Author: Brian Brady (page 23 of 27)

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Here is a sampling of mortgage offerings on Bankrate.com. (for July 11, 2007)
I chose a $252,000 loan for a $315,000 purchase price in Phoenix. Income and assets need to be verified. Credit score of at least 620. I assume a 1% origination fee and about $1200 in APR loan costs. I would have priced that loan on July 11, 2007 at 6.5% with an annual percentage rate of 6.679%.

Take a look at the variances on Bankrate.com . Can you see the stupid mortgage banker tricks that can be played? The lower rate offerings are stacked with APR fees. In reality, those “fees” are truly discount points but the advertisers know that the consumer eschews the term “points”.

Bank of America and Countrywide have been advertising “No Closing Cost” loans on television. So, why does B of A reference their no closing costs loan but quote a rate with .537 discount point and $1155 in APR fees? It’s the rate, stupid! Mortgage shoppers won’t call if they published the rate of over 7% for their “no closing cost” loan.

Confused? Bankrate.com would be better serve a consumer if they isolated a rate for a specific loan offering and insisted that the advertisers compete on fees. Then, rank those advertisers from lowest fees to highest fees.

That’s assuming that mortgages are a commodity. Even Bankrate.com knows that just ain’t true.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Imagine a business with a 50% markup. No employees, no warehouses, some liability, and you can do it from the comfort of your own home. I’m not trying to introduce you to the hottest multi-level marketing craze nor am I trying to convince you to open a franchise.

I want to talk to you about becoming a buyer and seller of money. Mortgage money. I’m talking about the private mortgage marketplace.
Let me start off by showing you how to get the money you need. If you own a home with a bunch of equity (and many of you do), you have a lousy investment. Robert Ashby, President of Solid Rock Mortgage in Florida, tells us that home equity earns you nothing and may actually shrink over the next 6 months to 6 years (depending when your local market turns around). If your boss left a bunch of inventory in the warehouse and it was in danger of losing value, he’d be looking for another job in a few years. Turn that “dead” inventory into money producing inventory by borrowing against your home equity. You can do that for about 8% in today’s marketplace.

Disclaimer: The private mortgage as an investment, aka “trust deed” or asset-based lending (READ: hard money) is a very specialized market. I talked about this marketplace in Life As A Legal Loan Shark. I try to refer would be trust deed investors to the basics of trust deed investing and ultimately send them to the California Department of Real Estate explanation.

Now that we have the appropriate disclaimer out of the way, let’s talk about how you make money. Let’s secure you a HELOC for $225,000. We’re going to leave $25,000 in what Jeff Brown refers to as the Sominex account. Subprime borrowers are not always the best at paying the loans back in a timely manner so we want to have access to 10-12 months worth of payments in reserves. That way you can weather a storm.

Now, we’re going to have you Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Independence Day, in the United States, was a sweltering summer day in my hometown of Philadelphia. My favorite signer was the media entrepreneur, Benjamin Franklin. Note that I didn’t refer to Ben as the inventor, statesman, or womanizer (he was known for all three things). I refer to Ben as a media entrepreneur.

Ben Franklin would have been a helluva weblogger.

Let’s try to parallel the life of Ben Franklin with how he might have done it today:

At twelve years old, he serves as an apprentice printer to his older brother in Boston. Today, he might have been a code writer, learning how emerging technologies work.

At seventeen, he runs away to London to continue his apprenticeship, returns to Philadelphia, and starts his own print shop. This makes complete sense. As a budding entrepreneur, Ben might have run away to San Francisco or Seattle to be near where the action is. Philly was the equivalent of what the Silicon Valley is today.

One year later, he becomes the sole owner and publisher of the Pennsylvania Gazette. Ben realized that the technology (the printing press) was merely a tool; it was content that would sell newspapers. Rather than provide the tools, he opted to vertically integrate and own the content, too. Three years after buying the Pennsylvavia Gazette, he publishes Poor Richard’s Almanack, an original content journal which shaped early American thought about business, life, and politics.

Now, Ben is wealthy. Rather than rest on his laurels, he expands his influence to provide a solution to the information delivery problem in the Colonies and is appointed Postmaster General. Talk about Bill Gates controlling information, Big Ben now has his hand in two influential publications and the government’s communication system. Ben establishes a “think tank” which becomes the brainchild for the University of Pennsylvania. Now, he becomes the indisputable expert on intellectual thought.

