Any opinon on the mortgage brokers

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executivejock's picture
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These guys really don't review or care about their customers... They just sell AMR's with nothing down and now these people are screwed..
This is the same as the 2001 dot.com... Years later the government is thinking about taking action. I don't get it... Ohh wait, maybe the government was scared to state the obvious... Or maybe the public did not want to hear the obvious.
Curious if there is any regulation or rules? Are these people liable for misleading and false claims...?

Dirk Diggler's picture
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Joined: 2005-12-30

You took out an ARM, didn't you? Sucks to be you.

Lakers's picture
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I added mortgage services to my business 2 years ago. It makes sense that as a financial adviser, you should be competent in all areas of finance, and a mortgage definitely is part of the equation.
Most lenders have underwriters that will deny loans to those seeking interest only arm's, pay option, etc., and I personally don't deal with clients who's finances are so fragile that they're in deep doodoo if rates go up a point. I only sell arms if it makes sense for the client- say a 5 year arm if they're moving in 5 years, etc. Pay option arms are a great cash flow tool, particularly for those with investment property. The press has picked up the ball on interest only loans being bad- Hello- Your house will most likely continue to appreciate, while what would have been principal payments can be invested for a higher return than their house is appreciating, along with liquidity.
What's bad about no money down on a mortgage? Using other peoples money is the fasttrack to wealth in this country.
Consider the leverage:
$5000 in an investment making 10% per year = $500 profit in 1 year.
$5000 down on a property worth $500,000  appreciating at 10% per year = $50,000 profit in one year.
Now consider it with no money down!!!
Plus, mortgages add about $8,000 a month net to my practice each month, averaging 2 loans per month.
It's all about perspective

Lakers's picture
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I'd also like to add that when you have something people want- MONEY- They chase you, not vice versa like in insurance and investments. Couple that with the fact when qualifying you have access to their taxes,investment statements, etc., giving you the opportunity for significant investment assets.I've uncovered about 10 million just from mortgages the past year.

doberman's picture
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Joined: 2005-02-22

Unfortunately, some people pursue investing and home mortgages with the same attitude, unbridled optimism. And it's that attitude that ends up getting them in trouble, down the stretch.

Lakers's picture
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Care to elaborate?
 

executivejock's picture
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Lakers my partner kicked some butt with the mortgages and I am following his foot steps.. In my eyes the more services provided the better.
Dirk.... No... My life is awesome so I wish you the same. Also I was called Dirk Diggler for years with my 70's costume.. So you are following my foot steps with that name...

executivejock's picture
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Also nothing down is awesome for certain situations... If one can have a loan for 5% and is able to invest the interest for the past few years they are way ahead!
Most I suspect are doing this for the wrong reason.

Dirk Diggler's picture
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executivejock wrote:
Lakers my partner kicked some butt with the mortgages and I am following his foot steps.. In my eyes the more services provided the better.
Dirk.... No... My life is awesome so I wish you the same. Also I was called Dirk Diggler for years with my 70's costume.. So you are following my foot steps with that name...

That's great. It's like getting into the stock market in February, 2000.

troll's picture
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executivejock wrote:Also nothing down is awesome for certain situations... If one can have a loan for 5% and is able to invest the interest for the past few years they are way ahead!
Most I suspect are doing this for the wrong reason.Yes and what happens when real estate prices decline (and rates go up) and you have NEGATIVE EQUITY in the house and you can't afford the payment?What then?

executivejock's picture
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BUY BUY BUY!!!! Friends in DC with new 650k homes made 100k in 3 months... Now 6 months later they have lost 110k in equity! Yippee skippeeee
Do the opposite of the majority...

doberman's picture
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Lakers:
Care to elaborate?
-----------------------------------------
Sure.
An optimistic investor puts 100% of their money in equities.
An optimistic mortgage holder borrows the maximum amount his income will allow. Preferably, with an interest-only mortgage at that.
Both are optimistic about the future. However, neither can afford to be wrong for any length of time. 
As for me, I only have a portion of my money in equities and my mortgage is only half of what I was approved for. Oh, I'm optimistic about the future, I just know there will be "speed bumps" and "potholes" along the way. Being able to survive the inevitable setbacks is the key, in my opinion.

blarmston's picture
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"As for me, I only have a portion of my money in equities and my mortgage is only half of what I was approved for. Oh, I'm optimistic about the future, I just know there will be "speed bumps" and "potholes" along the way. Being able to survive the inevitable setbacks is the key, in my opinion."
Ahhhhh... prudence..... what most of us could all use (myself included).... A difficult aspect of our business is trying to communicate that to clients.....

