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Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #1 

I am quite new to real estate investing.  It would seem that I know 1/10 about RE investing as many of the regular contributors to this board and even less than the "experts."

 

Sometimes, however, I think that the "experts" should just spend one week in my office observing the financial profiles of our refinance applicants.  I believe their outlook would be much different.

 

Most people simply cannot believe the profiles that we see.

 

I am the sales manager of a branch office of a top-10 national lender.

 

My office of 7 loan officers takes +/- 100 loan applications per week, 90% of that coming from cold calls.

 

Of the last 100, I have taken some simple statistics and have found the following:

  • 68/100 had LTV's over 80% at time of application
  • 16/100 had LTV's over 100% at time of application
  • 78/100 had back end DTI's over 55%
  • 31/100 had back end DTI's over 70%
  • 23/100 had FICO's under 500
  • 81/100 had credit card debt above $10,000
  • 54/100 had credit card debt above $20,000
  • 18/100 had credit card debt above $50,000
  • 66/100 had Pay-option ARMs
  • 27/100 had Pay-option ARMs and mortgage lates
  • 22/100 were either in forbearance or had been in forbearance within the past 12 months

We took 14 applications today and we cannot qualify a single borrower for any type of loan.  We are sub-prime, in fact, sometimes I say we are sub-sub-prime.  We can qualify almost anyone for a loan.  Not today.

 

Let me tell you about just one borrower from today:

  • Husband and wife
  • Husband on fixed income military retirement $1800/mo
  • Wife makes $9500/mo as a registered nurse
  • 5 properties with $3,400,000 in mortgages
  • All mortgages currently have prepays
  • 8 interest-only mortgages
  • 1 option ARM deferring $3500/mo
  • 3 in Chula Vista and 2 in Escondido
  • No more than $75,000 equity in any of the homes (verified by comp checks with 3 appraisers)
  • All properties with front end LTV over 90%
  • $65,000 credit card debt  $672 Mercedes payment
  • One property had 3 mortgages, one of them hard money
  • 621 mid FICO
  • 2x30 in the past 12 months
  • Not a dime in the bank

They have been making mortgage payments with their credit cards and refinancing to pay off the credit cards.  They are at the end of their rope, but refuse to throw in the towel.

 

This is not even an "extreme" example.  I could show you dozens of these every single week. 

 

I just wish the experts would see what I see.  I think the statistics released would be different.

 

Granted, I only see applications from San Diego and Imperial Counties, but this is just getting out of hand.

 

 

 

 

Gekko

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Senior Member
Registered: 06/27/06
Posts: 775
Reply with quote  #2 

-

 

Thanks for the report from the trenches.

 

Reminds me of the margin calls of 2000-2002.

 

Leverage is great on the way up but it's a real biiitch on the way down.

 

Hubris and leverage is a volatile combination.

hessj

Senior Member
Registered: 06/25/06
Posts: 140
Reply with quote  #3 

Have they tightend up that much?  What about no doc, stated, and 1% 2% teaser?  I would think out of 14 you could do at least 5.

taddyangle

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Registered: 03/13/05
Posts: 2,033
Reply with quote  #4 

Wow.  This is probably a good representation of the general public.  Any age information associated with those stats?

 

What was the reason the 14 applicants applied today, was it to refi out of a pay option arm?  

 

 


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dansimo

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Senior Member
Registered: 05/25/05
Posts: 625
Reply with quote  #5 
great post Mark. Thanks for the look inside...


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Kang

Senior Member
Registered: 05/10/05
Posts: 232
Reply with quote  #6 
Quote:
Originally Posted by hessj

Have they tightend up that much?  What about no doc, stated, and 1% 2% teaser?  I would think out of 14 you could do at least 5.

Are they even doing no-doc anymore?
Subcranium

Senior Member
Registered: 06/28/06
Posts: 718
Reply with quote  #7 
Well, if you're getting the people from cold calls, they aren't representative of the population at large. Seems to me that only someone desperate would respond to a cold call.

Still, an interesting snapshot.

Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #8 

Quote:
Originally Posted by Subcranium
Well, if you're getting the people from cold calls, they aren't representative of the population at large. Seems to me that only someone desperate would respond to a cold call.

Still, an interesting snapshot.

Actually, sensible people with open minds are willing to respond to cold calls from intelligent salespeople providing valuable products.

 

Generating business with cold calls is no less dignified than any other type of marketing.  It is, however, more cost effective.

Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #9 
Quote:
Originally Posted by hessj

Have they tightend up that much?  What about no doc, stated, and 1% 2% teaser?  I would think out of 14 you could do at least 5.

