6-25-20 Mortgage Update – Interest Rates and Home Prices

6-25-20 Mortgage Update – Interest Rates and Home Prices

Broker | Owner | Mortgage Consultant
Josh Lewis
Published on June 28, 2020
Josh Lewis BuyWise Mortgage Update - Interest Rates Real Estate Market 2020

6-25-20 Mortgage Update – Interest Rates and Home Prices

Have interest rates bottomed?  Will home prices head lower?

Are you waiting to buy a home because you believe the housing market 2020 is headed for a market crash?

Did you know that typically interest rates and home prices move against each other so while you are waiting on lower rates, chances are you’ll end up paying more money for the home you want.

In this video, Josh Lewis of Buywise Mortgage and Jeb Smith of Coldwell Banker Realty to discuss all of these topics in our New Mortgage Update – Interest Rates, Home Prices and the 2020 Housing Market.

Hey guys, welcome back. So taking a different approach tonight, my name is Jeb Smith, I’m here with Josh Lewis of BuyWise Mortgage, traditionally, you see these videos on YouTube, and they’re forwarded to, you know, different places like Facebook or LinkedIn or what have you.

Tonight we’re actually going live. We’re streaming on YouTube, on Facebook, and all these different places. So do me a favor, if you’re watching the content as you go through it, if you have questions, we’re encouraging you to put them below.

We want to address your questions, we want to answer your questions, and at the same time, we wanna provide value to you guys. So, you know, if you have a question, make sure you reach out, but tonight’s video is going to be, you know, it’s going to be about primarily home values and interest rates, how the two correlate.

There’s a lot of discussion right now about interest rates because of how far they’ve gone down in the last three months. And so I’m getting a lot of people reaching out to me about refinancing, and then on the other side, people, you know, on the purchase side as well are asking about rates.

So we’re going to dive into that in a little bit more detail, Josh is gonna cover most of that, and then we’re also gonna talk about online mortgage brokers, I mean, online interest rates versus actually speaking to a mortgage broker, not in a call center, how the two are different, and, you know, how it makes sense to speak to someone locally versus online.

But before we get into it, do me a favor, if you’re on Facebook and you are watching the content, you find value in it, do me a favor and hit that thumbs up. And if you’re on YouTube, do the same, you know, hit that like button and subscribe to myself and Josh, if you’re interested in all things, real estate.

So Josh, you know, we’ve been talking before the video, I’m actually in the process of refinancing right now, so we’ve been talking interest rates. So there’s a lot of information out there right now about interest rates, you know, being below 3%, and, you know, yesterday we talked about VA rates being as low as two and a quarter percent.

So what’s actually happening right now in the mortgage market? Tell us a little bit about it and what people should be doing if, you know, if they’re contemplating, you know, refinancing or purchasing.

– Absolutely. So, the funny thing is, for the most part, we’re going on four to six weeks of really flat interest rates. About a month ago, we had a hot jobs report, and it looked like rates were gonna get worse, reversed in a day or so and been really stable at all time, low levels.

One of the things that I’ve been touching on in my videos, I want everyone to understand is, we have a lot of room for rates to go lower, and when I say rates, I talked about for a consumer, a mortgage rate that I offer, that Chase Bank offers, that any other lender offers because I don’t think the absolute level of interest rates is going lower, I don’t think we’re gonna see much, a big move lower in treasuries, a big move lower in the yields, on mortgage-backed securities.

But what we saw, is when the whole Coronavirus thing jumped off, there was a lot of uncertainty on the part of lenders of what their forbearance risk was, how much money they were going to lose off of that, and as a result, they got super conservative on what rate sheets look like.

So while the absolute level of interest rates, Treasury yields, mortgage-backed security yields were dropping, interest rates actually spiked and then have slowly been coming down.

So what we saw is the spread between the 10 year Treasury and 30 year fixed mortgages had gone up to almost 2.8%, which is better than the last downturn in 2008. When everything went haywire, and people were losing their homes, lenders took that spread all the way up to 3%.