Soothsayer's picture
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I wanted to weigh in with a few of my own thoughts about the mortgage industry as it operates today.  For starters, it totally reminds me of this business in about late '97 or early '98--all these jackoffs leaving other careers, and playing "mortgage broker" to family, friends, and their natural market.  When the sh*t hits the fan, you'll find out who the true professionals are, and who's just a pretender out to make a quick buck.  This industry is absolutely ripe to have the holy living crap sued out of it!  Why, oh why, I ask were so many loans done for 3, 5, or 7 years at a time when the 30-year mortgage was at an all-time low?  Ol' Sooth is soothing again, but that question will come back to haunt the industry through class action lawsuits in years to come.  Write it down, you can take it to the bank. 
Next thought:  Where's the disclosure as to conflicts of interest that are rampant throughout this ever more incestuous business.  Builders starting their "one stop" mortgage shops, developers in bed with realtors, realtors in bed with builders, builders in bed with local banks who hold the same builders' business and commercial loans.  It is an absolute f-ing cesspool.  Plenty of proprietary products, too.  Remember what that did to our business?  And finally, how much did the broker make on the front and the back of the loan.  Did they offer the loan that was best for the client, or best for them.  Why do you suppose that mortgage brokers hate the plain old 30-year vanilla mortgage so much?  Because it is very low margin, and easy for the consumer to shop.  If they show you something more exotic, a buyer is more likely to fall in love with some idea, and forget about how bad he's being screwed. 
Another thought:  Remember all of the products that our industry manufactured to play into people's greed in the late 90s?  Technology Funds, Telecommunications Funds, or the (can you believe it's still alive?) Goldman Sachs Internet Tollkeeper Fund.  Isn't that the exact same sh*t that just haunted brokers when things went south?  I remember my first year and a half in the business, and sitting next to a "top-producing, sage veteran" and listening to him pitch the Putnam New Century fund at the IPO.  "This fund is going to be small and nimble like New Opportunites was before they closed it....."  He received over $4 million of commitments that day alone for the fund.  He asked me how much I had sold, and I simply told him, "I'm not interested in offering that to my clients."  I had spent the day trying to sell 8%, 15-year, AA credit non-callable bonds.  I had received three orders that day totalling $35K.  The veteran "retired" in 2002, but not before I had picked off a handful of his clients.  Every single one had a position of the New Century Fund, which would later merge into the Voyager II fund to shed its pitiful performance.  (My 8% bonds were up 16%+ over the same time period.)  The mortgage industry has produced their own pile of junk to play into the real estate boom that will not be judged kindly in hindsight.  Oh, there I go soothing again.
For the record, I am currently short Accredited Home Lenders (LEND), New Century Financial (NEW), IndyMac Bank (NDE), and H&R Block (HRB) in my own account.  Up on 2, down on 2 but still confident of the long term result. 

7GOD63's picture
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In 2000 I told everyone that would listen something was up with the market and everyone involved. All parties thought I was confused.
The real estate boom is more of an issue. People have put loans on top of their estates. Banks know they are going to take a hit, but how much is the question.
Today I talked to someone with 300k equity in home. Thinking about selling. He stated he bought for 170 in 88 then in 89 it was 120k, but still thinks New England is immune to a change... I stated rates were above 6 and party stated they were still near 5.
Also over the years I knew a bunch of people who became a real estate broker. Most did not have a degree or anything else. One company in NJ would just get 20 year olds to push and sell.
Crazy is the margins. One guy driving a 100k car and acting like a big shot, wanted me to work for him. This guy was stating he can make like 20k on 100k loan. Every sign on the earth points to a big wake up with real estate.
Raw materials and oil are on the rise. Rates will and are going up. If there is an odd lot theory for real estate... We have passed that point... One in five are 30 days behind in 6 states. Wonder if that is going to go up? APR's going into 7% zone.. 35% of the country have them... Wonder if this would effect the market? YESSS!

7GOD63's picture
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LOAN TYPE

TODAY
+/-
LAST WEEK

30 yr fixed mtg

6.04%

5.87%

15 yr fixed mtg

5.73%

5.56%

5/1 ARM

5.72%

5.57%

30 yr fixed jumbo mtg

6.26%

6.15%

5/1 jumbo ARM

5.87%

5.75%

troll's picture
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Joined: 2004-11-29

executivejock wrote:BUY BUY BUY!!!! Friends in DC with new 650k homes made 100k in 3 months... Now 6 months later they have lost 110k in equity! Yippee skippeeee
Do the opposite of the majority...Maybe in a year or two when prices have fallen a bit further I shall consider doing so......the real estate market is slow moving, and once a trend(downward) starts, it tends to continue for a while.  Just my opinion.

blarmston's picture
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In about 12 months when I have enough dough to put 20% down on my beachfront townhouse, prices around here will have declined from about 750K for a 3BR/2BA ocean view to about 500K....
PERFECT for me............

7GOD63's picture
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When you buy can I rent it for a week.. Cheers

blarmston's picture
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Absolutely... You should see it... About 50 yards from the surf, views of Crystal Pier to the South and the start of Windensea to the north. I am developing a relationship with a real estate agent and she showed it to me 3 weeks ago during sunset... the view from the back porch area......RIDICULOUS......

menotellname's picture
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joedabrkr wrote: executivejock wrote:
Also nothing down is awesome for certain situations... If one can have a loan for 5% and is able to invest the interest for the past few years they are way ahead!
Most I suspect are doing this for the wrong reason.
Yes and what happens when real estate prices decline (and rates go up) and you have NEGATIVE EQUITY in the house and you can't afford the payment?What then?
 
