this is what mortgage brokers are now sending out

[susa]

1
Your mortgage doesn’t affect your home’s value. You’re buying your home because you think it will rise in value over time. Yet, the eventual rise in value will occur whether you have a mortgage or not. So, go ahead and get a mortgage: Your home’s value will be unaffected.

2
You’re going to build equity anyway. Many homeowners try to build equity in their house by paying off the mortgage. But that produces weak results when compared to the equity you’ll build simply by watching the house appreciate in value. So go ahead – keep the mortgage. You’ll build plenty of equity anyway.

3
A mortgage is cheap money. There’s no way you can avoid debt in today’s society. Cars and college – let alone big screen televisions – virtually require you to have loans. And you’ll find that mortgages offer you perhaps the cheapest way to borrow.

4
Mortgage interest is tax-deductible. Not only are mortgage loans low cost, the interest you pay is tax-deductible. You can save as much as 35 cents in taxes for every dollar you pay in interest. That means a 6% mortgage loan really costs as little as 3.9%. Why carry non-tax deductible 18% credit cards, when you can instead carry a 6% mortgage with interest that is tax-deductible? Your mortgage is probably the cheapest money you can borrow, so it makes sense to get as much of it as you can.

5
Mortgage interest is tax-favorable. Assume you have both a 6% mortgage and a 6% profit on your investments. The mortgage is deductible at your top tax bracket, but the investments are taxed as low as 15%. For someone in the 25% tax bracket, that means the mortgage costs them 4.5% while the investment nets them 5.1% after taxes. In other words, tax law makes it beneficial for you to maintain your mortgage.

6
Mortgage payments get easier over time. You might be struggling to make your mortgage payment at first, but over time you can expect your payments to become cheaper relative to your income – especially if yours is a fixed-rate loan. That way, your payment never rises, but your income does.

7
Mortgages let you sell without selling. In time, you may well find that your home has grown substantially in value and you may worry that you might lose that equity if there’s a decline in real estate values. You don’t want to sell the house, which is the obvious way you can capture the value, but there is another answer: get a new, larger mortgage. By cashing out some of the equity, you essentially collect the value of the house in cash without actually having to sell the house.

8
Large mortgages let you invest more money quickly. Assume you own a house and want to buy a larger home. So, you sell your old house and net $300,000. Now you’re ready to purchase a new, $500,000 home. How much should you put down? Should you make a 10% down payment of $50,000? Or should you put down the entire $300,000 proceeds from the sale of the old house?
Big mortgages mean small down payments. Small down payments mean you retain lots of cash that you can then invest. Small mortgages are the opposite: Small mortgages require big down payments, which leave you with little to no cash left over for investing. In the above example, the $50,000 down payment (assuming a 7% mortgage rate) produces a monthly payment of $2,994, while the $300,000 down payment results in a monthly payment of $1,330. So, the small down payment lets you invest $250,000 right now, while the big down payment costs $1,664 less per month. That’s money you can invest monthly.
So which would you rather do: Invest $250,000 today, or invest $1,664 per month for 30 years?

Without question, investing the larger lump sum today produces far greater wealth than investing a small amount over long periods. Assuming both investments earn 6%, the account that started with $250,000 will be worth $265,419 in just 1 year, while the account that invested $1,664 monthly would be worth only $20,526. After 15 years, the lump-sum investor has $613,523 – $129,601 more than the monthly investor. Clearly, the bigger mortgage leads to far greater wealth!

9
Long-term mortgages let you create more wealth. Do you merely want to eliminate your debt, or do you want to truly build wealth? Please realize that the former does not automatically result in the latter. Indeed, many people who are debt-free are also dead broke. So, the real goal is to create wealth. You do that by adding as much money as you can to your savings and investments. And the best way to do that is to lower your monthly expenses. That’s why long-term loans are better than shorter-term loans: The longer the term, the lower your monthly payment. And the lower the payment, the more money you have left over that you can place into investments.

10
Mortgages give you greater liquidity and flexibility. Let’s look at Sam and Nick. They both earn $75,000 a year. Both have $50,000 in cash. Both buy a $250,000 house. Nick wants to minimize his mortgage, so he uses his $50,000 in savings as a down payment and he opts for a 15-year loan at 6.75%. His monthly payment if $1,770 – but only 64% of that payment is tax-deductible interest; the rest is principal. Therefore, Nick’s net after-tax cost for his mortgage is $1,489. And to pay off his mortgage even quicker, Nick sends in an extra $100 with every payment. Of course, these payments are devoted entirely to principal, and therefore provide no tax deduction.

Nick’s decision to send extra payments to his lender is a critical point. You see, every time you send extra money to your mortgage company, you deny yourself the opportunity to invest that money elsewhere. Sam understands this, and therefore, he obtains a 30-year mortgage at 7%. He puts down just $12,500 and finances the rest. Even though Sam’s mortgage balance is bigger than Nick’s ($237,500 compared to $200,000), his monthly payment is lower because it’s a longer term. That’s not all. A full 88% of Sam’s payment is interest, meaning that Sam’s after-tax cost is just $1,234 a month – $255 less than what Nick has to pay! Sam invests these savings of $255 each month for five years, earning 8% after taxes per year. And, instead of sending an extra $100 a month to his mortgage company, as Nick does, Sam adds it to his savings.

Over 5 years, Sam has about $79,000 in savings and investments. Nick, however, has no cash whatsoever, because he’s placed every available dollar into mortgage payments. So, when both men suddenly find themselves out of work, Sam is in excellent financial condition, but Nick is in real trouble. He has no savings to tide him over and he can’t gain access to the $100,000 worth of equity that’s in his house because the bank turned down his loan application since he was out of work. Indeed, Nick fell victim to the biggest misconception in real estate: A mortgage is not a loan against the house; it’s a loan against your income. Without an income, you cannot obtain a loan.