So we had peaked up about 2.8, we’re now down to about 2.4. So absolute level of rates has been pretty flat for the last three months, but they’ve been diving down as lenders get more comfortable and more competitive.

We also have lenders, you know, rates even before all of this started, rates were really low, and we had a lot of volume coming in. So when everyone just kind of jumped into the market after the first of the year, January, February, lenders were overwhelmed.

So they also, it’s like anything else, you only have so much supply of loans, meaning there’s a limitless supply of money to loan, but you only have so much capacity to push loans through, so lenders were not pricing aggressively because they were already overwhelmed.

So where we’re at right now, lenders are kind of comfortable with their volume, they’re comfortable with the level of risk, and they’ve been seeing the overall level of interest rates flat, so getting more and more competitive rates are really low.

But for the most part, despite the fact that every Thursday, Freddie Mac puts out the primary mortgage market survey and it says it’s .02 percent lower than last week, which is a new all-time low.

Yeah, most every week, we’ve seen all-time lows and interest rates, but it doesn’t really make a difference, for the last month they’ve been about the same. The big change and you’ve hit on it in your videos, is we have two of the biggest lenders in the country are pushing the concept of these are the greatest rates you’re ever gonna see.

So instead of doing a zero point or a no-cost loan, the way you’ve always done, you should pay a couple points and buy it down a quarter or a half percent, and then you’ll have that loan for the rest of your life, I got a couple problems with that, I don’t think rates are as low as they’re gonna go.

Because if we’re at a 2.4 spread, I didn’t close the loop on that, 2.4 spread between treasuries and mortgage-backed securities, historically, that’s about 1.7%. So it says we’re still almost three quarters of a percent higher than we should be. So without treasuries, without mortgage-backed securities, moving lower in yields, we should see another half to three quarter of point of movement down in interest rates.

So what I really don’t wanna see is I don’t want my clients paying two points to get a two and five eighths interest rate right now, when there’s a chance in the next 12 to 24 months as lenders get comfortable with these levels, but they’re gonna be able to get that for free.

So you and I have talked about this what? 20 different times, if the numbers make sense right now and you can save a chunk of money refinancing, we don’t have have any guarantee, rates could go up from here, I believe they’re going to go lower, I don’t have a guarantee of that, if we can do a lower or a no cost loan, and make a substantial difference in your monthly payment, by all means, do that.

So really, what you and I wanna get into tonight is what do these low interest rate mean for buyers, and more importantly, what it’s gonna mean for home values. Because even if you’re refinancing, you wanna know what’s gonna happen to my home value going forward. You probably hear this 1000 times, when we’re talking to potential buyers, hey, home prices are back to where they were in 2008, they have to come back down.

And that’s the $24 million question. I don’t wanna sell anyone a home at the top of the market or do a loan for someone in home at the top of the market. I know you don’t wanna sell it to them. So there’s a lot involved there, there’s reasons why we’re, even though absolute level of home prices are at that level of the peak of 2008 or even above that, they’re actually not in real terms.

So we can go through that and kind of dig into it and show what it looks like, and why it is actually pretty safe for someone to enter the market at this point and why I believe in the next two to three years, you’re gonna see home prices go higher, I don’t mean shoot to the moon, but they’re gonna continue inching higher and at the prices that we’re at, on a percentage basis, it doesn’t take a huge movement to make a pretty significant difference in your home value.

– Now, and I think it, you know, to help people understand what you’re talking about there, you know, basically, what Josh and I have discussed prior to this, is that interest rates are at a level that that, you know, they might go lower, right?

And they’re likely to go lower, but chances are in a year or two from now, lets say two years out, you’re not gonna see rates like this again, right? Once the economy gets to a point where unemployment is stable, and things are back to “normal”, rates like this probably won’t come around again, it would be my guess, at least for the foreseeable future, right?

And so if you take, you know, home prices now into account, and you can, you know, say buy a house at whatever the value is, and get a super low interest rate on that, your monthly payment is based off the the price, the property, the value that you paid for that property, whatever your loan amount was at that time.

