The Everyday Millionaire Series

My response to Hillary Clinton's mortgage crackdown

I read Hillary Clinton's blog today about what she wants to do to "crackdown" on the mortgage industry for causing all of the new foreclosures.  While I agree that the mortgage industry has some problems and I don't believe government will solve them.  I wanted you to see my response to her.

Hillary's comments from her blog are below (in blue) and my response follows.

Crack Down on Unscrupulous Brokers:

• Require mortgage brokers to disclose to borrowers that their compensation rises when borrowers' mortgage rates and mortgage fees are high. 
  

• Work with states to develop strong licensing standards and require federal registration for mortgage brokers. 
  

Crack Down on Mortgage Lending Abuses:

• Eliminate prepayment penalties on mortgage products. 
  

• Require mortgage lenders to include the cost of taxes and insurance in the underwriting assessment of higher-risk mortgages. 
  

Help Reduce Foreclosures:

• Establish a $1 billion fund to assist state programs that help at-risk borrowers avoid foreclosure. 
  

• Expand Fannie Mae's and Freddie Mac's Foreclosure Prevention Efforts. Hillary would expand the goals of Fannie and Freddie, the government sponsored enterprises (GSEs) that help stabilize the mortgage markets, to include helping a larger number of at-risk homeowners avoid foreclosure. 
  

Expand Affordable Housing:

• Establish a $1 billion fund to provide federal support to housing trust funds established by state, county, and municipal governments. 
  

My Response:

First, I want to say that I have been in the mortgage business for 15 years.  I teach people about their money and have written a book for "Working America" titled, The Money Thing Made Easy.  I have seen thousands of people’s finances and I have documented many commonalities in both those that handle their money well and those that don't.  The mortgage problems we are facing now are completely centered on those that don't handle their money well.  I don't want to say that it is not their fault because I am a proponent of personal responsibility.  However, there is no place for people to go to in order to learn how to handle their money.  People are on their own and they have to be taught that.

The banks will only help you if you want to borrow money and the investment people only help people that already have money.  So who teaches "Working America"?  I contend that the mortgage industry is the prime place where this education could take place.  At this point, that cannot happen because many of the people in the mortgage industry don't understand money themselves and they are giving advice to people who are borrowing huge amounts of money. 

While people need to be proactive in seeking good advice when they are borrowing money, many borrowers are seeking advice from unqualified mortgage people.  You probably would not hire an obese person to help you get your body in shape, you would not hire someone who cannot read to tutor your children, yet many people are turning to people who do not handle their own money well to get advice on a mortgage.  These people have proven that they are not yet ready to offer advice on mortgages and finance.  The sub-prime meltdown is proof.

Sub-prime loans are made available for people who have had credit issues.  The goal of a sub-prime loan is to allow people to get into a house, and then take that two-year time frame with a fixed rate of interest to fix the problems that got them there in the first place.  The people that I have seen that have or are losing their homes, they didn't do anything to fix the problem and on top of that, they did not seek help when the problem started to get worse.  What I mean by that is that if people would just seek help immediately when they start to get behind, most of those people would have kept their homes.  It is the inactivity in the early stages that is usually caused by embarrassment or the lack of a good source of information on what to do.  Good mortgage people can help.  Inexperienced, unqualified or those that just don't care, are not a good source for people to turn to when things get tight.

In terms of your ideas on solving the problem, here are my comments:

1. Requiring brokers to disclose every penny they make is neither a good nor a bad idea.  For example, If you need a truck and you get a great deal on a motorcycle, what have you really accomplished?  You still did not get what you needed.  If the consumer focuses on the lowest price, the consumer will probably get hurt in the end.  The issue that most people should focus on is strategy and product, not the lowest price.

2. If we are going to focus on licensing standards, don't focus all of the standards for mortgage people on how much they know about regulations and products.  While that would be an important part of any future standards.  I believe that mortgage people need to be financially solvent personally.  This does not mean that they should be wealthy, but they should be on stable ground financially.  I would never want anyone I know to go to a mortgage person with bad credit.  If, for example they are in bankruptcy themselves, they should not be allowed to practice on the public.

3.  Prepayment penalties are not always bad.  If you eliminate prepayment penalties, rates and fees will go up.  Due to the costs of providing loans, lenders need to keep loans on their books for a period of time in order to break even.  If they don't know that they are going to be able to keep them long enough, they will simply charge more upfront in rates and fees.  This really won't help.