No Doc loans, I assume you are referring to NINA or NISA has definitely tightened up a bit on guidelines.   The LTV's and CLTV's are more restricted, as well as any negative marks on the credit.  One credit card late from 10 months ago can kill a NINA or NISA.

 

Stated SE or WE is much more forgiving, but investors are also tightening up.

 

We have 32 warehouse lines with investors still paying up to 112 for loans, but the stated or no doc loans are paying closer to the 105 range.  I can't let my loan officers waste their time with 105's when they could be focusing on 110's+.

hessj

Senior Member
Registered: 06/25/06
Posts: 140
Reply with quote  #10 

Wow I am surprised they tighted that much.  I thought it was just about the same as in 2005 with the spin of "tightening" but I did not think they did much.

 

Thanks for the update.

Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #11 
Quote:
Originally Posted by taddyangle

Wow.  This is probably a good representation of the general public.  Any age information associated with those stats?

 

What was the reason the 14 applicants applied today, was it to refi out of a pay option arm?  

 

 

I have no idea what the general public is like.  I only know that this is what I see each day.  We certainly do see our share of 800 FICOs and 25% LTV's, but it is the exception, and not the rule. 

 

Most applicants are desperate to lower their payments, not realizing that they cannot lower a payment when they currently have the option arm. 

 

Others are desperate for debt consolidation.  When their mortgage payment went from $3000 to $1000 (fixed or ARM to option ARM) they found other things to do with the cash flow.  Mostly toys.

 

We generally pitch up to 4 strategies:

  • Debt consolidation - most common
  • Max cash - a close 2nd to debt consolidation
  • Max cash same payment - almost never possible
  • Term reduction - hardly ever fits DTI

We do not sell Option ARMS.  We hardly ever sell interest-only.  The bread and butter of my office is selling people out of option arms and IO and back into a "real payment."

 

The broker office next door simply can't believe that we stay in business without an option arm to sell.

 

I will say this without any hesitation: 9/10 borrowers who currently have Option ARMs have no real understanding of what their loan is doing.  I have had more than a few old ladies cry in my office when I show them the amount of deferred interest on their loan.

 

They were careless enough to sign a bad loan (ultimately the responsibility of the borrower to read the docs before signing), but it doesn't help that every hack broker out there is pitching the option arm just because the rebate is so high.

 

Almost daily I see 70-year-old+ borrowers who used to owe $50k on their home now owing $600k on option arms.

Subcranium

Senior Member
Registered: 06/28/06
Posts: 718
Reply with quote  #12 
>>Actually, sensible people with open minds are willing to respond to cold calls from intelligent salespeople providing valuable products.

Uh. I don't believe that for one minute. People who have their crap together go out to get things done without waiting to be called.

I'm not saying there's anything wrong with cold calling. I'm just saying the people you get that way will be different.

Who sits around waiting to be called for a loan? NO ONE! The people who respond will be the people who've been trying not to think about the horrible situation they are in. "Oh god yes, maybe these people can help me."
Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #13 

Quote:
Originally Posted by Subcranium
>>Actually, sensible people with open minds are willing to respond to cold calls from intelligent salespeople providing valuable products.

Uh. I don't believe that for one minute. People who have their crap together go out to get things done without waiting to be called.

I'm not saying there's anything wrong with cold calling. I'm just saying the people you get that way will be different.

Who sits around waiting to be called for a loan? NO ONE! The people who respond will be the people who've been trying not to think about the horrible situation they are in. "Oh god yes, maybe these people can help me."

 

You win.

Subcranium

Senior Member
Registered: 06/28/06
Posts: 718
Reply with quote  #14 
I didn't mean to "win." Just not buying someone's statement that cold call responders are a good representation of general public.

>>The bread and butter of my office is selling people out of option arms and IO and back into a "real payment."

That's a GREAT service. I'm all for it. Given the stats on option arms and minimum payments, I think you do provide a worthy service.

Read a story today about scary numbers of people now missing THE VERY FIRST PAYMENT of their new loan. Good God. Where are we in the RE cycle if that's happening?

Paul

Senior Member
Registered: 03/13/05
Posts: 1,835
Reply with quote  #15 
Quote:
Originally Posted by Smithosity

We have 32 warehouse lines with investors still paying up to 112 for loans, but the stated or no doc loans are paying closer to the 105 range. I can't let my loan officers waste their time with 105's when they could be focusing on 110's+.



I think I understand that but could you explain those numbers? Great message string going on this one. Thank you.
rlc

Senior Member
Registered: 05/01/06
Posts: 1,084
Reply with quote  #16 

Point of clarification:

 

Every Option Arm or Interest Only loan program always provides the "real Payment" as a choice with definitions.