Do you think the lender would foreclose?  HELL NO!!!  (at least not without an extended period to negotiate concessions)
Why would the bank take back an "investment" that they would loose money selling?
A house IS NOT an investment.  The equity in your home earns 0% rate of return.
Why not take out an interest only mortgage, pull the equity out, and put it in a conservative side fund?
If mortgage interest rates are 10% can't you earn a similar rate in a side fund?  Perhaps a floating rate fund.  Combine that with the tax deductibility of the mortgage payment and aren't you coming out ahead?
Don't ARMs have caps where the payment won't increase beyond a certain % within a calendar year?
Why would you get a fully amortized loan with a MUCH HIGHER payment if most of that payment is going to interest for the first 20 years (assuming a 30 year fixed rate mortgage)?
I don't see where an ARM is a bad thing.  After all...aren't increases capped?  Can't you have your payment fixed for 1, 3, or 5 years?
I also don't understand why you would get a fixed rate mortgage with a 15 year or 30 year term if you are only going to keep the house or the mortgage for 7 years or less.
Perhaps you can enlighten me, Joe.

7GOD63's picture
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Yeah the ocean rules!! Used to live in Florida on the ocean.. Past few years I have been on the Cape over looking the ocean and it was amazing.. The only thing that stinks is this huge home now blocks the sun rise....
Ohh well one day.. Hopefully sooner then later I will own one!

doberman's picture
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blarmston:
Ahhhhh... prudence..... what most of us could all use (myself included).... A difficult aspect of our business is trying to communicate that to clients.....
-----------------------------
You're so right, my brotha! 
I shake my head when I see postings from brokers excited that their clients' investment returns are way up YTD. You just know they're calling their clients and bragging about their investment selection acumen. Then the client gets hooked on this drug called "unbounded optimism".  
Now, the broker becomes the dealer of this highly addictive drug. As long as the broker/drug dealer can supply the client with this drug, everything is great. But as we all know, the good times never last.
When the client suffers a negative return for the quarter or the year, they'll start suffering "withdrawal" symptoms (as in withdrawing all their assets from you). They'll look around for another broker who can promise to give them the drug. Then the cycle starts all over again.
The only prospects, I've found, who appreciate the "prudence" aspect of investing are those who have been burned, either by their own hand or that of a broker. 

anonymous's picture
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"A house IS NOT an investment.  The equity in your home earns 0% rate of return."
I have always felt that this is a B.S. argument.
Can't we say, "A stock is NOT an investment.  The equity in your stock earns 0% rate of return."?
The basic argument is that the house appreciates the same regardless of how much money one has in equity.  Well, the stock appreciates the same regardless of how much one has in equity in the stock.  In other words, if we should be keeping as much equity as possible out of our hourse, doesn't it follow that we should be keeping as much equity as possible out of stocks and buying everything on margin?
 

troll's picture
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menotellname wrote:joedabrkr wrote: executivejock wrote:
Also nothing down is awesome for certain situations... If one can have a loan for 5% and is able to invest the interest for the past few years they are way ahead!
Most I suspect are doing this for the wrong reason.
Yes and what happens when real estate prices decline (and rates go up) and you have NEGATIVE EQUITY in the house and you can't afford the payment?What then?
 
Do you think the lender would foreclose?  HELL NO!!!  (at least not without an extended period to negotiate concessions)Of course they wouldn't foreclose.  ::rolls eyes::  Thats' why when I bought my first house about 9 years ago I was able to peruse an ample selection of 'bank owned homes'.
Why would the bank take back an "investment" that they would loose money selling?Because they will lose far less money selling than by continuing to collect insufficient mortgage payments from an overextended borrower.
A house IS NOT an investment.  The equity in your home earns 0% rate of return.I really need to to explain this revelation that the equity in one's home isn't an investment.  This runs completely counter to any reasonable thinking I've seen in the last decade.  More Americans have accumulated significant personal wealth through the (non) investment in their home equity than the stock market.  This sounds sorta like the "P/E's don't matter it's a NEW ECONOMY" mantra of the late 90's.
Why not take out an interest only mortgage, pull the equity out, and put it in a conservative side fund?Ummmm.....because even a conservative side fund is generally more risky than continuing to build equity in one's home.  With perhaps the exception for those who live in a declining neighborhood.
If mortgage interest rates are 10% can't you earn a similar rate in a side fund?  Perhaps a floating rate fund.  Combine that with the tax deductibility of the mortgage payment and aren't you coming out ahead?Perhaps.  But then again that 'side fund' isn't guaranteed, is it?  CD's and Treasuries and Corps aren't going to pay enough to make your idea work.  Bond funds have interest rate(price) risk if rates go up further.  Floating rate funds-if you're talking about the ones that would pay enough to make this idea work-have significant credit risk(most holdings below investment-grade).Don't ARMs have caps where the payment won't increase beyond a certain % within a calendar year?
Yes they do.  Considering you sound like a fellow who lines his pocket by helping clients strip equity out of their homes and invest it, you shouldn't need to ask this question.  By the way, be careful.  If the banking regulators find out they might argue that the money you're using should be subject to REG T rules.  Anyway-the caps on the ARMS still allow for some pretty substantial increases in rates.Why would you get a fully amortized loan with a MUCH HIGHER payment if most of that payment is going to interest for the first 20 years (assuming a 30 year fixed rate mortgage)?Ummmm....because I'm building ownership in a significant asset from which I also gain great personal satisfaction.  Because the interest is deductible anyway?  Because it diversifies my risk away from the investment markets-unlike your 'side fund'.
I don't see where an ARM is a bad thing.  After all...aren't increases capped?  Can't you have your payment fixed for 1, 3, or 5 years?
I also don't understand why you would get a fixed rate mortgage with a 15 year or 30 year term if you are only going to keep the house or the mortgage for 7 years or less.Why?  Because among other things you don't really know how life is going to turn out despite your plans.  I lived in my first house for 8 years, three years past my expected departure.  Here I was able to lock in a 5 3/8% rate for 30 years.  The guy in the bank lobby-one of your ilk-tried to convince me to take out an I/O ARM because the rate(first year) was so much lower, and my cash flow was 'better'.  Well here I am less than a year later and the rate on that ARM he was pushing me is already higher than my stodgy 30 year fixed rate mortgage.  A significant part of my cost of living has now been frozen for a very long time.  If inflation remains a concern, either now or in the future, you ARM-lovers are going to be in for a surprise, and I'll once again have plenty of bank-owned homes to choose from.
Perhaps you can enlighten me, Joe.Well I hope I was able to 'enlighten you', but somehow I have a feeling that you're already so convinced that you have it all figured out such that my words will fall on deaf ears.  Perhaps, though I can help others contemplate the risks they take.It's really pretty simple the way I look at it.  I take plenty of risk when it comes to my business and my investments in the financial markets.  I prefer not to take much risk or speculate about future interest rates when it comes to my home....especially when I can lock in a historically low rate and then forget about the issue for a few decades.  Maybe in the end you'll end up being right, but it's not for me./Quote:

