Mortgage Help Lacking From CPAs

7 responses so far ↓

1. 1
   rkblake // Apr 28, 2007 at 1:52 pm

   Justin,

   Yes, you and whole bunch of others found us via searches on “Lenox Financial” or “no cost mortgages”.

   You mentioned above “There are legitimate reasons to leverage your home equity.” and there are…but what I was addressing is the smartest way to leverage your equity.

   Rolling in the costs is “leveraging equity” since you are add the costs to the loan amount.

   Leveraging equity with a higher rate is the uniformed way or to put a finer point on it…

   …the stupid way.

   I showed in our earlier conversations that an educated consumer can get a par rate with the appropriate education and then the rates Lenox and other “No Cost” lenders charge would indeed be 1.25% higher than necessary.

   That 1.25% will cost folks $10K, $20K and even $50K in higher monthly payments to cover what started out as $5K in costs. Of course, the bigger the loan amount, the higher those numbers become.

   And yet it’s the high asset, high income, high loan amount individuals who are sold this “no cost” bull, since many of them are like you…self-employed wanting to “keep capital working”, and fall for the Lenox line that the $5K costs are , if paid outright, a waste.

   I know you’ve see the light, but our CPA friend Gary, is having trouble grasping.

   But if I’m not mistaken, it took you 5 or 6 lengthy “back and forth” comment-based tutorials to get it too…so we’ll cut him some slack.

   Good to hear from you Justin…

   PS: Have you seen the “full court press” Countrywide is putting on with all their “No Cost” TV commercials lately??

   First the CEO dumps $150 million in personal stock holdings 2 weeks ago and now they run a blitz of deceptive TV ads.

   Can you say “desperate”…

   Is shorting Countrywide an obvious play here?

   Of course I’ve had that position on since last October…time to double up.

   April 28th, 2007 at 1:52 pm

2. 0
   Justin B // Apr 28, 2007 at 12:34 pm

   3. Worst Scenario - Allow a much higher rate on the total loan amount to pay them.

   I think that is 4. Here is my 3:

   Find an ethical mortgage broker that will rebate their yield spread premium back to you and apply it to closing costs and the origination fee. This is far different from the Lenox model because if you do this, you can get a “no closing cost” loan for only a modest .5% rate increase over the par rate. Lenox is going to hit you for 1-1.5%. I had my investment property in Utah refi’d this way just last week. The local mortgage broker had no problem doing it and on top of it was pretty impressed that I even knew the terms and knew how to do it.

   Paying closing costs and having a lower rate makes sense if you are staying long term and you don’t plan to refi. You know, the “this is my last house and where I will die” and you are getting a crazy historically low interest rate. If you are moving or selling or refinancing in the future, then you have to make a best guess at the time horizon of that next move. And that is a case by case basis. Fact is though, that Lenox rips folks off. Then again so do dirtbag mortgage officers that charge higher rates and backend profit off of the yield spread premium .

   a person would have to move or refi into a better rate every 24 months to make a the “hike your rate to cover costs” option viable…and folks simply don’t move or refi that often. If they did Dr. Stanley ( and I) would tell them to stop. It eats up your net worth.

   There are legitimate reasons to leverage your home equity. Buying or expanding a business. Investing in other properties. Etc. Buying boats and lifted H-2’s and jet skis and taking lavish vacations ain’t good ones. The Home Equity ATM machine encourages that behavior and prevents folks from building their net worth. That is what Lenox is encouraging and they are preying on people that don’t know any better. If you are smart and investing in your business, etc., you shop around for lower rates and research stuff on the internet to learn about how mortgages work and why Lenox seems too good to be true.

   Speaking of which, wasn’t that how I ended up here, Robert?

   April 28th, 2007 at 12:34 pm

3. -1
   rkblake // Apr 28, 2007 at 11:55 am

   Gary,

   So the first argument didn’t work…

   and now the new argument is:

   “This group of people are all over paid”

   This group being mortgage brokers and I assume you mean the banks too since they “pencil push” loans into the secondary market too.

   Well one thing is for sure, if an “ethical, No yield spread premium profiting, mortgage broker is a rip-off, the “no cost” guys are ten times worse.