4.  The issue of taxes and insurance included in the payment calculations is incorrect.  In every case, when the borrower is evaluated for affordability, taxes and insurance and even flood insurance is included in the calculation.  The problem lies in the scenario where the lender does not collect those fees in the monthly payment.   People get behind because they do not budget well or they just don't take care of it.  I want to say again, all lenders already calculate the cost of taxes and insurance in the affordability ratios when underwriting a loan.  Unpaid taxes and insurance can affect the collateral for the loan. 

5. Throwing money at the problem will only help this immediate situation with people in trouble today.  If you want to help people avoid this scenario completely.  Spend money teaching people how to handle money.  What they are in for in the future and what steps they can take to be responsible.  Usually government does not spend money on these types of programs because it preaches personal responsibility. 

I realize that I have ranted on at length here but this is a topic that I have devoted my life to.  I want to teach "Working America" that they have to do things differently and with a good plan and some time they can succeed.  This mortgage issue is the symptom of the larger problem, it is not the problem itself.

How to recognize a dishonest lender

I am about to turn 51.  I do feel a little older and my body isn’t what it used to be.  But for the most part, I enjoy life now more than ever.  For our Saturday date night last weekend, my wife and I went to The Bite of Edmonds a local weekend celebration just north of Seattle.  We have a friend who runs the beer garden there and the Beatniks were playing.   We grabbed a beer and moved up right next to the stage.  As we were moving through the crowd I realized that there are a lot of people our age that still like to return to our youth and have a good time.  On the other hand, looking at the faces in the crowd I realized that there is a whole generation of adults that look at me as Dad or even Grandpa.  Then it hit me, I am now old enough to join the AARP.   Woo Hoo!

Today I was reading the newspaper and there was a full-page ad from the AARP talking about the housing choices that we older people have.  At the bottom of the page there was a few paragraphs titled:  How to Recognize a Dishonest Lender.  This struck me because with all of the recent changes in the mortgage industry recently, especially the past few weeks.  Over the years, I have talked to many people who have been damaged by doing business with these types of lenders.  Some we have been able to help get them out of the mess, some we haven’t. I thought the article had merit and I wanted to pass it on.  The print it red type is the word for word article the way it was published in the paper.

How to Recognize a Dishonest Lender

AARP, the not-for-profit membership organization of people ages 50 and older, provides seniors with advice on how to spot a dishonest lender.

“Be suspicious of anyone who offers you ‘bargain loans,’ whether they mail or e-mail you an offer, call you by phone or come to your door,” the online article advised. 

“Avoid salespeople who promise ‘No credit?  No problem.’  A bad loan is a mistake.  Beware of offers that are only ‘good for a short time.’ Be suspicious of anyone who contacts you first – most good mortgage lenders or credit companies don’t solicit business over the phone or just show up on your doorstep.

The article warned seniors to avoid lenders who call you and promise guaranteed, low-interest loans, who take applications over the phone or who offer next-day approval if you pay them some money today.

Another concern is so-called lenders who ask for up-front fees to “cover the first payment and other expenses.”  This is obviously someone who wants to take your up-front money and run, the article stated.

According to the U.S. Census Bureau, adults age 50 and older account for 60 percent of all health care spending and 80 percent of all luxury travel; spend $7 billion online annually; and own more that three-fourths of the nation’s wealth. 

The largest 55-plus population resides in California, New York and Florida.  This age group is also the fastest-growing segment to embrace computer technology.

While the discussion of housing options was the basis of the full page, the discussion of mortgage lenders I thought was important.  There are so many lenders out there, many of whom work for the “household name” lenders that are just looking for a paycheck.  They don’t have any regard for what this loan will do to you in the future because even if they are in the business, they won’t be working with you after this one loan anyway.

Our vision at Old West Mortgage is to create 1,000 millionaires.  We can’t do it with one loan so we want to make sure that every time you are doing something mortgage related, it is a step toward that goal.  In our minds, it is simple.  You take great care of the people you work with and they come back, with friends.

If there is anything we can do for you or anyone you know, answer questions about your finances or your mortgage, give us a call.  We are here to help.  Now, and in the future too.

Thanks for reading…

www.oldwestmtg.com

You may have to become an Everyday Millionaire

How much money will you need to be able to retire?