At the age of 42, Ben sells his printing shop but retains the rights to the Gazette and Almanack. Ben is considered by many Colonists as the wealthiest man in the Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

The following essay is taken from a lecture by Todd Duncan at the Strategic Equity Summit. Mr. Duncan opened the conference of 3,000 mortgage originators with an electric speech chock full of useful information. Mr. Duncan is an author, a highly sought after speaker, and a business consultant. His company, Todd Duncan Enterprises, serves salespeople in general and mortgage originators specifically.

The Six Daily Disciplines of Purposeful Advisers Are:

1- Knowledge Acquisition: We work in changing markets. An daily hour should be dedicated to learning more about our industries. Much of the weblog reading I do helps me stay on top of mortgage markets but I supplement it with podcasts and books. Originators would do well to examine a monthly investment of $59 in Mortgage Planning University.

2- Partnership Planning: Purposeful Advisers have a referral-based business. Planning your communication each month with these referral partners helps to drive your integrated approach to client advisory. I spend approximately one hour daily on this function. Mostly, it’s a few phone calls to that partnership base but I supplement it with online conference calls and personal meetings.

3- Prospecting Engine Maintenance: Purposeful Advisers have a prospecting engine which drives potential clients to them. Direct mail, radio advertising, telemarketing, and cold-calling are traditional engines for newer originators. I use online seminars, weblogging, online advertising, and direct mail.

4- Prospect Follow-Up Program: A system should be in place for sufficient follow-up. Nothing hurts more than when you get the news that a potential client chooses another adviser because of insufficient follow-up. I use drip e-mail campaigns tracked by Salesforce.com CRM. This is my most glaring weakness.

5- Client Consultations should take up most of your day. For originators, you’ll be talking to past borrowers, current borrowers, and potential borrowers about lending strategies to build wealth. For Realtors, you’ll be showing property, negotiating contracts, and following through with contracts in escrow. If you aren’t in a client consultation, you should be calling to set more up for Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Hard money is not stupid money. Pragmatic underwriting guidelines are followed so as to insure the principle that the private mortgage really is a temporary loan, designed to solve rather than to perpetuate the underlying problem. I attempted to define this niche in one of my first posts on Bloodhound and followed it up with an hour-long conference call with two private mortgage investors.

Private mortgage loans are not asset-based lending. There must be a demonstrative ability to repay the loan. If the borrower opts to “state” the income, the trust deed broker has an obligation to the investor (and the borrower) to perform due diligence that would suggest that the borrower has that ability. We sometimes eschew traditional underwriting guidelines to demonstrate that ability to repay. Often, we accept a statement of future earnings from the borrower (useful for entrepreneurs). We will review the assets in a retirement plan as reserves to draw upon should that statement of future earnings not materialize.

Private mortgage loans are not a license to jack up the fees. I often turn away brokered business because of originator greed. Lenders charge points to enhance their yield. A common practice in our industry is for the originating broker to increase his/her brokerage fee to equal or better the lender-charged points. The result is an unrealistic fee financed by the lender and subsequent decline. If brokers are charging a borrower 1-2 points for a subprime loan, and the loan turns into a private mortgage loan, brokers should not automatically raise their fees because the borrower is “stuck”.

Values are carefully scrutinized. Appraisals can be manipulated to reflect an approximate opinion of value. It may very well pass the test of a FNMA/FHLMC underwriter but not the careful eye of the private mortgage lender. Originating brokers would do well to check the local MLS for model matches. If you have an appraisal for $650,000 and two model matches are being offered for sale at $599,000 and $580,000, with an average of 45 days on the Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

When life gets you down, just listen to Rocky Balboa.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Maybe it’s the last day of the month scurrying. Perhaps it’s the oppressive summer heat.

Did we forget to sing Happy Birthday, Bloodhound? Enjoy a well deserved martini at Durant’s, Greg and Cathy.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Hilary Shantz, a real estate agent from Oakville, ON asks:

Hi Brian,

You are on the cutting edge of marketing/blogging. Do you think that it is sufficient to have a business blog and forgo having a newsletter, just send people a reminder every time you post a blog which they can go to if they want or if it interests them? I am trying to decide. I have neither and have been in business 2 years.

Signed,

Hilary from Oakville, Ontario, Canada.

Thanks for the kind words, Hilary. I notice from your website that you have a MBA and a background in banking. I’ll speak somewhat academically here and then give you some practical suggestions.

Blogging is a marketing communication. Think of it like writing an article for your hometown paper, Oakville Today. The first time you had an article published, you’d probably call all of your friends, past clients, and family and tell them to run out to the newsstands; that would be fine. If you wrote a weekly column, however, that serial self promotion would become tired quickly.