Now, if you’re one of those people, who a lot of people did this in the downturn in 2012, 2013, people thought prices are gonna go back down, I’m not gonna buy, I’m gonna wait for home values to go down. Those people are still waiting, a lot of them are still waiting, a lot of them have negative things to say about the market. And that’s, you know, it is what it is.

But the reality is, is that if home prices do come down in price at some point in the future, which they may, chances are interest rates are probably gonna go up. That’s typically what happens, right? And so even if you’re able to get a cheaper price for your home, the chances are your interest rate is gonna be higher which means your mortgage payment is likely gonna be higher.

And as we’ve discussed, most buyers don’t care every month how much they paid for the house, they care how much their monthly payment is. Because if your monthly payment is lower, based on a higher value, and it’s on a 30 year term, versus you paying less for the house at a higher interest rate, and the payment is higher on a 30 year term, you’re better off with paying for the higher property value and taking the lower rate, if that makes sense. So maybe you can explain it in better terms, but I did a couple of examples which I’ll go over after you kind of talk about it in more detail.

– Yeah.

– But, you know, a lot of people say hey, look, the market’s gonna crash, you know, I think we both think, don’t think that’s coming but, you know, I’ll just kind of throw it over your way and you can–

– 100%, you have to understand that a lot of people who are not homeowners now and have not benefited from the doubling of home prices from, even though they probably bought them around 2010, we just kind of bounced around that bottom till about 2013. So last seven years, for the most part, home prices have doubled or close to it. If you’re in an area that held up better, that didn’t fall as much during the crash, maybe you haven’t quite doubled, maybe it’s up 60%.

But no matter where you’re at, you’ve seen a massive increase in value. So anytime someone missed out on that, either they’re too young weren’t ready to own a home, or they lost their home and didn’t get their credit back in line, and they missed that window, it’s super easy to sit here and say home prices have to come down, we’re back to the level that they were before we saw the last crash.

And that, the fallacy there is that the price level itself caused the crash, number one, and then also that 14 years later, 12 years later, we’re call the peak 2007, 2008, 13 years later, that the same home price is an equivalent value, well, it’s missing a couple of things. It’s missing inflation, so everything has gone up in value since then.

So, you know, a million-dollar home in 2020, a million dollars isn’t the same as what it was in 2007. The more important piece that you have is interest rates are much lower. We thought we had really good interest rates then in the five to 6% range, And now interest rates are half of that. So what happens is, people do not buy a home price, They come to me or any other mortgage lender and say, what can I qualify for?

Okay, here’s your maximum, here’s where I can qualify for, I can qualify you for $4,000 a month. And sometimes they go, well, I’m not comfortable with that, $3500 is what I’m comfortable with. So what they do is they say, what home can I get for $3500 a month? If rates are really low, maybe that’s a $700,000 house, if rates are really high, maybe it’s a $500,000 house, but that is sort of what puts a cap on value.

So I ran some numbers in a call that I did the other night on YouTube, and if you look at median price right now in the state of California is about 615, it’s higher than that in Orange County, lower in some other areas, but at 615, if you By 3%, the payment is the same as a $20,000 higher price if rates drop a quarter percent, or $40,000 higher price if rates drop half of percent.

I can give you very good and valid reasons why interest rates are not going up anytime soon. So, worst-case scenario for home prices, is that rate stay here at low levels. The best case scenario is prices go down, and as people on the entry-level, we’re not talking about the 1.5, $2.5 million homes, we’re talking entry-level, which varies depending on where you’re at.

If you’re out in Anaheim, it’s $500,000. Here in Huntington, it’s $800,000. So as crazy as it sounds, those are entry-level prices, they are, and there’s a lot of people wanting to buy into the market at these really low interest rates, and not just wanting the important part.

What I always wanna tell people is, home prices are always a function of supply and demand. So we have a finite supply of homes in Southern California in more densely urban areas. So I’m not saying that Huntington Beach is dense, but it’s pretty much built out, they can’t build more houses, you’ll see a little infill pocket here and a little infill pocket there.

