Philadelphia Area Mortgage Blog

Previously, I wrote about the state of the mortgage market, based on a direct mail marketing piece I received from Wachovia Bank.  I thought their letter, offering purchase loans to current customers not even in the market for a new home, was bad marketing at its best (or worst?) and a sad reflection on the state of the company.  This week, my nominee for "Stupid Mortgage Marketing Letter of the Week" is ING Direct, a direct lender and purveyor of the "Straightforward and Fair" Orange Mortgage.

Now as a bank, I like ING Direct.   Two kids and two houses ago (when I was able to actually save money) I had an internet account with them because they paid a lot more interest than my local bank (yeah, that's you Wachovia).  As a matter of fact, I think I still have about $40 in an account there somewhere, which when you take into account the higher than average interest rates they pay and the miracle of compound interest the account is now probably worth............. about $40.

ING wants to offer me a mortgage that "fits my needs and isn't filled with surprises".  A banner on the letter advertises a 5.50% rate, but surprise! - it's a five year adjustable rate mortgage (ARM).  Now I assume by now that the marketing geniuses at ING got the memo, read in the newspaper, or received on of my own "brilliant" direct mail pieces warning consumers that billions of dollars in ARM's were set to adjust and that they better refinance now into a low-fixed rate mortgage before their payments rise.  In fact, I'm sure they got that memo because not once do they use the terms "adjustable rate" or "ARM" in their letter but rather say (in what in my opinion is both deceptive and stupid) "The Orange Mortgage could save you thousands, because we base our low pricing on keeping the rate fixed for 5 years instead of 30 years, like most banks." 

Are you kidding me?  Is this direct lender now trying to market to consumers under the premise that ARM's are better than fixed rate mortgages because the rate doesn't stay the same for 30 whole years? Isn't everyone else in the industry busy trying to blame all the greedy mortgage brokers who stuck the poor consumers into ARM's (supposedly against their knowledge) causing them to lose their homes when the payments adjusted, leading to the current crisis the industry is now in?

And just when you think it couldn't get any worse check out some of the "Answers to Your Questions" on the back of the letter:

One is about how high the rate can adjust.  I'll skip over the details but leave you with the statement that you can expect this mortgage "never increasing more than 6% over the original rate for the life of the loan."  So the rate starts out at 5.5% and can increase as high as 11.5%, more than doubling the payment and this saves me money how?

Another question is:

Is there a penalty for cancelling my application after I apply?

Actually, that wouldn't be one of my questions because I would never assume there would be, but guess what the answer is?  "If your cancel your loan or your loan is withdrawn due to inactivity, we'll charge you $350 to cover our expenses.   We think that's fair."

Really ING?  I don't think it is fair, not at all.  You're a huge company and can certainly eat that $350 that you wish to pass off to the customer after he changes his mind, realizing that his mortgage is actually an ARM, and may not be so "straightforward and fair" after all.  I've known small mortgage brokers  who incurred all the expenses of processing a loan, even fronting the cost of the appraisal, only to have a customer decide she didn't want to refinance just before closing  because her "mom told her  not to".   I've also known Realtors who waste dozens of hours and gallons of gas taking prospective buyers to look at homes only to have them decide to continue to rent for awhile longer.  Nobody ever sends anyone a bill for their expenses.  Maybe your policy is fair ING... for you; it would put the rest of us out of business.

And topping off any crappy loan product, is the requisite one year prepayment penalty of 3% "to compensate for our expenses and lost income" in case you decide to pay your mortgage off (read sell or refinance) during the first year.  ING warns that if you don't plan to commit to this loan for more than one year "perhaps this isn't the right mortgage for you."  

Perhaps they are right about that one; this definitely is not the right mortgage for you.  And to think it is mortgage brokers who are blamed for being dishonest, deceptive, and greedy.

Michelle Chamberlain is a Pennsylvania mortgage professional who prides herself on being neither dishonest, deceptive, nor greedy.  To refinance your own adjustable rate mortgage, other "crappy loan product",  or to learn about other mortgage loans we offer visit www.aboveallmortgage.com , email, or call toll free (888) 891-7704.

About a week or so ago I wrote a post regarding mortgage marketing, or the lack thereof in the current marketplace.   The discussion also touched on the fact that many lenders have closed their wholesale lending divisions meaning they will no longer offer their loan products through mortgage brokers, who previously did their own mortgage marketing, matching customers' needs with the programs of different lenders.  Someone commented that this was exactly the reason why mortgage brokers should continue to exist.  I agreed and said that I was going to write a post defending mortgage brokers.   Then I went on vacation...

I'm back now and sat down to write that post.  But I happened to first come across this post from a fellow mortgage broker discussing stated income loans.  The post attempts to make a case for stated income loans but actually makes a very strong case against them and mortgage brokers in general.  To be honest, the author of the post seems to be a writer first and a mortgage  broker second, so I really hope that this piece is a work of fiction and not fact.  But because of this compelling story, I felt my defense of mortgage brokers would have to wait.