I said that blogging is a marketing communication but it is a subtle one. It’s call pull marketing as opposed to push marketing. Pull marketing entices the consumer to call you. Think of the movie Glen Garry Glen Ross when you think of push marketing. Be careful to understand that the permission-based e-mail system I use is, indeed, permission-based. Abuse that permission and the consumer takes it away. I think an e-mail every three weeks is often enough to keep you in the consumer’s eye without abusing that permission.

Again, blogging is a marketing communication. Remember the principles of promotion class you had to pass in business school? Blogging falls somewhere between public relations and advertising in the promotional mix. You’ll notice that there are two more very important factors in the promotional mix: personal selling and sales promotion. You want to be certain that you weave those components into your blogging message without sounding like an overt advertisement.

Finally, effective promotion is a multi-media approach. The more “senses” you can use, the more effective your marketing Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

IamFacingForeclosure.com is a weblog created by failed real estate investor, Casey Serin, designed to chronicle how he addresses the lenders he defrauded. I highlight the word “defrauded” because he intentionally misled the lenders by overstating his income and misrepresented his owner-occupancy.

Casey capitalizes on the American hunger for good drama and the time honored tradition of this country of “reinventing yourself”. Casey’s done a pretty decent job at it, too.

He’s monetizing his blog and has a book deal brewing. The publisher of that book has outlined his disputes with Casey as a guest author. The publisher is an apologetic for Casey’s unwillingness to “get a job” explaining his entrepreneurial nature and fame make him an unlikely candidiate for any “good job”.

I think the publisher and Casey are ignoring another time-honored American tradition of “starting at the bottom and working your way up” . I can’t blame him too much. Casey has recognized that this country just LOVES drama and collects over three grand a week for advertising on his weblog.

Now, Casey is kicking it at the beach in Australia.

I suppose I’m pretty old-school. I offer this advice if you’re facing foreclosure and “kicking it” on an Australian beach isn’t a part of it.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

They’re too classy to promote a potentially commercial site here so I’ll call your attention to it.

I caught a cool post about the Tale of My Two Cities by the Lady and The Top Dawg plays traffic reporter.

They incorporate a Zillow-y idea into a budding neighborhood social network where residents can register and contribute.

I’ll be able to say I was there when…

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Many of the contributors on Bloodhound are also members of the Active Rain Real Estate Network. Active Rain is a social networking site comprised of some 20,000 members in the real estate and related industries.

The ActiveRain Real Estate Network is a free online community for real estate professionals designed to help them promote and grow their business.

We celebrated Active Rain’s first year in business in Southern California last week at Parker’s Lighthouse in Long Beach, CA . Close to 100 people came to join Jon Washburn and Matt Heaton celebrate. It was a great opportunity to network with budding and established real estate webloggers.

Jeff Turner does a nice summary for us of the event. Happy Birthday Active Rain.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I wrote a tongue-in-cheek post about the subprime loans’ collapse about three months ago. I wanted to show the history of securitization of home loans and explain that many of these defaults may actually be “buried” in mortgage pools. I pontificated that the expected debacle from the collapse may not be as bad as we think. Hmmm…maybe I’m wrong?

Bloomberg.com reports today that hedge funds are petitioning the Securities and Exchange Commission to be vigilant of mortgage pool manipulation. Simply put, mortgage pool manipulation is “burying the bad loans in the back of the breadbox”. Issuers of mortgage bonds have a responsibility to comb through the mortgage pool and extract the loans that were in default, especially those that are in default do to fraud or botched underwriting. It is a requirement because mortgage investors hedge their credit risk in the derivatives market.

Derivatives are volatile financial instruments designed for hedging purposes. They are the “afterbirth” of the carving up of whole loans in a mortgage pool. Let me try to explain a bit further. Mortgage bond issuers sometimes extract different characteristics of a mortgage pool and sell them to different investors with varying opinion about interest rates. They can sell the interest portions of the loans to one investor and the principal payments to another. Why would they do that? Profit, of course. It is conceivable that a bond issuer can add as much as ten percent profit to the value of a mortgage pool by issuing derivative securities.

Investors who were expecting interest rates to rise might pay a premium for the steady income a 5.5% loan provides while the investor who believes rates may drop prefers to buy the principal portion of the loans at a discount. Mostly, these financial instruments are used by institutions to hedge large fixed income investment portfolios.

If you are an investor who is purchasing the principal repayment portions of the loans, and those loans will never be repaid…you’re screwed. And that is the risk you take…if you knew the risks Read more