We have as many houses as we’re going to have, so then we have demand. There’s never a lack of demand that people wanting to buy homes in Huntington Beach, California. There are at times are a lack of demand of people able to do it, so interest rates go too high.

The economy’s terrible, we got super high unemployment, which we have that right now. But it’s been primarily at lower income, lower wage levels. Renters have suffered disproportionately relative to homeowners or potential homeowners.

So when you look at all of those factors, it tells us that with just a general level of inflation, which should stay really low, but just with that, with low interest rates, low and likely going lower for the homeowner class, incomes are good and are relatively stable, you’re gonna see home values go up and especially on that entry level, you know, I would expect whatever entry level is for your area, is gonna go up at three to 5% for the next two to three years, and maybe you don’t see that on the $2 million homes because there’s not as much demand for that.

But it’s important to say, it’s not just what I want home values to do, it’s what the underlying numbers say, the affordability, there’s enough demand of willing and abled demand right now, to keep the prices high, and on the entry-level, push them higher. So if you’re saying my comfort level is with this payment, you’re hoping that as interest rates go down, or the interest rates do go down, that as the home values go up, I’m not paying a higher price.

So I don’t ever, you know, realtors and lenders, by extension are famous for saying that’s a great time to buy, it’s not always a great time to buy. But right now, if you do not own and you wanna own, it’s as good a time as we’re going to see going forward, the best time would have been buying 2013 and you’d be sitting on a ton of gains. But if you didn’t do that, now is still a very good time to get into the market.

– Right, so a question just came up, and I’m gonna just read it out there, and it says, “one question what happens”, there you go, “if you were able to buy, if you buy a house now, “but then two or three years later the home loses its value “due to a bubble bursting”? So what are your thoughts? I mean, I think you need on it a little bit. But, you know.

– Why don’t we just talk about the mechanics, what happens? So what happens with that? You can be at risk. So let’s say that California entry level median price, $615,000, a lot of those people were buying FHA, three and a half percent down, let’s take 5%, you put 5% down, and if the market stuck here, and then dropped 10%, you’re upside down.

So what does that mean for you if you’re upside down? If you can afford the payment, and you can make it, it means nothing, because if you look, I mean, if we could pull up the chart right now of long term home values over any 10 year period, you’ve never been able to lose money in any two or three year period. In many two or three year periods, you could absolutely lose your shorts.

So Francisco’s question is, in the short run, if you found yourself in economically dire situation where you can’t make your payments and you’re upside down, you’re either looking at a short sale or foreclosure. And with all the forbearance stuff going on right now, that’s largely what the lenders are talking about.

So let’s put people in forbearance. Let’s get them back on a repayment plan, let’s defer the repayment to the end, and if they’re in such a situation that they still can’t make the payments, let’s talk about a short sale or a deed in lieu before we go to foreclosure. That’s always better for the lender than a foreclosure. So that’s your worst case, and the lenders worst case.

– Well, and I think it’s important to that we mentioned, like when buying a house, it’s, you know, when you said earlier, you know, some people can qualify for a $4,000 a month payment, right? I’m using the example you had, but they only comfortable with 3500.

You know, Francisco that’s what’s important, making sure that you’re comfortable with that monthly payment and that you’re not stretching it so much that, you know, if something did happen, that you would be in a position where you can’t make that payment. But, you know, like, I tell everybody, if you’re buying for a five to seven-year period, most cases you’re probably right.

But if you’re one of those people that you’re buying it because, you know, their friend bought last year, and they’re up 10%, and you think, hey, I wanna be up 10% next year and sell my house and then take that money and do it again. You know, real estate isn’t an investment, it’s a place to live long term, you know, it’s definitely an asset and you can make money off of it.

But you shouldn’t be buying a house to think that, you know, it’s gonna go up in two to three years, you should be buying a house, because you have a place to live. You get some nice tax write-offs, you know, you’re comfortable with the payment and all that good stuff, right? Go ahead.