Once upon a time (two years ago to be exact), there was a customer who took a mortgage loan which was brokered by the author of the story in question.  The customer worked in a pizza shop and thus had a "problem" documenting his income.  He decided with the broker's blessing to take out a two year ARM with a lower interest rate for the first two years, with the hope of improving his credit score during that period and refinancing into a lower fixed rate after that.  Well, a lot has happened in the industry in the past two years, and unfortunately the customer still hasn't improved his credit score that much, still cannot document his income AND to top it off, programs for people like him now no longer exist.

Sad right?  Well no not really.   Here are some other "facts" which are important as well:

1)      It is stated that the customer had his "choice of products" but decided on the two-year ARM and that the broker did not make anymore money off the deal by the customer taking this loan instead of another one.  This is the point where all the mortgage brokers in the room cough and utter a curse word under their breath indicating they find this statement a little less than truthful.  You put the customer in a two-year ARM using stated income when he could have gotten a fixed rate?  SOMEONE made more money $$$$$$$$$ off of that deal.  Better check with your boss or read this article on so-called "LIAR LOANS".

2)      There is a whole myth portrayed in this post that now that stated-income loans have been eliminated or have stricter guidelines that poor honest hard-working people who are self-employed or work on tips are not going to be able to get loans.  The post also hints at some kind of government agenda against people who don't pay taxes as if this were a BAD thing. Newsflash: Even if the majority of your income is tips you are still supposed to report them on your tax return!  Working under the table or not declaring your income is TAX FRAUD.  Now we should feel bad that people who commit tax fraud cannot get loans?

People who are legitimately self-employed are able to deduct a number of expenses legally which would then lower their income for tax purposes and consequently may leave them unable to qualify for a loan.  This was part of the reason for stated loans in the first place, and these are the real people hurt but the elimination of such programs.  Not the pizza man who pockets his tips tax-free yet still wants to use that income in qualifying for a loan.  Not to mention the fact that if you are going to LIE on your tax return to lower your income, doesn't it stand to reason that you will also LIE on your loan application to inflate your income?  There is a reason that these loans are also called LIAR LOANS.

3)      It is mentioned that the homeowner in question has lived in the same home since 1988 and has never missed a mortgage payment ever.  That means this person has 20 years of mortgage history and probably and even longer credit history. And he still does not have the necessary 720 credit score which may have enabled him to get the loan he needs?  You do not need to be a credit expert to know there is something wrong with this picture.  I would bet that even with all of this person's wealth of undocumented income, that he still has trouble paying some of his bills on time and has a few blemishes on his credit. 

4)      Someone who is overextended, despite a perfect mortgage history, is still a CREDIT RISK.  Someone who is overextended, without documented income, and chooses not to pay taxes...  Well no wonder the bank said NO.  The problem is the mortgage broker still thinks that this guy should have a loan.  In fact, he is setting up a conference call with the customer and the bank in attempt to modify the terms of the loan.  I am guessing that he will now try to claim the customer's much lower documented income which he shows to Uncle Sam as his real income to show the increased mortgage payment would be unaffordable, while at the same time making the case that the customer should have been able to refinance his loan because he really has a much higher income that he cannot document.   Good luck with that.

The point of all of this is that I now have reservations about defending the mortgage broker industry as a whole and making the case why mortgage brokers should continue to exist.  Clearly there is still a lot of misinformation out there put out there by mortgage brokers, and perhaps the banks think they can control it by limiting who can sell their products and who cannot.   Eliminating brokers from the equation would seem to mitigate the affects of bad information and bad advice because at least the banks could educate their employees through training. 

There has been talk, in Pennsylvania at least, of requiring every person who originates loans to be licensed, not just the company (lender or broker).   I am not sure how much that will help.  There is only so much information that can be crammed into a licensing exam, 99% of which most people will forget once they pass.  The solution really lies with educating oneself.  It is not acceptable to use excuses like "I am only a mortgage broker so I really don't understand tax law or credit scoring" or "I am only a Realtor so I don't understand mortgages".  I am not saying you should be an EXPERT in everything but you should at least have a clue.  In fact, I'd venture to say that it is ignorance coupled with greed that got us into what some call the "mortgage mess" in the first place.

So my defense of mortgage brokers will have to wait again for another day, when from the look of how things are going, there will be many less of them left to defend.

(Yes, this is a rhetorical question.)

I received a sales letter last week from Wachovia Bank.  I normally, do not pay much attention to my junk mail except that Wachovia is the institution that I use for banking so I opened it up because I thought the letter may have been in regard to my account.  The only other type of  junk mail that I do read are sales letters from other mortgage companies (haven't  gotten one of those in awhile though) because I like to see what the competition is doing or claim they are doing (No money down? No credit? No Equity?  No Problem!)

