For the past couple of years we have been telling our clients and anyone who would listen that the time is coming for people who are prepared, to cash in. At Old West Mortgage and in my book, The Money Thing Made Easy, we have been preaching that you have to take control of your money.
Our message is that you have to do three things:
1. Eliminate your consumer debt
2. Raise your credit scores
3. Save some money
If you have been to any of our classes you have heard this message and hopefully you have acted on this advice. If you have, your time is almost here. If you have not, please contact us soon so we can help you get on the right track. We have new classes starting and we are improving our systems to make handling your money an easier task.
First, the bad news:
You have probably heard on TV or seen in the paper that the mortgage industry is going through some changes. That is an understatement. Over the past month or two, the whole industry has lost the ability to fund almost half of the loan products we have had available. Like most situations, the people who are the least able to deal with it are the ones who are getting hit the hardest. If you have credit issues, if you are overextended with consumer debt and your income is not verifiable, we have very few loan choices available for you. There are still some solutions available they are just more expensive.
The reason we are seeing this is that in the past few years, Wall Street investors were buying these loans and using them as a way to increase the return on investment for their investors. As the real estate market heated up around the country, these investments paid very well. As the real estate markets slowed down, these investments didn’t pay as well and the rate of default increased. As the default rate increased, investors slowed their buying of these loans and in some segments, stopped all together. If we can’t sell the loans we can’t make them. Wall Street now wants loans from solid borrowers. Solid borrowers pay lower interest rates on their loans, so these loans don’t pay the investors as much. Investors are moving toward them because they are a safer bet.
This has caused us to almost stop making loans to people with below average credit. Many of these people took out what we call a “sub-prime” loan. This is a loan with typically a 2 year guaranteed rate, which will jump up quickly after the 2 years is up. If the borrower used that 2-year window to eliminate their consumer debt and increase their credit scores, they will be able to get a better loan with a better rate and would actually be much better off. The problem is that most people who have these loans didn’t do that. Their window is closing and they are still in the same boat they were when they started. The reason, nobody was there to help them with a plan to fix the problem that got them there in the first place.
I blame this lack of assistance on the mortgage industry itself. Banks and financial planners have never had any interest in this segment of the population. Credit counselors are only interested in helping you pay off the debt, not fixing your credit and attorneys only make money when you give up and file bankruptcy. As Mortgage Professionals I believe we have an obligation to help people understand where they are, why they have the kind of loan they have and what they need to do to get a better one next time. If we do that and outline a plan to help people get there, they will be able to weather a financial storm like we have brewing now. This is exactly the reason we have been teaching money classes for over five years and why I wrote my book.
If this is a description of your financial situation, you have to fix it. We will help in whatever way we can. But you have to change the way you handle your money. This mortgage situation will loosen up over the next few months but it should be a wake up signal to you that you have to handle your money differently. Wall Street and the world’s lenders are looking at this situation and are making determinations about the kind of people they will lend money to in the future. More important is that they are changing the way they determine how much you will pay to borrow money. Ultimately, investors will be charging each individual with different rates and terms based solely on how well they have proven to handle their money in the past.
Read my book and come to our classes. The classes will remain free of charge at least until the end of this year. We will show you how to fix the problem so you never have to worry about it again.
Now, the good news:
The main focus of loans in the coming months will be for people who have good credit, little or no consumer debt and a verifiable income.
The verifiable income part is very important. In the past we have been able to make loans where we just trust the amount put down on the application. We call them “Stated Income Loans”. You state an income, we trust you. These loans were made to people who are self-employed, wage earners and commission based employees. The big change we are seeing is that to get a “stated income” loan now, you have to be self-employed. If you are a wage earner or are paid on a commission, you will have to prove your income.
If you have prepared yourself and have those 3 things, again they are:
1. Eliminate your consumer debt
2. Raise your credit scores
3. Save some money
You are the type of borrower that the investors are looking for. If you don’t need a loan right now it this may not mean anything to you. But, if you have those things, you have an opportunity in the real estate world that we have not seen in a long time. This is especially true in our area where events are aligning in a way that could create a real financial windfall over the next decade.
Let me explain.
Earlier I talked about the situation that people who have not prepared themselves are in. Unfortunately, most of these people won’t do anything, they won’t call anyone to help them and they will sink lower and lower. Some will take action quickly and will be all right, but many of them will lose their homes and will have to go back to renting.
This new influx of people and homes into the rental market does two things:
1. Allows you to get an investment property in between times of rapid price growth.
2. Creates more competition for people who want and need to rent from you. This ultimately will create higher rents too.
I believe that with this influx of new renters and pressure on the rental market will increase rents by 15-20% over the next year or two.
We have seen enormous growth in the value of properties in our area over the past few years. We have seen gains of 13-19% per year in previous years. From July of 2006 to July of 2007, we still saw increases from 4-8% while the rest of the country was stagnant or even lost ground.
If you have been to any of my classes you know that our average growth in the Puget Sound area over the past 40 years has been an average of 7% per year which means that our properties double in value every 10 years or so. What we have seen in growth this past 12 months is more of the norm. The previous years growth at 13-19% is nice for investors but is not normal or sustainable. So in my opinion, the slower growth is actually better.
So what do you do now?
Regardless of which side of this issue you find yourself on, we have some solutions. If you need to work on your credit and your debt, call us so we can help you determine where you stand. From there we will let you know which options you have now and help develop your financial strategy for the future. The next time these forces line up in this way you will be prepared to cash in.
If you are financially prepared, your time is here. Don’t let this opportunity go by without getting in. With one or two changes in the way you are doing things now, you could double or even triple the amount of money you will have in your retirement nest egg. Let’s talk about it.
Give us a call at the office. The number is 425-252-1121. You can call Alex; she can set up a time for you to talk to Patti, Heather or me to talk about your particular situation. You can email Alex at alex@oldwestmtg.com too.
If you would like to read my book, we have copies available at the office or you can order it on my website, www.theeverydaymillionaire.com or on Amazon.com. If you want to sign up for one of our classes you can go to http://www.oldwestmtg.com/our_workshops.htm
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