– One of the things that we always talk about is there’s four factors of why homeownership is better than renting. And I don’t say that for everyone, when you’re at the right point in your life, you’ve achieved some financial stability and you’re gonna be in a place at for a long enough time, do you have that five to seven year time horizon, there’s four reasons why homeownership is better than renting.

We used to talk about tax benefits, in California, we still have some tax benefits, but those have been mitigated by the tax changes in 2018. But what we have is, there’s no such thing as a 30 year fixed rent, you just popped up there and showed, you know, Mike saying that if you buy, it’s still cheaper than if you rent, even if it’s not today, in five years and 10 years and 15 years, there’s gonna be a ton cheaper.

You see in the headlines, how much rent goes up, there’s no 30 year fixed rent, you can get a 30 year fixed mortgage. You also have capital appreciation, you buy that $600,000 house, if it goes up even 3%, that’s $18,000 in the year, at interest rates as low as they are right now, a large portion of your payment is going to principal, so that’s the third factor that we want to point on.

It’s like an enforced savings plan. So your payment might be two or $300 higher if you were, than if you were to rent that house, but $1,000 or so a month is going towards principal, like as if you were putting it into a savings account. So at the end of the year, you paid it down $12,000, the home value went up $18,000, on paper, you are $30,000 richer in one year. So when we look at that over time, homeowners have a 40 times greater net worth. It’s a little bit more than that.

– 44 I think.

– Yeah, than renters. And it’s not magic, it’s those factors over time. Homeowners have on average a much lower payment than renters do, not because when you buy, it’s lower, but over time as rents keep going up, you have that fixed payment, all of those factors come into play.

– Now and you, I think that was a great explanation. I wanna circle back to something that we talked about a moment ago when we were addressing the question that Francisco had thrown up. And we were talking about forbearance and all of that stuff.

A question came up earlier from Jason, asking about refinancing in forbearance. Now, I wasn’t gonna get into a lot of forbearance talk on this video because we’ve I’ve done so many videos on it, nut while we’re here, let’s dive into it, and I’ll let you address the question, so.

– The forbearance one is easy, And I’ll follow up with a question, a second part of that question that I got yesterday, that’s a little bit less easy. If you are in forbearance, you either have to bring it current.

So gentleman I talked to yesterday, he was furloughed for three months, and he went into forbearance and has not made a payment for three months, credit score’s still fine, we can still qualify him now that he’s back at work, but he either has to bring that thing current, or he has to get into a repayment plan and make three payments at the new payment.

So in his situation was about $9,000, he was behind. So if he goes through it, and they say, hey, you need to pay an extra $500 a month to get it brought up over the next 18 months, then he has to make three of those before we can do it.

So those are your two options, either need to bring it current immediately, and for him, he had been saving the money and set it aside, so that was an option, or you have to get into a repayment plan and get three months of payments under that plan.

And that was a new change, what about four to six weeks ago that came out that guidance.

– Yeah, and so my understanding Josh, and you tell me if I’m wrong here is that the other option is that once you speak to your lender and you decide on whether it’s that lump sum payment that you make, you decide on a repayment plan or as of July 1, that deferral option becomes an option with, with your servicer, so they should be offering that deferral option.

My understanding is that once you agree to one of those options, and then you make three months consecutive payments from that point forward, so say you chose the deferral option or you qualified for that deferral option, and you missed three months of payments, now, they’ll take those three months, add them to the back of your loan, So in that, at that moment, your loan is reinstated.

From there going forward, you just have to make three months consecutive payments or whatever that payment was, at which point then you’d be eligible for refinancing.

– And the key, yes, and the key part of what you said is, if you qualify for deferral, so the servicers have been instructed to follow a waterfall. for my guy, if they ask for his bank statements and it shows that he has $10,000 sitting there, he’s expected to bring it current, let’s say he didn’t.

So the second piece then becomes how much extra can you afford a month, they analyze his paychecks and go, hey, you can afford 300 or 500 more, and we’re gonna collect it over, you know, two to three years.

