Business, Productivity & Technology

Mortgage Lenders Have Lost All Common Sense

Added on by WC Bracken.

Fascinating piece in the New York Times this weekend regarding the illogical shift in lending rules for those seeking mortgages.

As a self-employed person, I was essentially told that I would not be able to qualify for a mortgage in today’s environment. Forget about the fact that my credit scores were perfect, that I have a ten plus year history of paying my previous mortgage timely, that the mortgage I was seeking was smaller than my previous mortgage, that I was looking to put 30%+ down on the new purchase, etc., the lenders could not see around the fact that I recently started a business. I am lucky to have found some alternatives which probably would not be available to most in the market, but I think the key line from the article is, “Banks have forgotten that loans are collateralized by the home itself.” Exactly.

To be fair, losing all common sense isn’t just the mortgage lender’s doing. Under the new federal rules, there are specific formulas that lenders must follow. And, to answer those that would say, “but, left unchecked, the lenders almost bankrupted this country”, I would suggest that the community reinvestment acts had a good deal to do with the troubles as well. Further, I am not suggesting no standards, just that lenders should be allowed to take into account a sliding standard or “credit matrix” as opposed to a one-size fits all hard and fast rule. For instance, if you want to look past a self-employed status or a higher debt to income ratio, you can require an increased downpayment or factor in past history more. Common sense, no?

So, where do borrowers go? From this article, the borrower was forced into a sub-prime mortgage that changes 8–12% interest rate. But, the article is still a good read:

But the vocabulary has changed. Because new federal regulations have created something called a qualified mortgage, or Q.M., which must conform to strict requirements, future lending is likely to be categorized as Q.M. or non-Q.M. rather than prime or subprime. Non-Q.M. lenders will have both more flexibility and more liability, but not all non-Q.M. loans will be subprime.

Among the lenders preparing to make non-Q.M. loans is New Leaf Lending, a division of the Skyline Financial Corporation, based in Calabasas and run by William D. Dallas. In 2007, Mr. Dallas was a subprime lender who told The New York Times that investors had pushed him to make risky loans. “The market is paying me to do a no-income-verification loan more than it is paying me to do the full-documentation loans,” he said. “What would you do?”

Now, he says, the pendulum has swung too far the other way. “If you’re self-employed, you’re hosed,” Mr. Dallas said. “If you just started a job, you’re hosed. If you get a bonus, you’re hosed. Just got a severance payment? Can’t count that. I don’t have to do a lot to be a lender. I just have to be normal.” Banks have forgotten that loans are collateralized by the home itself, he said.

In the case of the Arroyos, for example, the house would have to lose 75 percent of its value for the lender to be at risk. “They just have a formula, and they decide whether or not you qualify without looking at what’s logical,” Ms. Arroyo said of conventional mortgage lenders.

Some employees of conventional banks might agree. Barry Boston, for example, recently left one of those banks for a job at Athas, frustrated by having to turn down so many perfectly fine borrowers and because of the endless paperwork involved in closing a loan. “I couldn’t stand it anymore,” he said. “The wind had been completely sucked out of my sails.”

Life Lessons From Navy SEAL Training

Added on by WC Bracken.

This graduation speech is making the rounds, but I found it particularly meaningful. I love the advice as it is as basic and direct as you would expect from a lifelong Navy Seal, but it also applies to us all. My particular favorite passage is:

Every morning in basic SEAL training, my instructors, who at the time were all Vietnam veterans, would show up in my barracks room and the first thing they would inspect was your bed. If you did it right, the corners would be square, the covers pulled tight, the pillow centered just under the headboard and the extra blanket folded neatly at the foot of the rack—that’s Navy talk for bed.

It was a simple task, mundane at best. But every morning we were required to make our bed to perfection. It seemed a little ridiculous at the time, particularly in light of the fact that were aspiring to be real warriors, tough battle hardened SEALs, but the wisdom of this simple act has been proven to me many times over.

If you make your bed every morning you will have accomplished the first task of the day. It will give you a small sense of pride and it will encourage you to do another task and another and another. By the end of the day, that one task completed will have turned into many tasks completed. Making your bed will also reinforce the fact that little things in life matter.

If you can’t do the little things right, you will never do the big things right.

And if by chance you have a miserable day, you will come home to a bed that is made—that you made—and a made bed gives you encouragement that tomorrow will be better.

If you want to change the world, start off by making your bed.

via The Wall Street Journal

The Real Estate Industry is Ripe for Disruption - Or, Why Not to Use a Realtor

Added on by WC Bracken.

After going through the process of selling a house, I have come to a clear conclusion: it is time for major disruption in the real estate industry. If my recent experience is any guide, selling real estate and buying real estate are processes squarely rooted in the guild system where things are done “because they were always done that way” and with a serious misalignment of interests. Specifically, my experience led me to these conclusions:

A Realtor’s Interests Are NOT Aligned With Their Client

My first major complaint about the real estate industry is a basic one - that a realtor’s economic interest is not aligned with their client. The typical realtor agreement for a seller is 6% of the purchase price (with 3% going to the selling agent and 3% to the buying agent). The fee is only due at closing, thus the agents only gets paid if the house sells. Sounds ok, right?

Think about this. For a $1,000,000 house, the agent fees are $60,000. So, that is $60,000 if the house sells and $0 if it doesn’t. But, what about if the agent pushes the seller to take a lower price? Let’s say the agent gets the seller to sell for $900,000 instead. At the lower price, the agent’s fee is $54,000. In other words, the homeowner takes a $100,000 hit while the agents only lose a $3,000 a piece.

