite...Vonage on Steroids?

 Although my posts address the mortgage industry directly, any real estate service business may benefit just the same.... 

 

 

There is an army of foot soldiers on the other side of these nice web façades banking on your ignorance. DiTech, Lending Tree, e-Loan, Quicken, and a slew of other 'e-Lenders' have created convienient web-sites to exploit and facilitate the deceptive nature and huge revenue streams of the mortgage industry.

Selling inflated rates that pay huge premiums at the expense of the consumer is still the name of the game and these guys are doing it more efficiently than ever.

E-lenders are likely to be much more expensive than a local mortgage brokerage or bank. Most of them are mortgage bankers (also called Direct Lenders), who have the very special privilege of not being required to disclose all fees associated with obtaining a mortgage. This is more than just opinion...click this comparison between DiTech and Wholesale Direct Rates.

The problem doesn't end with the e-lenders, their model is fostered by 'spider-web' - information aggregation (IA) sites like Bankrate.com and Lending Tree, which amount to little more than advertising platforms with a catchy URL and an interface that offers some generalistic industry information and remedial finance tools. Just about any broker or banker may advertise on or through an IA, thus making the site no more reliable than the paying broker/banker on the other side. Visiting any of these sites in hopes of researching accurate mortgage rate and program information is the absolutely futile equivalent of rate shopping through the phone book. Finding an honest and transparent broker or banker through an IA is analogous to playing Reverse Russian Roulette; 5 bullets, 1 empty chamber.

'Their' perception is your reality....Look past the message, through to the entity that's providing it. What's their incentive? Change your perception and 'their' reality!

 **Zillow has even recently added a Finance Tab which is a patch link to these 'misinformation' sites. Although we love Zillow, affiliation with such advertisement services defeats their message of 'helping people make smarter real estate decisions'.

Somewhere along the line, the Mortgage Cartel discovered that if you explained loan costs to a borrower using "points" instead of dollars, their brain activity would slow, their resistance would drop, and they'd tip like sleeping cattle.

Nowadays, people are (allegedly) more savvy and "point shop" for rates/loans. In response, the mortgage industry's created the "No-Point Loan," riddling the HUD-1 with a poisonous cornucopia of junk fees to hide the "points" that are still there: Broker Fees, Application Fees, Processing Fees, Lock Fees, Courier Fees, Origination Fees—not to mention a host of acronyms even I can't decipher.

It's all bullshit. Whether they're labelled discount, buy-down, rebate or any other euphemism, points are nothing but verbal gymnastics designed to hide the Mortgage Cartel's secret sales tax.

You've got to stop thinking in terms of "points" and get back to dollars and sense. "Points" are converted to dollars by simply multiplying the point (%) value by the Loan Amount, ie: .25 "points" (.25%) x $300,000 = $750.00."Loan Points" reflect the amounts borrower must pay directly to the lender at the time of closing to obtain an interest rate below the specific mortgage program's Par Rate. Assuming the flow of cash follows the strict straight line above, these would be true "Discount Points."

"Rebate Points" reflect the amount a lender will pay at the time of closing in exchange for an interest rate higher than the specific program's Par Rate. This is commonly referred to as Yield Spread Premium (YSP).

And here's where the trouble starts:

Broker/bankers routinely quote inflated interest rates that rebate cash (YSP), and at the same time tll the borrower they can "buy down" the (inflated) rate by paying "Discount Points." The borrower thinks they have to pay to get the lowest rate, when in reality all they're doing is handing thousands of dollars over to the broker/banker who merely hid the Par Rate they should have gotten for free.

Even more dangerous, mortgage bankers can legally hide YSP rebates from consumers and pocket them without disclosure. Mortgage Brokers are required by law to disclose all YSP rebates on the GFE and HUD-1. Now, if you think it actually happens, go sit in the corner next to the people that believe in the Tooth Fairy and the "No Points/No Fees Loan."

 

If you are in the process of getting a mortgage and you can't answer these questions, YOU ARE AT RISK:

1. What is the PAR interest rate for the programs you qualify for?

2. How much is your broker making on the front and back ends of your deal?

3. What is the definition of YSP?

I don't care who's handling your mortgage or how much you trust him, if you don't know what PAR rates are or how much he/she id being paid, YOU ARE A FOOL. Odds are, you've never been quoted the actual rates/terms you qualify for and have no idea how much your loans are really costing you. Why? Because the system is broken. Lenders pay brokers a handsome commission for selling you interest rates that are higher than what you really qualify for (above PAR). It's called yield spread premium (YSP) and it's just one of many ways the industry turns your money into their money. The law requires brokers to disclose YSP, but it's usually beyond the average consumer's ability to detect it. Bankers, on the other hand, don't have to tell you—which is why knowing your PAR rate is so important. Without it, there's no way to figure out what your loan is really costing you, both short and long-term.

LET'S BE HONEST, WE LIVE IN A DEBT-DRIVEN SOCIETY. We are so dependent on debt that if everyone were to miraculously get out of it, the economy would implode. The truth is, if used properly, debt can be a powerful tool— especially when it comes to real estate. The problem isn't debt, it's the matrix behind how it's sold and serviced. For far too long, the lending industry has ignored, if not encouraged, the systematic exploitation of consumers with interest rate manipulation, fee gouging and loan steering. I know all this because I ran a successful mortgage company and fostered the start-up of many more. Our success was built on the backs of people who didn't intricately understand financing —people just like you. Here are two important facts you need to know:

• LOAN ORIGINATION IS NOT AN ART. Sure, there's plenty of "creativity" involved in getting you to over-pay for your loans and come back for more every time you re-fi, but in this business, there's a fine line between marketing and manipulation.

• LOAN ORIGINATION IS NOT ROCKET SCIENCE. The truth is, mortgage brokers do nothing but gather info, plug it into a form, and then decide how much of your money they want to take. Loans boil down to risk-based calculations made by the lenders, who simply quote rates and terms based on information gathered by a broker and packaged in the way that benefits him the most. We're talking thousands, even tens of thousands of dollars taken right out from under your nose. Don't let a mortgage broker or banker convince you of otherwise.

Ask targeted questions, don't be afraid to call out your broker/banker if you know/think something isn't right. If you still can't get straight answers contact me and I will be happy to get involved, or simply direct them to theXbroker site. Once they understand that you understand....the gig is up.