If you can’t do that, then they’re gonna say, okay, we’ll defer it, we’ll tack it on to the back of the loan. So it’s not as simple as just saying, hey, I would like the deferral they’re gonna go through while they couldn’t ask for your supporting documentation prior to issuing the forbearance, they can when they figure out how they’re going to help you out of it.

And, Jeff, before we jump in anything else, Alejandro had a really good question here, let’s throw this one up. “Should we expect an increase in inventory “due to baby boomers downsizing? “Would that lower prices”?

So, 10 years ago, that was the big hypothesis. Hey, this baby boomers, they’ve raised their kids, kids are moving out, they don’t wanna be there. And do we see it happening? Yes, we do. It hasn’t happened at the numbers that was expected. And, you know, we have some factors in California. If you are outside of California, it’s little bit different.

We have Prop 13, a lot of those boomers bought in the 70s, they’re paying $1,000 a year in property taxes. In some counties, you can go county to county in California and take that tax rate if you downsize, others you can’t. So for that reason, and just quality of life, if you’ve lived and you’ve gone to this grocery store for the last 30 years and your friends live there, we’re just not seeing them move to the levels that we had expected.

They definitely are, we’re seeing a lot of move out of state or move to cheaper areas, you know, move out to the Palm Springs area. They like the weather, they can golf, they can bank some money and still be close to the grandkids, that type of stuff. The point that I like to make when anyone asks this, the biggest generation we’ve seen since the baby boomers is the millennials.

Millennials are buying later than previous generations, but they are now entering prime buying years. So largely where we’re seeing that supply demand imbalance is Millennials are reaching a point in their lives, they’re getting married, they’re having kids, they’re reaching a point in their jobs where they’re comfortable buying a house and there, that’s the demand that we’re seeing. So I would at best expect them to offset, and as long as rates stay low, we’re gonna have plenty of demand for the inventory that is available.

– Okay, I wanna jump on that too, because I actually had this conversation the other day.

I think part of the problem with the baby boomers homes coming to the market, because, you know, as a real estate agent, I have a lot of conversations with baby boomers, people looking to downsize, and part of the issue is that, you know, these people, I mean, while they want to buy something else, they’re out there looking at what’s available, they’re looking at the inventory that they get to pick from and with inventory levels so low, they have very few options and so most of them aren’t willing to, you know, for go sell what they have, because they’re not interested in anything out there on the market, they don’t want to rent for the time being, they don’t want to settle on something, they want, you know, something specific and a lot of them are looking for single level homes.

And, you know, as you know, at least in our area, a lot of these single level homes over time have been added on to a second story has been added. And, you know, the functionality of that property is no longer there. So, you know, there’s a problem finding a lot of that property. So I think a lot of people that may be interested in selling just aren’t, you know, willing to do it because they’re not willing to settle on what’s out there.

And then you have, you know, even if all of those baby boomers came to the market, right? We’ve been at such low inventory levels and low inventory levels for such a long period of time that like you mentioned, those homes coming to the market just balances the market out and makes it more of a, you know, a buyer and seller’s market versus a seller’s market because,

– Yeah.

– You know, with all the rules, they passed after the last correction where home builders couldn’t build homes, and then we went through, you know, the beginning stages of COVID and Coronavirus, where builders had to stop building at that point. So now these builders are behind on the stuff that they were building, and you’ve got all of the years that they couldn’t build, I mean, we were gonna have a shortage of inventory for the next three to four years, probably, as long as rates stay low, nothing crazy happens, I think that means that, you know, the economy probably does well, housing does well for, you know, the foreseeable future, like I’ve mentioned in the past.

– Yeah, yeah, like the days of like, if you go back to the 70s and 80s when home values like you would look, and you say, oh, my grandparents, they bought their house for $3500, and now it’s worth $180,000. We’re not gonna see out sized gains like that because home prices are already at relatively high levels. But when you’re in developed areas that have strong economies, which all of Southern California, if rates stay low, we’re gonna continue to see home prices go up.

– Right, okay, so we’re getting towards 30 minutes here, you know, Mike, you had a question down there, can you set up a call with me? Absolutely, call me anytime, you can find my information online there, pretty easy to find me. But Josh, we started the conversation by saying, you know, we’ll talk about online, going online, getting an interest rate versus calling a referral, a mortgage broker locally, that sort of thing.