If Nick doesn’t get a job real soon, he’ll lose his house. How ironic! Nick, who never wanted a mortgage in the first place and did everything he could to eliminate his mortgage as quickly as possible, is now in serious financial jeopardy! Sam, though, is in much better shape. With $79,000 in savings, he’s easily able to make his payments each month. In fact, he can make mortgage payments for four years, giving himself plenty of time to find a new job!

And that’s really the point. When you have a mortgage, you are required to make only that month’s payment.

[Bubblesitter]

Mortgage Brokers are in for a rough ride ahead. They are now getting laid-off en masse, it will only get worse in coming year. There is now legislation via “The Homeownership Preservation and Protection Act” that will force regulation on the industry. One provision will create a fiduciary relationship to the borrower, in other words the Broker must act in the borrowers best interests. No more steering borrowers to high interest loans? YSP going away?

So not only is their volume dropping, their profitabilty on a given loan will be tanking. Time to exit the industry if I were a Mortgage broker.

[Bubblesitter]

We are getting into a nuclear winter scenario for Mortgage brokers.

As originations and profitability plummet, the industry will see a significant contraction. Those left standing will not want to be in the business with all the new regulation that will very likely be imposed.

Guys, we are still at the very beginning of all this. The tidal wave of ARM resets are just starting. Depending on who you believe up to 1-1.5 Trillion are still due for resets thru 2009. ARM resets are just part of the story.

We’ll continue to see a severe credit cruch as this unfolds. The initial hits were in subprime, then Alt-A, now recently spreading into Prime Jumbos. Even with a great credit score you are paying a significantly higher rate on your jumbo. With no one buying Mortgage backed securities or derivative instruments, Lenders will be forced to hold on to loans. Many of these lenders who are already in serious financial situation will further reduce originations. Many will be going bankrupt. Only the folks with the very best credit and significant down payments will even quality for a mortgage. Net result is fewer qualified buyers.

There is a downward self-reinforcing sprial here.

Fewer qualified buyers, more inventory, lower prices, more underwater owners, more REOs, tightening credit, lower prices, more inventory, etc….

Bubblesitter

[NeetaT]

3
“A mortgage is cheap money. There’s no way you can avoid debt in today’s society. Cars and college – let alone big screen televisions – virtually require you to have loans. And you’ll find that mortgages offer you perhaps the cheapest way to borrow.”

The above statement is ludicrous. I borrowed money twice in my life; I borrowed for my first car and a college loan both of which I paid off very quickly. Over the years I have never carried a balance on my credit card and have relied strictly on cash even when I bought my first home. Now I am very cash heavy and expect to take advantage of the credit crunch as long as the Fed does not get too stupid in lowering interest rates. I do not even know or care what my credit score is.

[patb]

same here

I borrowed for college, I borrowed for my first house,
I’ve borrowed a few times to smooth cash flow,
oh, i borrowed twice to buy cars and paid the notes off in 6 months.

Good deals, i just was a bit cash shy,

its one thing to put half down for a car and pay it off in 12 months,
it’s a whole nother thing to have a car payment for your whole life

[cr]

Pathetic.

Why don’t they just go out and beg for money…

[cashman]

I’ll third the motion. I’ve paid cash for everything, including houses for the last 20 years. I really believe in the motto “In God we trust, all others pay cash”.

[highpacific]

Hi Susa,
which brokers are saying this? Do you have sources or is this just what you feel they are saying?

Really curious as to where your post came from. It is rather long.

-high

[Pasadena Broker]

That’s one long pain in the ass reading for either a marketing piece or email that a broker would send out…you sure you didn’t sit down and write it yourself to troll for responses to your thread?

Nuclear winter? Don’t believe the all the hype. There are brokers that are busy doing what they do, it’s the guys that have either been in the business for a while or developed a referral network from all the good work they’ve done for other clients. The ones exiting the industry are the ones that needed to leave anyway, they’ll probably go back to selling another ‘hot’ product/service.

Personally, I’ve been just as or even more busy with shops closing up, other brokers/loan officers going MIA.

[Bugs]

Based on what I’m hearing from a couple residential appraisers I know the FHA lending pipelines are quite active right now.

The demand for mortgages is still pretty high. Most of those borrowers with ARMs know they’ll be better off if they can convert over to a fixed interest rate. When a mortgage broker collapses for lack of sufficient business that doesn’t mean they had *no* business, it only means they didn’t have enough to cover their overhead. The volume they were getting has to go somewhere. When a bunch of MBs fail it reduces the competition for the survivors.

[Raybyrnes]

Cream always rises to the top. Good realators are still moving product, building staff, negotiating with banks as they have developed a strong base of clients. I am certain this holds true for Mortgage Brokers, Appraisers and every other occupations. In fact I will make a bet that wehn the dust settles they will be better off having made it through the market cyce and will have a new level of insight to share with their clients about the upside adn downside to real estate.

[ibjames]

my friend had a job opening at work for a scheduling/event planner. I can’t remember the number, but they had more applications for that position than ever before, the number exceeded any previous application numbers by a landslide. Most of them were realtors/brokers

We have a position open and a guy applied from Accredited Lenders, he said their IT shop has been getting chopped consistently because so many branches are closing up. They have so much equipment and hardly any users. He’s trying to bail before they let him go

[ibjames]

I have a friend that is refinancing right now, she’s getting out of her 7yr arm that is about to adjust. I have another friend that is going into foreclosure, so I’m sure there is a lot of activity still in the pipe.

[Author]

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