     This is a question that most people don't even want to think about.  Mostly because they know they are not prepared and don't think they can get there.  This post will give you an idea of how much money you would need to have saved in order to be able to retire with enough money to live comfortably for the rest of your life.  I talk to people all the time that tell me that they don't care if they become a millionaire but the more research I do, the more I am convinced that people may have to become an Everyday Millionaire just to be able to retire.

     Here is a chart I put together to give you an idea of how much money you will need to maintain your lifestyle through your retirement years.  I don't want to scare you, well yes, I guess I do.  But the truth is you can do it with some changes in the way you look at and handle your money, combined with some time.  For more information on how to get started, go to my website at www.TheEverydayMillionaire.com

1. Take the monthly amount of money you need to support your lifestyle now.

2. Subtract your expected monthy social security and pension payments.

Use that figure for the first column and the chart will show you how much you will need to start with from your 401K, IRA and Savings.

Monthly Income	Number 10	Of 15	Years 20	In 25	Retirement 30
$1,000	$86,126	$111,255	$128,982	$141,486	$150,307
$2,000	$172,252	$222,511	$257,965	$282,973	$300,615
$3,000	$258,379	$333,767	$386,947	$424,460	$450,922
$4,000	$344,505	$445,023	$515,930	$565,947	$601,230
$5,000	$430,631	$556,279	$644,912	$707,434	$751,537
$6,000	$516,758	$667,535	$773,895	$848,921	$901,845
$7,000	$602,884	$778,791	$902,877	$990,408	$1,052,152
$8,000	$689,010	$890,047	$1,031,860	$1,131,895	$1,202,460
$9,000	$775,137	$1,001,303	$1,160,842	$1,273,382	$1,352,768
$10,000	$861,263	$1,112,559	$1,289,825	$1,414,869	$1,503,075

In order to put this together I made some assumptions that are not helpful.  They actually will add to the number you need to have saved.  Those assumptions are.

1. That you receive an average of 7% per year on your invested money.
2. That your cost of living will not increase.
3. That you will pay no income taxes in your retirement.

     Right now you are probably feeling that this is an impossible task.  The point I am trying to make is that you have to get started.  After you get started you will see that you will be better off in the long run, no matter how big or small of a dent you are able to make in this number. 

     Just remember that a penny doubled ten times is only $5.00.  A penny doubled 20 times is over $5,000.  But a penny doubled 30 times is over $5,000,000.

Thanks for reading

www.TheEverydayMillionaire.com

Are You Ready To Cash In?

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

     If you have any comments on this posting, please reply below.

You have to watch your credit, now more than ever.

We noticed for the past few months that the average credit scores we are seeing are lower than they were even at the beginning of the year. It is possible that this is because the people we are seeing right now just have lower scores. I don’t believe that is the case.

We all know that the American budget is getting zapped from every direction. People are just trying to keep up and many are using their credit cards to do it. When those cards get maxed out, they are getting another one and the cycle continues. I can tell you from personal experience that this is a difficult cycle to break and yet you have to break it in order to get ahead.

Some research with the credit companies yielded no hard facts. They won’t admit to changing any of the factors used to calculate credit scores. This didn’t surprise me because they have always been pretty secretive about how they calculate those scores in the first place.

Here is what our local credit company will say: Unofficially

They have seen overall lower scores over the past four months. Those scores of people with debt over 30% of their credit card limits are getting hit hard. Those with debt over 50% of their credit card limits are getting pounded. If those people just apply for any kind of additional credit like another card, a car or a mortgage, their scores are getting hit again.

Credit lenders are concerned about the debt people are taking on. When you combine this with the fact that most people don’t have any money to fall back on, it creates some real problems for the working family.

In my book, The Money Thing Made Easy, we talk about how to get back to solid ground with your spending. 

Here is what you must do:

1.  Sit down today and put together your family budget.  The forms can be found on the resources section of our website.  www.theeverydaymillionaire.com

2.  Fill out the "Know your debt" worksheet so that you make sure you are clear on what you owe.

3.  If you have credit card debt.  Look at whether it is possible to pay it off all at once or if it will take some time.  If you can take out any kind of loan to clear it out like a personal loan or even a loan from a family member.  You should do it.  But only do it if you have already set up your budget so you know that you will not run your credit card debt again.

4.  Work toward the goal of NO CREDIT CARD DEBT.  This will raise your credit scores and help you in the future to assure yourself that you get the best financing terms on whatever you buy.

Once you do this.  If you have questions about the system or need some ideas from me.  Email me at howard@theeverydaymillionaire.com.

Just get started.  It really works.