skeedaddy2's picture
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Joe, you make perfect sense, but you're response looks a little like MikeB (heaven forbid). 

Soothsayer's picture
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Joe--
Excellent post.  I don't know why Meno was calling you out, when it was some of my commments that he was taking exception with.  Thanks for answering the bell.  All I can say to each one of your answers is "ditto".  I think we're cut from the same cloth.  My home is almost paid for, but most people would crap their pants if they saw how aggressively I worked by own brokerage account.  I sleep really, really well with my $568 (that's not a typo) monthly mortgage payment. 

troll's picture
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skeedaddy2 wrote:Joe, you make perfect sense, but you're response looks a little like MikeB (heaven forbid). 
Mike gets a little carried away sometimes, but he strikes me as pretty intelligent and accurate with much of his commentary.  So, I'll take it as a compliment!

troll's picture
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Soothsayer wrote:
Joe--
Excellent post.  I don't know why Meno was calling you out, when it was some of my commments that he was taking exception with.  Thanks for answering the bell.  All I can say to each one of your answers is "ditto".  I think we're cut from the same cloth.  My home is almost paid for, but most people would crap their pants if they saw how aggressively I worked by own brokerage account.  I sleep really, really well with my $568 (that's not a typo) monthly mortgage payment. 

Thanks.
LOL....my mortgage payment would probably make you crap your pants!  Then again, it's the same as the payment on our prior home in the NorthEast(because of lower taxes) and yet I have 50% more square footage, and across from the second fairway!  We could probably afford more, but why?  I don't need it, and don't want to spend any more time taking care of it.
We have about 50% equity, so it's not a bad start.
As far as my brokerage account, it goes in spurts depending upon how much I like the market, how many good ideas I find, and how busy I am taking care of client accounts, because they come first.  I'm usually about 85% equity unless I'm uncomfortable about the market.  Then I'll go to about 50% cash, and maybe even add a little Rydex inverse fund action.  Fun stuff.
So I don't need to be worrying about the rate on my mortgage jumping up all of a sudden.  I've learned hard lessons about leverage(i.e. margin) in the market in the past.  I'm only a fool if I repeat the 'learning experience' with my real estate investment, if you ask me.

7GOD63's picture
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Maybe the 40% second home/investors is a cap of the movement.. Like stocks one would suspect that if everyone is buying there may be an issue in the future.
Amazes me that real "real estate" investors are backing away. Fortune just had an American guy with Saudi contacts who has left the market a year ago. There are numerous concerns from every aspect of banking and federal level, but average "Joe" (not forum Joe) thinks buy since the market is and will go up... If the majority of these investors in baby boom close to 60 then why would you invest in something with such "cyclical risk?" Its like buying into tech before 2000. I mean at least 50% of the analysts are stating a 15% correction in many markets is a possibility. Well from what I see numerous places (friends experiences) from DC to Maine have lost 10% over the past few months. Is that risky? Maybe people think the risk is less then the market or they are just diversifying?    Damn my spelling is improving... Thank to you all!

menotellname's picture
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anonymous wrote:
"A house IS NOT an investment.  The equity in your home earns 0% rate of return."
I have always felt that this is a B.S. argument.
Can't we say, "A stock is NOT an investment.  The equity in your stock earns 0% rate of return."?
The basic argument is that the house appreciates the same regardless of how much money one has in equity.  Well, the stock appreciates the same regardless of how much one has in equity in the stock.  In other words, if we should be keeping as much equity as possible out of our hourse, doesn't it follow that we should be keeping as much equity as possible out of stocks and buying everything on margin?
 

 
Okay.
So why don't you invest all of your money in your house?
Why don't you keep putting money into your home even after you have paid off the mortgage?
Here...let me describe home equity for you...
 