   You’re still living under the delusion there actually is a real “No Cost” loan. When you say things like “closing costs is in many situations like burning money” is shows you still don’t get it!

   How many times do I and others on the site have to explain: “No Cost’ loans do not exist!

   The client pays the costs on every mortgage it’s only a matter of how!

   They pay either in cash (rarely, but it happens), by adding it to the loan amount, or by accepting a significant hike in the rate…usually over a full percentage point.

   That’s it…the consumer pays…nobody else…only the consumer.

   Yes I can be dogmatic, but when you’re right, you’re right. It’s being dogmatic about 2+2 equalling 4. And no, I don’t need to know “your financial circumstances” to know 2+2=4.

   When it comes to paying closing costs here’s the advice and it applies to everyone in that when paying closing costs your goal is to spend the least. I think now that we’ve set the record straight, the consumer will be paying the costs one way or another, the goal would be to pay the very least…very simple.

   1. Best Scenario - Pay them in cash, rarely happens
   2. Middle Scenario - Roll them into the loan
   3. Worst Scenario - Allow a much higher rate on the total loan amount to pay them.

   This is very simple math to get here, if one really wants to see it.

   Let’s use example outside of the mortgage world.

   If a guy is going to buy a $5000 plasma TV, any and every CPA, Financial advisor, would say “pay cash”. Let’s assume further the guy doesn’t have the cash, but he’s still getting that TV. Financially that’s his best option, but he can’t avail himself to it.

   Second best advice if he doesn’t have the cash, they’d say, “Well put it on “O” percentage credit card and “pay it off fast- in 12 months before the “O” percentage rate expires.

   And lastly…and BTW, the NEVER advise comes here, “Put it on your 8% credit card and take your time paying it off”.

   These three options are analogous to the same three option a person has when address closing costs on a mortgage.

   So when I advise roll it in, get the best rate available, and if you can pay off the loan in 15 years instead of 30…do it.

   That’s the best advice no matter who you are…because 2+2=4 all the time, every day, regardless of circumstance.

   Gary, I think you like many have “bought into” the line of there actually being a “no cost” to the consumer closing cost option…it simply doesn’t exist.

   Once you get your head around that…you’ll see I’m right.

   I’ve already demonstrated with calculations on the other posts and comments how a person would have to move or refi into a better rate every 24 months to make a the “hike your rate to cover costs” option viable…and folks simply don’t move or refi that often. If they did Dr. Stanley ( and I) would tell them to stop. It eats up your net worth.

   Read all the posts and comments hear and you’ll get the picture…the whole picture.

   April 28th, 2007 at 11:55 am

4. -2
   gary springer // Apr 28, 2007 at 10:54 am

   I hastily described events that show that at times it is a good financial move to pay as much as a percent or two higher in order to avoid paying thousands of dollars of closing costs which any one with an ounce of honesty will admit are most often unreasonably high, and, at other times, entirely foolish.

   But, instead of admitting that there are times it is preferable to avoid paying closing costs for a small differential in interest, it appears you prefer to continue to criticize people who make these types of loans available and support those who charge exhorbitant amounts of money for shuffling papers.

   Because these loans are most often soon sold to the secondary mortgage market, and considering how little risk is taken by the brokers and balance of the primary mortgage market, considering this, in my opinion, closing costs charged by these pencil pushers are one of the biggest scams in America. This group of people are all over paid!!!!!!!!!!

   And, yes, the fed has been raising interest rates. And, although unlikely because the real money in this country traditionally prefers recession over inflation, given an easing of monitary policy around the globe and other economic trends, the fed may lower interest rates the next 17 moves.

   I understand economics and rate movement and I understand the situation we as a nation face. But, you don’t have a crystal ball, or, you’d be highly leveraged in investments taking advantage of your crystal ball making it possible for you to give people zero percent mortgages.

   Advising people about the type of mortgage they should get is like advising them in what financial vehicles they should invest without knowing their circumstances.

   Do you also advise people, without knowing their circumstances, that a 15 year fixed rate loan is always better than a 30 year arm? That too is incorrect. And, if you understand that, you will also understand why paying closing costs is in many situations like burning money.