 

The classic Option Arm provided by Countrywide has separate vouchers for each choice. The borrower makes their own decision which one to pay.

 

Lately, the Option Arm can now be fixed for 5 years.

 

 

"We have 32 warehouse lines with investors still paying up to 112 for loans, but the stated or no doc loans are paying closer to the 105 range"

 

I might be mistaken but I think the "112" and "105" represents the premium over par investors pay for warehoused loans. i.e for "105 and 112" the investor is paying 5 points and 12 points respectively. 

 

 

taddyangle

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Senior Member
Registered: 03/13/05
Posts: 2,033
Reply with quote  #17 

Smithosity,

 

Could you help those investors, the one in your original post?

 

With $3.4 in loans on 5 properties, that averages to $680k in loans per property.  If they are at a LTV of 90% then the ave property value is about $750k.  How much are they paying a month in mortgage payments each month $17k, add in taxes and insurance and they are probably at $22k a month.  As far as rents, are they collecting about $2.5k per unit or $12.5k per month.  Potentially upside down $10k a month.  The worst thing about it is they probably have nothing to show for all the investing they have done.

 

What are these guys going to do when their loans start to reset?  Do they know real estate prices have been declining in San Diego?

 

One more thing, did they buy San Diego properties in year 2003 or later?

 

I bet you these folk went to one of those over priced "boot camps."


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SMB

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Senior Member
Registered: 04/04/05
Posts: 173
Reply with quote  #18 
Quote:
Originally Posted by Smithosity

I am quite new to real estate investing.  It would seem that I know 1/10 about RE investing as many of the regular contributors to this board and even less than the "experts."

 

I am the sales manager of a branch office of a top-10 national lender.

 

 

Easy boy, easy. Before you start attacking the local posters and "experts" trying to self-promote yourself as the nation's top 10 lender, let's expose some bull$hIt here:

 

(1)  YOU ARE NOT TOP TEN LENDER. Despite what they told you at the last sales rally, Home Loan Direct or whatever the name of the company you are working for, IS NOT anywhere near top 10 nationwide. If you want to see the rating, go to http://www.nationalmortgagenews.com/mortgagestats/freedata/?what=orig,

 

I asked a friend of mine, a branch manager of Wells Fargo here in LA about your company. He called you guys "a overzealous spammer", and he also explained to me that you are nothing but a large correspondent lender who wants to play with the big boys but you are not.

 

(2)  The reason why I don't believe your sample is "representative" is because you base your outreach for new customers on aggressive "PUSH" marketing, i.e. direct mail, telemarketing and other forms of aggressive OUTBOUND sales that push unwanted products onto unsuspecting consumers. Here is my personal example: in the last two years, I've gotten your offer to refinance my two addresses (and I'm completely pre-approved by you apparently) at least once every three months. The problem is that both addresses you want me to refi are my PO Boxes at two local postal annexes!  

 

So, my brother, GARBAGE IN = GARBAGE OUT. Or in your case, Garbage Out = Garbage in!

 

So, convince me that we should give ANY credibility to you, then may be I'll start listening.

 

 

 


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One half of the world will never understand the other half and it doesn't matter which half you're in.
Insider

Senior Member
Registered: 06/27/06
Posts: 58
Reply with quote  #19 
Quote:
Originally Posted by Smithosity

I am quite new to real estate investing.  It would seem that I know 1/10 about RE investing as many of the regular contributors to this board and even less than the "experts."

 

Sometimes, however, I think that the "experts" should just spend one week in my office observing the financial profiles of our refinance applicants.  I believe their outlook would be much different.

 

Most people simply cannot believe the profiles that we see.

 

I am the sales manager of a branch office of a top-10 national lender.

 

My office of 7 loan officers takes +/- 100 loan applications per week, 90% of that coming from cold calls.

 

Of the last 100, I have taken some simple statistics and have found the following:

  • 68/100 had LTV's over 80% at time of application
  • 16/100 had LTV's over 100% at time of application
  • 78/100 had back end DTI's over 55%
  • 31/100 had back end DTI's over 70%
  • 23/100 had FICO's under 500
  • 81/100 had credit card debt above $10,000
  • 54/100 had credit card debt above $20,000
  • 18/100 had credit card debt above $50,000
  • 66/100 had Pay-option ARMs
  • 27/100 had Pay-option ARMs and mortgage lates
  • 22/100 were either in forbearance or had been in forbearance within the past 12 months

We took 14 applications today and we cannot qualify a single borrower for any type of loan.  We are sub-prime, in fact, sometimes I say we are sub-sub-prime.  We can qualify almost anyone for a loan.  Not today.

