cromag

The Credit Bubble: Deregulation Gone Wild

Your many excellent contributions to this article give me solace to know that people out there do get it!

Latest Bank Headache: Home Equity Loans

Hmmm

I'm a little confused. Are you Hoot or Charles? Your website Lic# leads to Charles in the DRE records but Hoot Gibson has an expired License and you are advertising that you are a broker named as Hoot Gibson. Can you please explain?

www2.dre.ca.gov/Public...

License Type:
BROKER

Name:
Gibson, Hoot

Mailing Address:
PO BOX 1355
PALM SPRINGS, CA 92263
(Above address is marked unreliable in DRE database)

License ID:
00351478

Expiration Date:
08/23/97

License Status:
EXPIRED

Latest Bank Headache: Home Equity Loans

Have you ever heard of the "Confidence Man"?

Are you suppose to open a new HELOC to function as an, LOL, "Interest Cancelation Account"?

The flaw I see in their designed and biased 'comparison' is that they don't compare it with someone doing a similar strategy without paying for the software and without treating their home as a checking account.

You're suppose to put all of your money that is currently earning interest, into this HELOC that is currently costing 7.5% (as an example of a rate which could easily increase 4% or more in a short time as it did from June 2004 to June 2006 and with little threat of inflation!)

With all the volitility lately I can easily see Prime going up 4% in a much shorter time that last time and making a 7.5% HELOC a 11.5% HELOC while a person whole did a consolidation loan instead of this sham would still be at their 5.5% 30-year fixed loan and breathing a sigh of relief as they watched the rate skyrocket with the threat of inflation. Just imaging if these people had a 3 or 5 year ARM or an Option ARM with a 110% balance cap! Sheesh But I digress...

Yo're suppose to put your money into this HELOC and treat it as an expense account and then pay down your 1st mortgage in large chunks so as to reduce the term and interest cost. You can easily do this without a HELOC and without a software program to tell you how much. In fact, why not do it with a no transaction fee, zero interest introductory rate credit card?

This plan makes people comfortable with using their home as a checking account and as it is painfully obvious at this time, people will use the credit to which they have easy access.


It's a thing of beauty to have the people from World Savings (now Wachovia) design such a product, as they are the kings of the NegAm loan. They conveniently omit many areas and divert attention to the largest changes that promote paying down a 1st mortgage, thereby influencing people to jump at the 'opportunity' or at least inquire. And if they do see the rouse, since they are sitting in front of you explaining it to them anyway, why not just go with your other plan, to refinance them with a different strategy.

Here's a quote from Chris George of CMG. "To ensure the program is explained accurately, CMG requires mortgage brokers to earn a certificate and not miss even one question on the test."

Two thumbs down for this product and the charlatans peddling it.

Please do respond with any error I may have stated or benefits I may have missed. I could easily be enticed to work up and post an exacting spreadsheet of a better comparison and better plan that costs nothing or less with much less risk.

In the end, this product is a great way to get people to refinance more often and communicate with their mortgage broker more often which is great for business but not a good strategy for long term client retention and not for most to reduce their debt.

JMHO

Latest Bank Headache: Home Equity Loans

I see you have an economics degree from Berkley which is a phenomenal school so let me add;

I wrote this off last year and I'm now taking the time out of my day to look into it again to explain the details of my skepticism.

BBIAF

Latest Bank Headache: Home Equity Loans

Hoot

Hardly 'unequivocal'.

I got wind of this 'software' from CMG Financial in 2005 IIRC and was solicited by them about a year ago.

There is a lot of what I call 'guerrilla marketing' out there that is disguised as news.

The BBB is a paid by the company who wants to use it's log and services and just because there are no hits on it 'yet' does not mean that everything is alright. Haven't you learned anything from this whole sub-prime fiasco??

Latest Bank Headache: Home Equity Loans

Hoot

You should have a hard look at that 'new' loan that you are advertising. I took a hard look at the numbers with my own Excel spreadsheet and it looks like just another flim flam.

Latest Bank Headache: Home Equity Loans

Two points to address;

1) The HELOC lender can foreclose on the borrower in default if the HELOC lender keeps the lender in first position current. (makes the payments for the borrower) Many times this first position lender is one in the same so that make it a little different but the HELOC lender would need to take the borrower to court to get the money they paid to keep the 1st mortgage current as well as all other fees, expenses and losses the HELOC lender incurred. The way they get this money is by selling the house and taking the monies from the sale and leaving any left over for the borrower. However, with values declining this is pretty much a losing proposition for the lender unless there is sufficient equity remaining to see this all the way through.

2) I would not blame everyone for this. I would blame the investors in the secondary and whoever was pitching the wholesale loan product to them. I say this because, all bubbles aside, I can distinctly remember about a year ago or more when 100% financing was getting to be old news and fear of NegAm loans was almost non existent when, what did I see... another new loan product staring at me... the 100% NegAm purchase money loan! Get an 80% first loan and they had a lender dumb enough to give you a 2nd for the remaining 20% and... are you ready for the best part... you didn't even need to prove your income for the already lax qualifying standards! It was then that I got a bad feeling about the whole loan business and wondered what the heck they were telling the investors in the secondary, to go for this stuff.

The banks and brokers were being bombarded with these and other new loan products daily and the competition was fierce. It wasn't hard to see the pressure that the investors in the secondary must have had, to get more market share rolling out new products and pushing the risk envelope but the 100% Stated Income NegAm Purchase from lenders like eNegam.com and others was a recipe for doom. It's too bad that those investor who were sold this wall street spinster, toilet paper, eventually ended up being 'us' regular investors in our regular mutual funds and 401k 'retirement' plans and pension funds. It's too bad that the secondary never consulted with us before they said ok to these <cough> investments because it wouldn't have taken a high school dropout to figure out these laughable loans and lax guidelines would end up in foreclosure. I guess they can all go back to their old jobs washing dishes and giving you your dry cleaning because they took us all to the cleaners.

Full Disclosure: I'm still a Mortgage Broker.