HOW MUCH WOULD YOU DEPOSIT IN THE FOLLOWING INVESTMENT ACCOUNT?
-The customer determines the amount and length of time for the monthly contributions to continue.
-The customer can pay more than the minimum monthly contribution, but not less.
-If the customer attempts to pay less, the financial institution keeps all of the previous contributions.
-The money desposited in the account is not safe from loss of principal.
-Each contribution made to the account results in less safety.
-The money in the account is not liquid.
-The money in the account earns 0% rate of return.
-The customer's income tax liability increases with each contribution.
-When the plan is fully funded, there is no income paid out.
 
Sorry but the goal here is NOT to invest in stocks.  Stocks are volitility.  Again...you invest in something safe and conservative that earns a disciplined rate of return.
Your serve.

menotellname's picture
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menotellname wrote:
Do you think the lender would foreclose?  HELL NO!!!  (at least not without an extended period to negotiate concessions)
Of course they wouldn't foreclose.  ::rolls eyes::  Thats' why when I bought my first house about 9 years ago I was able to peruse an ample selection of 'bank owned homes'.
Wrong.  Banks invest in long term obligations and expect an income stream.  They would much rather have this income stream than a negative return on their investment.  They will wait a long time to revive this income stream before realizing a loss on their investment.
Why would the bank take back an "investment" that they would loose money selling?
Because they will lose far less money selling than by continuing to collect insufficient mortgage payments from an overextended borrower.
Wrong again.  Lenders would much rather have a brief deferral of the payments rather than having to "capture a loss" on their investment.
A house IS NOT an investment.  The equity in your home earns 0% rate of return.
I really need to to explain this revelation that the equity in one's home isn't an investment.  This runs completely counter to any reasonable thinking I've seen in the last decade.  More Americans have accumulated significant personal wealth through the (non) investment in their home equity than the stock market.  This sounds sorta like the "P/E's don't matter it's a NEW ECONOMY" mantra of the late 90's.
Just because a forward thinking concept is beyond your nominal comprehension is no reason to dismiss it.  You simply have a depression era mentality.  Obviously you haven't encountered any new thoughts in the past decade.  Unfortunately it is your clients that will suffer.  I can't imagine seeing a doctor that hasn't learned anything new in a decade.  It must be worse visiting a financial advisor that is in the same boat.
Why not take out an interest only mortgage, pull the equity out, and put it in a conservative side fund?
Ummmm.....because even a conservative side fund is generally more risky than continuing to build equity in one's home.  With perhaps the exception for those who live in a declining neighborhood.
Are you familiar with floating rate funds and how they work?  How about the tax benefits and accumulation benefits of a participating life insurance contract.  Perhaps you should educate yourself on that and three words:  real estate bubble.
If mortgage interest rates are 10% can't you earn a similar rate in a side fund?  Perhaps a floating rate fund.  Combine that with the tax deductibility of the mortgage payment and aren't you coming out ahead?
Perhaps.  But then again that 'side fund' isn't guaranteed, is it?  CD's and Treasuries and Corps aren't going to pay enough to make your idea work.  Bond funds have interest rate(price) risk if rates go up further.  Floating rate funds-if you're talking about the ones that would pay enough to make this idea work-have significant credit risk(most holdings below investment-grade).
Wrong again.  Whole life insurance contracts have guarantees.  Perhaps you only think of securities.  Well rounded folks have many more tools at their disposal.
Don't ARMs have caps where the payment won't increase beyond a certain % within a calendar year?
Yes they do.  Considering you sound like a fellow who lines his pocket by helping clients strip equity out of their homes and invest it, you shouldn't need to ask this question.  By the way, be careful.  If the banking regulators find out they might argue that the money you're using should be subject to REG T rules.  Anyway-the caps on the ARMS still allow for some pretty substantial increases in rates.
That is why I conduct fact finding.
Why would you get a fully amortized loan with a MUCH HIGHER payment if most of that payment is going to interest for the first 20 years (assuming a 30 year fixed rate mortgage)?
Ummmm....because I'm building ownership in a significant asset from which I also gain great personal satisfaction.  Because the interest is deductible anyway?  Because it diversifies my risk away from the investment markets-unlike your 'side fund'.
Great.  But is your ultimate goal to "own the home" or simply to live in the home, control the home, and have a secure retirement.  I bet it is the latter and you have it confused with the former.  You can still own your home but the process to go about it can be much more efficient.
I don't see where an ARM is a bad thing.  After all...aren't increases capped?  Can't you have your payment fixed for 1, 3, or 5 years?
I also don't understand why you would get a fixed rate mortgage with a 15 year or 30 year term if you are only going to keep the house or the mortgage for 7 years or less.
Why?  Because among other things you don't really know how life is going to turn out despite your plans.  I lived in my first house for 8 years, three years past my expected departure.  Here I was able to lock in a 5 3/8% rate for 30 years.  The guy in the bank lobby-one of your ilk-tried to convince me to take out an I/O ARM because the rate(first year) was so much lower, and my cash flow was 'better'.  Well here I am less than a year later and the rate on that ARM he was pushing me is already higher than my stodgy 30 year fixed rate mortgage.  A significant part of my cost of living has now been frozen for a very long time.  If inflation remains a concern, either now or in the future, you ARM-lovers are going to be in for a surprise, and I'll once again have plenty of bank-owned homes to choose from.
It sounds like you aren't doing too well financially if the increases in one year are adversely affecting your living situation.  Perhaps you should get out more and do some more selling.