This is the amount of morgtage mail I used to get before the market collapsed.

 After reading the letter I received that day, (the ONE letter I had received in quite some time) it only lead me to wonder... 

Is the mortgage market that bad?

Wachovia (or some VP at Wachovia) wrote that since I am a customer they are concerned about my future, and if my future included purchasing a home (it does not) they would like to help.  Because of my "great credit" I was pre-qualified  for a purchase loan up to $417,000 and if I applied by August 25, I would receive a $500 gift card at closing along with "special benefits" on my bank accounts. I am guessing the special benefit would be a no fee type of account (which I already have) but I can't imagine that or the $500 gift card would entice anyone to want to buy a house and if it did, would they be able to complete the transactions in such a short timeframe?

 In all the mortgage sales letters I have ever received I cannot think of one that ever dealt only with purchase loans and not refinancing.  In fact, if the offer was to refinance I may have considered (well except for the fact that I am already in the mortgage business and would refinance my own loan) but sending an offer for a purchase loan to someone who is not even in the market to buy a home, makes about as much sense as selling snow shovels to people in Florida. 

Ok, maybe that is a bit of an exaggeration.  I am sure that there may have been a few current Wachovia customers that got the letter and are thinking about buying a new home.  But whether they are ready to apply for a mortgage within the next month is a different story.

Now if you've been following the news you would know that Wachovia had almost a 9 BILLION dollar loss last quarter.  If you are in the business, you may also know that Wachovia has closed its wholesale division so that it will no longer offer loans through brokers, in favor of only offering loans to current Wachovia Customers.   If you read between the lines of the letter I received you will also see that Wachovia now also only does:

•·         Loans for home purchase only as evidenced by the fact the option to refinance my current loan was not mentioned once.

•·         No Jumbo Loans as evidenced by my prequalification limit of $417,000.

•·         Loans only for people with "great credit" (You'll have to take my word for it but my credit card company says my FICO is 840.  I know that is probably inflated a bit but you can bet no one below 720 got this letter.)

I am also going to go out on a limb here and guess that they also checked my balance history for an idea of my income/financial situation and that current customers who struggle to maintain a balance or bounce checks frequently also did not get this letter.

Which leads me to wonder why Wachovia is still in the mortgage business at all?  I am all for tightening guidelines especially with the market the way it is.  But if you are going to severely limit the types of customers you will loan to and then top it off with only dealing with purchases and then market to people who may look great on paper but have no intention on purchasing a home...

Well, let's just say I hope the loan officers there aren't holding their breath waiting for all the calls to pour in.

Yes, the market is that bad.  I just wonder how much worse it is going to get before it gets better???

EDIT: A few hours after I posted this I got an email from Wachovia again inviting me to apply for a loan. It linked to a page which listed the different mortgage options they say are available, including jumbo, adjustable and stated loans.  (I almost felt like they must have read my post saying that they only want to do conventional purchases and wanted to prove me wrong.)  While it looks like those products are still "on the menu" I'm guessing they would be held up in underwriting and never actually close.  Either that or whoever sent the original marketing letter needs to be fired.

One thing my family and I look forward to each summer are the Summer Stage performances at the Upper Darby Performing Arts Center.   If you are not familiar with Summer Stage, it is a wonderful program which entertains the community each summer with children's shows and Broadway musicals in addition to teaching young performers acting, dancing, singing, and stagecraft.   Participants in the Summer Stage program study theatre and perform for the community in one of the series of summer shows.  As evidenced by these performers, there is an incredible amount of talent in Delaware County and the shows are fantastic.

This year the Children's Series offers : Peter Pan, Elliot and the Magic Bed, Alice in Wonderland, Jr., Pinocchio, A Real Boy, School House Rock Live, Jr., and Willy Wonka, Jr.  The Mainstage Performance, geared to older audiences is My Favorite Year based on the 1982 movie starring Peter O'Toole.  Having already attended the performances of Alice in Wonderland and Pinocchio I highly recommend you try to check out one of the remaining performances. 

These are not the children's stories you remember reading as a child, as they offer music, dancing, and are updated to appeal to the children of today.  For example, in the updated version of Pinocchio, the title character, whose nose grows every time he disobeys his father, skips school in favor of hanging out at the mall to play in the video arcade.  He must still learn right from wrong in order to become a real boy, only this time Pinocchio lives in a world of cell phones, high tech toys, and hip hop music and not a small Italian village.  The shows are funny and entertaining, and it is hard to believe the people on stage are local young performers and not professional actors.  I also attended a past year performance of Beauty and the Beast and heard many people commenting after the show that the quality of the performance was better than some Broadway shows. 

The Upper Darby Performing Arts Center is located at 601 North Lansdowne Avenue, in Drexel Hill PA.  The Box Office phone number is (610) 622-1189 or you can find more information online at www.udpac.org.   Did I mention tickets start at only $5?