 

Let me tell you about just one borrower from today:

  • Husband and wife
  • Husband on fixed income military retirement $1800/mo
  • Wife makes $9500/mo as a registered nurse
  • 5 properties with $3,400,000 in mortgages
  • All mortgages currently have prepays
  • 8 interest-only mortgages
  • 1 option ARM deferring $3500/mo
  • 3 in Chula Vista and 2 in Escondido
  • No more than $75,000 equity in any of the homes (verified by comp checks with 3 appraisers)
  • All properties with front end LTV over 90%
  • $65,000 credit card debt  $672 Mercedes payment
  • One property had 3 mortgages, one of them hard money
  • 621 mid FICO
  • 2x30 in the past 12 months
  • Not a dime in the bank

They have been making mortgage payments with their credit cards and refinancing to pay off the credit cards.  They are at the end of their rope, but refuse to throw in the towel.

 

This is not even an "extreme" example.  I could show you dozens of these every single week. 

 

I just wish the experts would see what I see.  I think the statistics released would be different.

 

Granted, I only see applications from San Diego and Imperial Counties, but this is just getting out of hand.

  

 

 

No surprise.  This is what happens at the top of a major bubble.

 


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taddyangle

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Registered: 03/13/05
Posts: 2,033
Reply with quote  #20 

SMB,

 

The OP never said it was a representative sample.  He simply said he is a "sub-sub prime" lendor and these were a sample of actual applicants.

 

I think the point of the post, however is to illustrate the problems with lending institutions, and the idiot home buyers/investors that had no business buying a home (or investing in properties) in the first place.


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Subcranium

Senior Member
Registered: 06/28/06
Posts: 718
Reply with quote  #21 
>>This is probably a good representation of the general public.

Aha! It was you that said it Taddy! Knew someone did.
Gekko

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Senior Member
Registered: 06/27/06
Posts: 775
Reply with quote  #22 

-

 

"You can never underestimate the stupidity of the general public." - Scott Adams

taddyangle

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Registered: 03/13/05
Posts: 2,033
Reply with quote  #23 

Quote:
Originally Posted by Subcranium
>>This is probably a good representation of the general public.

Aha! It was you that said it Taddy! Knew someone did.

 

Yep, it was me and I stand by that statement. 

 

Based on my observations of the general public, I believe it is true.


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RagingBull

Member
Registered: 09/15/06
Posts: 1
Reply with quote  #24 

This isn't a big surprise for me to read.  I work with these so called "investors" and get to listen to their tales of woe everyday.  As you indicated, many kind of had a vaque undersanding of the Option ARM but are only now starting to find out about the ugly details (prepayment penalities, defferred interest, reset potential, etc).

 

Like someone earlier said, the ride up is great on the RE leverage coaster, but the ride down can also be brutal.

 

Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #25 
Quote:
Originally Posted by rlc

Point of clarification:

 

Every Option Arm or Interest Only loan program always provides the "real Payment" as a choice with definitions.

 

The classic Option Arm provided by Countrywide has separate vouchers for each choice. The borrower makes their own decision which one to pay.

 

Lately, the Option Arm can now be fixed for 5 years.

 

 

"We have 32 warehouse lines with investors still paying up to 112 for loans, but the stated or no doc loans are paying closer to the 105 range"

 

I might be mistaken but I think the "112" and "105" represents the premium over par investors pay for warehoused loans. i.e for "105 and 112" the investor is paying 5 points and 12 points respectively. 

 

 

For our company, the 105 and 112 I was speaking of means the "all in" revenue of the loan.  Gain on Sale + points. 

 

Basically, we want 110+ on every deal (money is a good thing).  However, if we have a very difficult loan to qualify, we can also do so if the dollar revenue is high enough.  We never do them under 103, EVER, but if it is a $1.5m deal at 104, making $60,000, we will consider it. 

 

I'd still rather do 5 other $250,000 loans at 110 with normal qualifications.

Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #26 
Quote:
Originally Posted by taddyangle

Smithosity,

 

Could you help those investors, the one in your original post?

 

With $3.4 in loans on 5 properties, that averages to $680k in loans per property.  If they are at a LTV of 90% then the ave property value is about $750k.  How much are they paying a month in mortgage payments each month $17k, add in taxes and insurance and they are probably at $22k a month.  As far as rents, are they collecting about $2.5k per unit or $12.5k per month.  Potentially upside down $10k a month.  The worst thing about it is they probably have nothing to show for all the investing they have done.