Perhaps you can enlighten me, Joe.
Well I hope I was able to 'enlighten you', but somehow I have a feeling that you're already so convinced that you have it all figured out such that my words will fall on deaf ears.  Perhaps, though I can help others contemplate the risks they take.
It's really pretty simple the way I look at it.  I take plenty of risk when it comes to my business and my investments in the financial markets.  I prefer not to take much risk or speculate about future interest rates when it comes to my home....especially when I can lock in a historically low rate and then forget about the issue for a few decades.  Maybe in the end you'll end up being right, but it's not for me.
You failed miserably at enlightening me.  Perhaps you should seek enlightenment yourself.  The way I look at it is that you sell the investment of the day and don't do any real planning or understand how money and financing really work.  You may very well understand the markets but you have no concept of money.  That is clearly evident if one year of increases to your ARM has adversely affected you.
Good luck!!!

anonymous's picture
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Joined: 2005-09-29

Menotellname,
You need to work on your reading comprehension.  I am not against pulling money out of one's home or paying as little as possible on one's mortgage depending on one's circumstances.
I just think that the following STATEMENT is stupid:
"A house IS NOT an investment.  The equity in your home earns 0% rate of return." 
The word "house" can be replaced with any asset. 
 

menotellname's picture
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Joined: 2004-12-01

I think you need to work you YOUR reading comprehension AND your overall level of understanding.
Again...a house IS NOT an investment and the equity in your home earns 0% rate of return.

anonymous's picture
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Joined: 2005-09-29

The people who I know who have made millions in residential real estate investment would beg to differ with you. 
"The equity in your home earns 0% rate of return"    So what?  The equity in no investment gets a return.  It is the underlying asset that gets the return.  
 What's your brilliant point?

Indyone's picture
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Joined: 2005-05-30

menotellname wrote:Okay.
So why don't you invest all of your money in your house?
It's called diversification.
Why don't you keep putting money into your home even after you have paid off the mortgage?
A lot of people do...it's called home improvement.
Here...let me describe home equity for you...
 
HOW MUCH WOULD YOU DEPOSIT IN THE FOLLOWING INVESTMENT ACCOUNT?
-The customer determines the amount and length of time for the monthly contributions to continue.  This doesn't bother me at all...who wouldn't want to control how much and how long they invested?
-The customer can pay more than the minimum monthly contribution, but not less.  That's correct, Mr. Obvious.
-If the customer attempts to pay less, the financial institution keeps all of the previous contributions.  Are you serious?!!  I thought you worked in a bank?!!  Where I come from, on a foreclosure, funds received in excess of the loan amount, late charges and foreclosure costs are rightfully the borrower's and must be returned.
-The money desposited in the account is not safe from loss of principal.  Well, Duh.  That's true with many investments.
-Each contribution made to the account results in less safety.  What on earth are you talking about?!!!  How can additional principal payments make this investment less safe?!!
-The money in the account is not liquid.  I can make an argument that I can make the investment pretty liquid with a home equity line of credit, but in the interest of being fair, I'll give you that one also, Mr. Obvious.
-The money in the account earns 0% rate of return.  What planet are you from?!!  If a house is worth $100,000 at the beginning of the loan, and is sold for $175,000 ten years later, how on earth can you say there is a 0% return?!!
-The customer's income tax liability increases with each contribution.  Again, what are you smoking?!!  How on earth does paying down a loan increase your income taxes?!!  Better yet, if you can itemize, the interest paid on the loan actually decreases your income tax liability.
-When the plan is fully funded, there is no income paid out.  Until you sell it, much like a growth stock.  This also assumes that you don't rent out a room or anything of that nature.  Finally, this statement also ignores the value of living in the home rent-free.
 
Sorry but the goal here is NOT to invest in stocks.  That may be your goal, but you don't speak for the universe.  Stocks are volitility.  Again...you invest in something safe and conservative that earns a disciplined rate of return.  If you're satisfied with 3-8% annual returns.  That's fine for some, but again, you don't speak for the universe.
Your serve.
Meno, that post was arrogant and nonsensical, and full of misinformation, but hey, what's new.  I'm not advocating investing 100% of your available funds in real estate, but it sounds like you're advocating variable annuities (again), and I'm sorry, but they just don't fit all the time.  To suggest that there is no return in real estate investing ignores some obvious examples, including rents and capital appreciation from the sale of said real estate.
You might want to stay with your area of expertise next time.