Here, it is plain to see that a seller’s agent might push the seller to take a low initial offer or not to negotiate strongly to simply get the house sold (remember, the agent is paid nothing until close) and thus forgoing a chance to sell for more through negotiation or patience.

My experience is both the seller’s agent and the buyer’s agent are motivated to get the house sold as fast as possible, not for the best price.

Negotiations Are One Gigantic Game of Telephone

Would you want to work through a middle man to purchase a Coke? A computer? Your car? Then, why your house? Just because it is for more money?

Here is how the recent sale of our house went:

An interested buyer came to view our house. The next day, the interested buyer submitted an “offer” of about 95% of our asking price with certain stipulations. I wanted to counter, so my agent had me scratch-out the buyer’s offer and write in my counter-offer. I emailed the counter-offer to my agent who then faxed our counter-offer to the buyer’s agent. The buyer’s agent then faxed the counter-offer to the buyer. At some point, the buyer’s agent spoke with the potential buyer, discussing our counter-offer, and they apparently decided to counter our counter. The buyer’s agent then had the potential buyer scratch-out my counter offer and fill in the buyer’s new counter-offer. From there, the counter-counter-offer was faxed to my agent who scanned it and emailed it to me. In the mean time, the buyer’s agent called my agent and told my agent what the buyer told the buyer’s agent regarding the price and stipulations. My agent took notes and later called me to tell me what the buyer’s agent told her that the buyer told the buyer’s agent.


What other kind of negotiation works like this? I understand there are benefits for the intermediary such as removing some emotion from the negotiation, making sure the negotiation is fair, etc., but wouldn’t it be easier to sit down in person and discuss the offer and counter-offer? Both sides could lay out their reasons and come to a middle ground (if there is one to be had). If nothing else, it would eliminate the ridiculous back and forth.

My theory is real estate agents prefer this type of negotiation because it makes the process seem more difficult thus partially justifying their fees (more about this below), and because it allows the agents to control the process. More control means a greater ability to steer the negotiation to a swift outcome, not necessarily the best outcome.

Real Estate Fees Are Outsized As Compared With The Value Provided

Let’s go back to our $1 million home. Again, the standard fees are 6% of the purchase price, or $60,000. In my experience, ALL of the traffic to see our home was generated from either the web listing or from people driving by and seeing the “For Sale” sign in the yard.

The web listings are these days sent to the MLS system and picked up by the Zillows and Trulias of the world. Both of these services are doing an amazing job making it easier for buyers to find their dream home.

As a potential buyer, gone are the days of going to your agent’s office and having the agent show you all the homes for sale using their inside knowledge of the martketplace. It is as easy as surfing the net for a few hours, compiling a list of homes you want to see, and telling your agent to schedule times to see the homes.

So, basically, at this point, the agent’s jobs are to schedule tours and open the lockboxes on the front door (followed by making the negotiation more difficult - see above).

Is that really worth $60,000?

But, A Good Realtor Helps! Right?

Actually, yes. I think a really good realtor can help by knowing the local marketplace, researching comparable sales, introducing potential buyers and sellers, helping visualize changes to a home, holding the buyer’s and seller’s hands through the process, and seeing the process through to the sale.

But, in my experience good agents are few and far between.

What Is the Future?

I have no idea, but I do think the industry is ripe for disruption. Wouldn’t an agent that leverages technology and allows the buyer and sellers to drive the negotiations be able to significantly reduce the fees charged? If realtor fees were lower, would seller’s be more inclined to take a lower price (but still pocketing the same or more money)? What if the realtor’s role was reduced to showing the house for a flat fee, with all the paperwork being standardized?

I don’t know what the answer is, but I do know the current process is painful, slow, and costs way too much for the value received.

One of These Things Is Not Like The Other...

Added on by WC Bracken.

Good on Apple for bringing a woman into the senior ranks, but seriously though, not a whole lot of "diversity" here...didn't Tim Cook recently lecture the rest of us on racism and diversity?

Apple Execs

Reading List: Feb. 14, 2014

Added on by WC Bracken.

More on Sleep

Added on by WC Bracken.

More on sleep - from ZenHabits:

Sure, I know that sleep is important for health and happiness and all of that … but it wasn’t until I learned two things that sleep took on a new importance for me:

  1. If you don’t get enough sleep, you will fail at changing habits; and
  2. If you have a lack of sleep, your motivation will drop tremendously.

For years I focused on waking early so that I’d be more productive and be able to focus on my morning habits. But those two things were harmed by a lack of sleep.

I could cite a bunch of studies and numbers, but here’s the honest truth: based on my own self-experiments, and working with thousands of people on habits, sleep is one of the most important but least valued factors when it comes to creating habits.

And in my own life, I’ve noticed that when sleep levels drop, my productivity drops. My motivation to work on hard projects drops.

The Brain Hacks Top Founders Use to Get the Job Done

Added on by WC Bracken.

Fascinating article on the science around maximizing your productivity by maximizing your energy - physical, emotional and mental. Katia Verresen provides executive coaching and provides some really interesting ideas such as scheduling your calendar around your energy cycles. She also keys on sleep - the importance of getting good sleep to function properly:

Sleep is not as negotiable as people want it to be, and bargaining with it is the number one mistake Verresen sees people make. “Anders Ericcson has a famous study showing that the world’s best violinists slept an average of 8.5 hours every day to stay on top. For truly top performers, 8 hours are recommended,“ she says. ”I’ll meet people all the time who say they are just fine with 3 or 4 hours, but you always end up paying that back in what you’re able to accomplish.

I couldn’t agree more.