 

What are these guys going to do when their loans start to reset?  Do they know real estate prices have been declining in San Diego?

 

One more thing, did they buy San Diego properties in year 2003 or later?

 

I bet you these folk went to one of those over priced "boot camps."

Actually, this particular borrower could have made out ok on two of the properties, but they got greedy and refinanced again for cash out to supplement payments.  Had they sold 6 months ago, they could have cleared $300k+ pretax.  Instead, the are maxed on 5 properties and would not even break even on sales with the prepays and realtor commissions.

 

4/5 were bought more than 3 years ago.  1 was bought last year.  All were refinanced within the past 12 months.

Smithosity

Senior Member
Registered: 09/02/06
Posts: 996
Reply with quote  #27 
Quote:
Originally Posted by SMB
Quote:
Originally Posted by Smithosity

I am quite new to real estate investing.  It would seem that I know 1/10 about RE investing as many of the regular contributors to this board and even less than the "experts."

 

I am the sales manager of a branch office of a top-10 national lender.

 

 

Easy boy, easy. Before you start attacking the local posters and "experts" trying to self-promote yourself as the nation's top 10 lender, let's expose some bull$hIt here:

 

(1)  YOU ARE NOT TOP TEN LENDER. Despite what they told you at the last sales rally, Home Loan Direct or whatever the name of the company you are working for, IS NOT anywhere near top 10 nationwide. If you want to see the rating, go to http://www.nationalmortgagenews.com/mortgagestats/freedata/?what=orig,

 

I asked a friend of mine, a branch manager of Wells Fargo here in LA about your company. He called you guys "a overzealous spammer", and he also explained to me that you are nothing but a large correspondent lender who wants to play with the big boys but you are not.

 

(2)  The reason why I don't believe your sample is "representative" is because you base your outreach for new customers on aggressive "PUSH" marketing, i.e. direct mail, telemarketing and other forms of aggressive OUTBOUND sales that push unwanted products onto unsuspecting consumers. Here is my personal example: in the last two years, I've gotten your offer to refinance my two addresses (and I'm completely pre-approved by you apparently) at least once every three months. The problem is that both addresses you want me to refi are my PO Boxes at two local postal annexes!  

 

So, my brother, GARBAGE IN = GARBAGE OUT. Or in your case, Garbage Out = Garbage in!

 

So, convince me that we should give ANY credibility to you, then may be I'll start listening.

 

 

 

Thank you for the personal attack.  It was pleasant to read and really helped the discussion.  Next time I'll make sure to send you my posts before I submit them.

 

I doubt that anyone would label my posts as arrogant or trying to make myself look like an expert.  I am a small fish in a very large ocean.  My original post did not, in any way, attack the experts.  I simply thought the very nice members of this discussion board would like to see a sample of the San Diego market.

 

To set the record straight, I manage a sales team for Aames Home Loan which will become Home Funds Direct in about 2 weeks.  We will be a part of Accredited Home Lenders and the merge of the companies will make us the 6th largest originator in the nation according to Wall Street.

 

I am sorry that your friend at Wells think so poorly of us.  I happen to have a lot of respect for Wells. 

Greg

Avatar / Picture

Moderator
Registered: 03/13/05
Posts: 942
Reply with quote  #28 
Quote:
Originally Posted by SMB

Easy boy, easy. Before you start attacking the local posters and "experts" trying to self-promote yourself as the nation's top 10 lender, let's expose some bull$hIt here:

(1) YOU ARE NOT TOP TEN LENDER. Despite what they told you at the last sales rally, Home Loan Direct or whatever the name of the company you are working for, IS NOT anywhere near top 10 nationwide. If you want to see the rating, go to...


So, my brother, GARBAGE IN = GARBAGE OUT. Or in your case, Garbage Out = Garbage in!

So, convince me that we should give ANY credibility to you, then may be I'll start listening.



SMB,
Why so confrontational? The only attack I see here was yours. I think you owe Smithosity an apology.
Greg

Vegas1

Junior Member
Registered: 08/17/05
Posts: 41
Reply with quote  #29 

Smithosity,

      Nice to see you not respond in kind to a frothing-mouthed attack.  You were clear about who you are and what you do.  Your factual reporting is also clear.  As for whether the people you see represent the general public--well, each can make his own assessment based on what you've said.  Thanks for posting the info. 

hessj

Senior Member
Registered: 06/25/06
Posts: 140
Reply with quote  #30 
I'm just glad to get some field news.  Thanks Smith keep em coming.
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