7GOD63's picture
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Joined: 2006-01-29

28% of all home buyers last year were 2nd home investments. SO not an investment does not make sense to me..
Now if its good or bad is another thing, but diversity is key. So if one has a million in assets and they wanted to diversify go with a REIT or buy another home.. Not saying this is always, but an investment option.

troll's picture
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Joined: 2004-11-29

Nice try.....I'm going to spare everyone the long quote of your silly
response.  Clearly you have plenty of chutzpah but you're a little light in
other key attributes such as wisdom, prudence, and reading
comprehension.....You state that lenders would 'rather not' foreclose on a
property that they would then sell at a loss.  Well I have seen evidence to
the contrary with my own eyes.  You simply make a statement and then
expect myself and others to accept your decree at face value.  How about
a little evidence?"A temporary deferral in payments"?   What happens
when the rate on that I/O and the payment jumps high enough that your
customer can't afford to make the payments.  Then they look around and
realize that at the same time interest rates have driven down values in the
real estate market, and rents as well.  So, they pack up their stuff and
walk away.  If you think it doesn't happen you're just plain naive.  Worse
still when an investment-oriented owner realizes he has no decent
market for his property.  He just hands it back to the bank and moves
on.  Then the 'temporary deferral in payments turns into a bank-owned
home.  They don't 'capture a loss' in that situation, they have it dropped
right in their laps.Tell me, meno, have you been in this business long
enough to even survive a period of consistently rising mortgage rates?I
ask you to explain your assertion that the equity in one's home generates
a 0% rate of return for the benefit of myself and others.  Too, to see if you
can back up your statement.  Rather than accepting the challenge, you
resort to an ad hominem attack, suggesting that my understanding is
'nominal'(I don't even think that's a proper use of the word) and that my
thinking is 'depression era'.  What's wrong meno?  Can't even explain the
fancy concepts you're throwing around in terms that us 'mental midgets'
can understand?You toss out the term 'real estate bubble'.  Explain to
me how one of your clients-with plenty of leverage, little or no equity in
their home and an increasing mortgage payment(due to higher rates) is
going to weather the bursting of your so-called 'bubble' better than I
shall with my FIXED monthly payment and constantly declining liability. 
Folks who follow your path are going to end up with negative equity in
their homes, a big fat mortgage balance, and a higher monthly housing
cost.  Hmmm...wow now THAT sounds like a GREAT deal!  Sign me up
right away for the Meno path to wealth!Oh that's right, I forgot about
the 'side fund' your promoting.  (In other words, 'the way he bumps up
his gross after helping the customer strip equity out of his home'.)  You
start out by asking if I've ever heard about adjustable rate funds, until you
realize I'd pointed out that they have signficantly more credit risk than
simply paying down one's own debt, so then you switch to talking about
the benefits of using whole life as an investment?  Are you REALLY going
to try to tell me how a 'participating life insurance policy' and its tax
benefits are going to do better for me than to build equity in my home
over the long term?  Then again, your clients need to buy LOADS of
permanent life insurance to protect their spouses from the interest-ony
mortgage you sold them, considering that if they die after 10 years they
still have the same amount of principal 'due' on their mortage.For a
guy who talks about how he conducts fact finding and planning, you sure
have made a lot of assumptions about my goals.  Wrong-my goal is not
to "control" my home.  I want to OWN it.  I want to know that one day I
can burn my mortgage if I want.  Maybe that's a little old-fashioned, but
the idea of owning my 'homestead' appeals to me.  I can keep it and enjoy
it, or I can sell it mostly likely for a nice gain.  People who follow your
train of thinking end up 'owning' a big pile of debt and a lot of life
insurance.Now let's get to the reading comprehension part......You are
living under the delusion that increases in rates on my ARM are putting a
pinch on me.  I suggest you go back and take another look at my post.  I
state clearly that I locked in 5 3/8% for a 30 year mortgage. 
Dumbarse....it was right there in print for you!So....while I keep making
my fixed mortgage payments your clients are panicking because their
montly payment is 30-50% higher than it was a year ago.  Some of them
are probabaly paying the costs of refinancing to a fixed-rate mortgage at
a rate far higher than they could have gotten a year or two ago, or
perhaps cutting back on payments to the insurnance policy you sold
them.  NO worries, though, because I'm sure Meno gets paid for the new
mortage on the refinancing, too.  All under the guise of 'forward thinking'
and 'liability management'.I never expected to enlighten you, because
clearly you already 'know' that you have it all figured out.  Personally, I
think you should stick to slinging annuities in the bank lobby.  Then
again, keep up the work you're doing now, and someday a bunch of us
more prudent folks will have the opportunity to bargain hunt amongst the
bank-owned homes your clients lost to foreclosure....

Biasedrecruiter's picture
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Joined: 2006-04-04

Joe; you make some good points but do you ALWAYS have to be so rude?
 
Are you in sales?

htowntiger's picture
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Joined: 2006-04-06

The money in the account earns 0% rate of return.  What planet are you from?!!  If a house is worth $100,000 at the beginning of the loan, and is sold for $175,000 ten years later, how on earth can you say there is a 0% return?!!
 
So you made $75,000, what you fail to understand is that you will make that same $75,000 if your house is fully mortgaged.  The money invested in the home is not making any money.  The home has appreciated in price, the mortgage has no effect on that.
 
 

troll's picture
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Joined: 2004-11-29

Biasedrecruiter wrote:Joe; you make some good points but do you ALWAYS have to be so rude?
 
Are you in sales?I am ALWAYS rude?  Or do I just call 'em like I see 'em?I suppose I just get a little tired of some of the nonsense certain folks try to pass off as sound advice on this board.Why do you ask if I'm in sales?  Do you figure I must be in management since I'm so 'rude'?

troll's picture
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Joined: 2004-11-29

htowntiger wrote:The money in the account earns 0% rate of return.  What planet are you from?!!  If a house is worth $100,000 at the beginning of the loan, and is sold for $175,000 ten years later, how on earth can you say there is a 0% return?!!
 