I mean, as someone who understands the business, I understand why you should do that. But talk about it for a moment. I mean, we can talk about, you know, you can talk examples I mean, people that, you know, you’ve talked to, that have gone online, gotten a rate, versus, you know, spoken to you and the dynamic there. So why is it important that not even that they don’t go online, but that people talk to, I mean, if you do go online, talk to somebody else, talk to multiple people to make sure what you’re getting is accurate, you know, and aggressive with regards to rates

– Yeah, no, by all means, because the, for the most part in the internet age, rates should be within a fairly narrow range. But without going through different business models and talking, call I had this afternoon, Chase just turned down like a perfectly good borrower and the reasons he was telling me, I’m like, it’s a $400,000 Fannie Mae alone, like, why would you need 18 months of reserves?

They’re telling me is 18 months of reserves, just crazy. So then we went through the terms and terms weren’t bad. They were about an eighth or a quarter percent higher than what we were on rate, and they were about two 300 bucks higher and fees. So they’re in the range. The flip side, a client of yours, you’d referred over, talked to him and he went to an online lender, and the numbers come over and the numbers are very aggressive.

I believe it was, you know, almost $1,000 less than us, just the total package, same note rates, the same exact turn, which in the grand scheme of things again, on a three or $400,000 loan, it’s not much of a difference. So I don’t ever say hey, $1,000 isn’t a lot of money, it is.

But if you’re note rate to note rate, and you can deal with an expert versus dealing with someone in a call center, thing I always like to say, if you call a radio ad, if you see something on the TV, if you see a billboard or if you hear one of the thousands of commercials that rocket loan bombard you with every day, once you talk to them, I want you to go online, once they send you numbers, they have to send you their NLMS number.

If you look up the NMLS number for these online lenders, the vast majority of them have been in the business for one to two years. There’s something on there called your 10 year self reported employment history where a consumer can see what you’ve done for the last 10 years.

I’ve done Home Loans For the last 25 years. 99% of the time, if you look at someone from a call center operation within the last 12 to 24 months, they worked at 24 Hour Fitness, GNC or a pizza place and there’s reasons for that, the big national lenders, they’re in Detroit, they’re in Cleveland, and I believe they actually did open one up in Arizona.

But when you need 4000 loan originators in Detroit. and there’s two or three of you, so now we need 12,000 loan originators they don’t exist. And then you put them into a high pressure boiler room environment where they’re expected to do 30 or 40 loans a month, it means a couple of things.

It means that everything is vanilla, because you can’t spend time on something left of center or right of center, because you need to hit those numbers, so they do mass marketing, they bring in tons of leads, it’s sort of the kill them all let God sort them out, the ones that are easy enough, we’re gonna put them through, and it’s like McDonald’s, you got something, you knew what it was, it wasn’t terrible, it wasn’t horrifically overpriced.

So that’s not to say, like me, being a 25 year experience professional, if I wanted to get on the phone, I know I could go to one of these call centers and some of the numbers I’m seeing are just absurdly low interest rates. Were very close, but when I look at some of them, like I don’t know how they’re making money at that.

So you have to ask yourself, do you value expertise? Do you value a good experience? Your client that you referred over, needed a subordination agreement for a lien that was on their property that was gonna remain, the Call Center lender said, yeah, you call the lender and get that and then let us know when you have it.

That’s insanity, you don’t do that, that’s not the borrower’s job, is not what they are there therefore. So but that’s part for the course, it’s pretty typical, it’s a bare-bones experience, at a bare-bones price at your best case. Some of my bare-bones prices, I see stuff all the time, you know, the biggest national lender that you’re bombarded with their ads every day, they are not competitive in pricing.

Any local lender, any online lender will beat them, but they’ll tell you about their JD Power ads and how wonderful they are, and they’re very good at misleading people. I saw in the loan officer forum yesterday, someone was reviewing an LE that that lender had sent their client, saying, hey, we’re giving you a much better deal and they were canceling the loan with this loan officer.