   As for your mention of the habits of millionaires, many of the most wealthy people never owned a home “free and clear” until long after they had enough capital that would have enabled them to purchase five homes, with cash, and, don’t hesitate to use any asset if capital is needed. That is why I believe a working man should be more interested in doing what it takes to keep his mortgage PAYMENT, as well as interest RATE, as low as possible so that he can use more of his hard earned income for education and business investment instead of letting a home mortgage suck his cash flow dry to get it paid off as quickly as possible so he can have a free and clear idle investment that represents an opportunity lost measurable by the difference in the cost of credit and the potential business income from that capital.

   When advising people about money it is very important to be as accurate as possible and to show how a persons circumstances make all the difference. To do so, it is imperative to present the entire credit picture instead of supporting traditional lenders revenue stream and criticizing others who are working to expose the exhorbitance of those charges.

   Gary Springer,
   CPA

   April 28th, 2007 at 10:54 am

5. -3
   James E. Gallien, Jr., CPA, CFE, CSA // Mar 31, 2007 at 9:21 am

   I have spent the morning looking at your comments, especially on yield spread premium and totally concur.
   I wish to add a mortgage loan service to my practice and am amazed that the yield spread premium practice is allowed in its present form. Full disclosure is the hallmark of fudiciary responsiblity, and according to your articles, this industry certainly needs some.

   March 31st, 2007 at 9:21 am

6. -4
   Stephen // Mar 21, 2007 at 7:44 pm

   I would like to offer what I feel is a pretty accurate formula:

   Educated Consumer + Realistic Expectations + Honest Mortgage Company = Good Deal for Everybody.

   March 21st, 2007 at 7:44 pm

7. -5
   Justin B // Mar 20, 2007 at 10:13 am

   Upside of all of it is that as long as rates decline or property values go up, you can refi at any time because you didn’t get suckered into 3% closing costs.

   But here is my reality…

   I was in an 80-10 first and second at a slightly higher rate that now would be slightly over 100% LTV. In order to refi, I either have to come out of pocket to get the LTV down or pay excessive PMI and/or a higher rate to get the benefit of the lower rates.

   Now understand that this would not be a lot different than if I was in a conventional mortgage that I had simply paid the 2% (3% is getting hosed) in closing costs. But my interest rate would be a full 1% lower (really 1.25% because of the higher interest rate on the second, but let’s just talk about the first). So the break even point is roughly 2 years. I am 1 year into the mortgage.

   BUT I CAN’T GET OUT of it right now because of declining values. So when do values come back up? How long do I have to hold my mortgage to break even?

   Reality is that most mortgage brokers want to make at least something on the backend from yield spread premium , in addition to the 2% that you pay for closing and to the broker. So if you deal with a broker that hoses you on the rate, you are probably not getting it too much worse by Lenox. But just because other mortgage brokers are willing to screw you about as bad as Lenox does not somehow make Lenox a “good deal” for ******** you a different way.

   Point of things is that almost every single mortgage written is a full 3/8% higher rate than it could be. And mortgage brokers pocket this money. It doubles or triples their profit. The site is here to inform people about the practices of mortgage brokers and companies.

   I don’t think Lenox is “worse” than other mortgage brokers or banks. It is like saying is a McDonalds cheeseburger going to make you fatter than a Burger King one? The point is that neither are particullarly good for you. So let’s compare McDonalds cheeseburgers to a salad. Lenox is packaging their mortgages in a way that makes people do less due dilligence on their rates and costs than they would otherwise, making it almost guaranteed that the broker gets the full 3% that they shoot for between their yield spread premium and broker fees. And because they have a different business model, you cannot shop Lenox’s rate compared to anything else.

   I found out the hard way that had I negotiated with a reputable local broker, I could use the yield spread premium to pay the broker costs and closing fees and only pay a 3/8% or 1/2% higher rate than the par rate–basically the rate that most local brokers would put you in with 2% closing costs anyway. I ask them to give me the yield spread premium they collect above par rate and tell them that if it shows up on my HUD-1 any other way, I will simply walk from the title company, leaving them with all the work they have done and nothing to show for it. As soon as you mention that you know what yield spread premium is and how to find it on the HUD-1, they immediately either tell you to walk or give you the par rate. And I didn’t know these tricks until I got to this site.

   March 20th, 2007 at 10:13 am

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