So you made $75,000, what you fail to understand is that you will make that same $75,000 if your house is fully mortgaged.  The money invested in the home is not making any money.  The home has appreciated in price, the mortgage has no effect on that.
 
 That all sounds great on the 'surface'.  However, you are failing to account for the ongoing cost of capital over the years where you pay interest but don't build equity.Too, if real estate values were to decline markedly, the I/O "buyer" will end up with negative equity, while at least someone making payments on a traditional amortizing mortgage stands a chance of having equity.

Indyone's picture
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Joined: 2005-05-30

htowntiger wrote:
The money in the account earns 0% rate of return.  What planet are you from?!!  If a house is worth $100,000 at the beginning of the loan, and is sold for $175,000 ten years later, how on earth can you say there is a 0% return?!!
 
So you made $75,000, what you fail to understand is that you will make that same $75,000 if your house is fully mortgaged.  The money invested in the home is not making any money.  The home has appreciated in price, the mortgage has no effect on that.
No, you WON'T make the same amount of money if your house is fully mortgaged.  The additional interest you will pay for that full mortgage will eat into your profits over the years. What the mortgage is "making" is the interest rate that it is costing you, less any potential tax benefit.  You may get a deduction if you can itemize, but it's a deduction...not a credit, so it's never dollar for dollar.
If you're advocating that clients keep their homes fully mortgaged (leveraged), I believe you are traveling down a dangerous path. 

troll's picture
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Joined: 2004-11-29

Indyone wrote:htowntiger wrote:
The money in the account earns 0% rate of return.  What planet are you from?!!  If a house is worth $100,000 at the beginning of the loan, and is sold for $175,000 ten years later, how on earth can you say there is a 0% return?!!
 
So you made $75,000, what you fail to understand is that you will make that same $75,000 if your house is fully mortgaged.  The money invested in the home is not making any money.  The home has appreciated in price, the mortgage has no effect on that.
No, you WON'T make the same amount of money if your house is fully mortgaged.  The additional interest you will pay for that full mortgage will eat into your profits over the years. What the mortgage is "making" is the interest rate that it is costing you, less any potential tax benefit.  You may get a deduction if you can itemize, but it's a deduction...not a credit, so it's never dollar for dollar.
If you're advocating that clients keep their homes fully mortgaged (leveraged), I believe you are traveling down a dangerous path.  Exactly my point Indy.  At best their arguments are seriously flawed.  At worst this could amount to financial malpractice.However, I rather doubt they care, as long as they get to collect the commish paid when the client invests in their 'conservative side fund'. Just my guess.....

Ace Planner's picture
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Joined: 2006-03-09

Taking out inflation, houses do get about a 0% increase in value, whereas bonds average 5% and stocks average 7+% (all accounting for inflation.)  Read Rich Dad, or just consider for yourself, a house you're living in is being consumed, and if you're not leveraged in it, you've got a lot of lost opportunity cost.
Ace

Indyone's picture
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Joined: 2005-05-30

Ace Planner wrote:Taking out inflation, houses do get about a 0% increase in value, whereas bonds average 5% and stocks average 7+% (all accounting for inflation.)  Read Rich Dad, or just consider for yourself, a house you're living in is being consumed, and if you're not leveraged in it, you've got a lot of lost opportunity cost.
Ace
0% assumes no rental income, which is true in many cases, but not factual for investment properties.  If 0% were true, you'd be seeing 3-4% annual returns on REITS.
Borrowing 80% of the FMV at purchase is a lot different than what I see advocated here.  I'm not Dave Ramsey...not all leverage is evil.  I just see abuse here.  100% leverage can be a dangerous thing...particularly when a market is overheated.

BankFC's picture
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Joined: 2005-05-27

Bonds average 5% return in excess of inflation?????
What planet do you live on?!? 

htowntiger's picture
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Joined: 2006-04-06

I am not reccomending that people have no equity in a home, I just think people should think twice before they get in such a hurry to pay off their house.

troll's picture
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Joined: 2004-11-29

htowntiger wrote:I am not reccomending that people have no equity in a home, I just think people should think twice before they get in such a hurry to pay off their house. We're not talking about rushing to pay off our homes dude....these rocket scientists are suggesting we're foolish to lock in historically low rates in a 30 yr fixed mortage when instead we can let our cost of capital float upward constantly for the last 2 years, build NO equity in the home, and then invest the extra cash flow in their high-comission "conservative side fund" (i.e. whole life insurance).

Soothsayer's picture
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Joined: 2005-02-24

C'mon Joe, guys like that don't deal with whole life and guarantees.  They are much more likely to present an Equity Indexed Annuity, or better yet, a "Super Roth" VUL as an outstanding sidefund alternative--the next two product offerings that will give our industry a black eye(s), and test the mettle of the sellling broker's E&O insurance. 

troll's picture
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Joined: 2004-11-29

Soothsayer wrote:C'mon Joe, guys like that don't deal with whole life and guarantees.  They are much more likely to present an Equity Indexed Annuity, or better yet, a "Super Roth" VUL as an outstanding sidefund alternative--the next two product offerings that will give our industry a black eye(s), and test the mettle of the sellling broker's E&O insurance. Exactly!

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