They go loan estimate to loan estimate right next to each other and they were like $2,000 higher in fees and a quarter higher an interest rate. I had this, you heard about this, we had the same situation last year, a veteran had been convinced that somehow paying a point and getting a quarter higher interest rate, he was saving money with them like it is.

I don’t wanna say it’s like boiler room, it’s just a different environment, it is not about helping consumers, it’s about closing loans. And it’s not about being an expert, it’s about getting as many easy ones through as we can, a month. So again, if you have a job that you’ve been on for 10 years, you make a ton of money, and it’s a W2 and a pay stub, and you’re just doing a rate and term refinance, that’s the vanilla deal that they’re looking for, and you can get a really good deal.

But like you said, the easiest way to do it, talk to two or three people, talk to your bank, talk to a local broker like me, talk to an online lender, and those are gonna be three very different experiences. The number should be very similar. I would rarely pick the absolute cheapest, you can obviously take one and go, hey, these guys are 700 bucks cheaper.

Is there anything you can do to help match that? And they may tell you, hey, no, I can’t because there’s a really complex file, and they’re gonna fall on their face with it, or they’re gonna say yeah, this is one of those easy Vanilla files, I would be happy to have you as a client, and hopefully you refer your friends and family and we’ll match that online price to make the deal work.

– No, I’m glad you finished up with that because I was gonna jump in, basically say, yeah, for the straight vanilla as you’re using file, yeah, you can get them done in those experiences, there’s gonna be no professionalism, no relational aspect, it’s just, you know, getting the deal done.

Whereas working with someone that’s a professional that knows their job can, you know, can not only work those vanilla files, they can work the complex files, they can guide you there. They’re also there to be more than just your mortgage broker or your loan officer, they’re there to help you understand, you know, the ins and outs of what you’re doing. It’s not just a rate, it’s not just fees, it’s, you know, there’s other things that go along with that. I

mean, I know you can help people understand the value in renting versus owning by showing them, hey, look, you know, your tax return, this is how much money you’d likely get back, and this is what you would save renting versus owning work, I can almost guarantee you 95% of the people out there that are doing that job can’t have that conversation because they don’t understand.

Most of them don’t even understand the tax returns that they’re looking at. But I’m not gonna dive into that. So, you know, we’re at 35 minutes right now, anything you wanna finish up on, we can definitely do this again. We’re getting, you know, some feedback here, but I don’t wanna to drag us out.

– No, absolutely, I love the questions, we should open it up more often, whether we do it once a week or once a month and just get to the questions. We hear a lot of them and what we try and do is come to the videos with the ones that we’re hearing the most. But it’s good, it’s good to get the feedback.

The important thing is home prices aren’t dropping anytime soon. If it’s the right point in your life to enter the market, by all means do it. I feel pretty strongly people should not be paying a bunch of points for their loans, buying into this myth that rates are at an all-time low and if you pay two points, you’ll get the lowest rate ever and you’ll have it for 50 years, just not life, it’s not the way it happens, people aren’t in homes that long, things change, they need to take cash out. Don’t pay a bunch of money for your loan, it just doesn’t make sense.

– Yeah, I mean, I think the status is like most people own their homes like five to seven years, or that’s what it was at one point. So I don’t know if it’s changed, but the reality is, you know, most people aren’t gonna own their home for long enough to recoup the cost on that on buying those points and paying those large fees.

So, we’re gonna end it there, you know, I thank you guys for sticking around, for watching, for commenting, and again, if you haven’t already, do me a favor, subscribe to the channel, hit the thumbs up if you like this info and comment, you know, even if you’re watching this later comment, we’ll do our best to get back to your questions.

And, you know, and if we can’t, we’ll hit them up on the next video. So as always, guys, thanks for watching, thanks for support, we’ll see you again soon.

– All right, have a good one Jeb.

Broker | Owner | Mortgage Consultant
Josh Lewis Broker | Owner | Mortgage Consultant
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