Mortgages: January 2020 Archives

I am continually confirming that a large percentage of people can't handle negotiations like an adult. They focus in on garbage and ignore what's really important.

I recently was going to deliver a loan that cost less, as well as being 3/8ths of a percent lower interest rate on exactly the same terms as the competition quoted. Furthermore, my quote was guaranteed where the competition's was not. However, because my company's compensation was disclosed while the competition's was not, they chose the other loan.

Real Estate loans are not something that the minimum wage fast food worker can toss off in a few seconds like filling a soda cup. If we get all of the paperwork just right with no hitches and everything works on the first pass and it doesn't take too long to price it, such a loan could be done in five to ten working hours when I first wrote this. With complications due to new regulations and overly paranoid lenders that have arisen since, thirty working hours and 45 days seems to be about the minimum for a loan now. And getting it done in minimum time requires not just the right situation, but a lot of skill and a not inconsiderable amount of knowledge of the loan market.

Nobody does loans for free. Typical loan production, even at a busy brokerage, is three to six loans per loan officer per month. That's got to pay rent and utilities and the salaries of everyone from the receptionist to the CEO. Yes, I've done more, but if you investigate you're going to discover that for most loan officers, most of their time is spent prospecting and selling. That's part of the reason why most places have processors and transaction coordinators - to relieve sales folk of tasks that they don't have to do so they can go out and sell more with the time they save. I can point to lenders and brokerages where basically the only work that loan officers actually do is talk to prospects and clients. They don't price, they don't do the application, they don't process, they don't deal with underwriters or escrow or title, they don't attend signing - all they do is sell the loan. The reason for this is so they can talk to more prospects. The time of good sales folk is important, but some of these loan officers have no clue as to whether the loan is ultimately going to be approved. This is one of the reasons why people end up with different loans than they were originally told about. There was a reason why they weren't going to qualify for the loan on which the loan officer gave them a low quote, but the loan officer didn't know, and it's sure as gravity no one else is going to tell you between sign up and delivery, and at delivery, your choices are to sign these documents or don't. If you need that loan at that time, guess what? You are going to sign those loan documents and become part of the statistics.

Not too long ago, I had some people call me through Upfront Mortgage Brokers (UMB). They had heard the UMB way was better, and it is better than most, but it requires you be able to deal with money like an adult. These people wanted a million and a half dollar loan with a low down payment. They had great credit and likely sufficient income, but they wanted an A paper loan with no pre-payment penalty. At the time, I could get zero down payment A paper loans with no pre-payment penalty no problem up to the conforming limit, but above that, lenders start making it harder and harder, and there are three break points in most lender's rules between conforming loans and a million and a half. When I'm working under UMB rules, I have to negotiate every penny that my company is going to make up front, and I told these people that my company needed $5400 to make that loan worth our while. This was between three and four tenths of a point grand total, and that included credit and what the processor was going to make. But that sounded like "too much" to these people, who told me that they were going to the bank who "promised never to charge more than two points." When you do the numbers, they were telling me that $5400 was "too much" but $30,000 wasn't - not to mention the fact that I know this lender, and they'd have made another four percent on the secondary market with the loan they gave these people - $60,000 in addition to the 2 points they charged. It's to be admitted that the lender I was going to put them with likely would have made about 2.5 percent, or a little under $40,000, selling their loan on the secondary market, but these lowered margins roughly $45,000 total that I and my lender would have made versus $90,000 that the other lender would charge. This difference translates directly to less cost, a lower interest rate, or some combination of the two (there is ALWAYS a trade off between rate and cost in mortgages). Direct lenders can price your loan to make anything they want on the secondary market - and they don't have to tell you about a penny of it, unlike brokers. Indeed, the loan I quoted was better all around to the prospective client - but my compensation was disclosed and theirs wasn't, despite the fact that what we were going to make was chump change compared to everyone else. So this person, a highly paid professional who should have known better, went with the other provider.

So despite the fact that working to UMB guidelines actually lets me quote and deliver loans with slightly better pricing than my usual way, I have discovered that it's mostly a waste of my time. The client is assuming pricing risk, all I get is a flat, pre-negotiated fee - but they know what that fee is, and it's not what most folks think of as "cheap." Never mind that it's a lot cheaper than the provider they ended up with, people seem to think that the $5400 they know about is somehow more than the $30,000 they don't.

The smart thing to do, of course, is judge that loan based upon the net terms to you. Type of loan, rate, total cost, and whether there's a prepayment penalty. I can get my commission paid out of yield spread or rolling it into your balance, same as anyone else. You don't have to write me a check just because I'm working for known compensation. In fact, since that known compensation is less, I can get you a lower rate, or pay some or all of the closing costs that you'd end up paying through another provider - sometimes even both. But just because I can't hide my compensation in your new loan amount and rate, or pretend that I wasn't paid somehow, doesn't mean the other loan is better than mine.

Loans aren't free. If you don't understand how someone is getting paid, chances are they are making a lot more money than the loan officer who is willing to go over it. If this seems like too much work to you, take comfort in the fact that you're not wasting time scrutinizing the wrong thing.

Way too many people pay attention to the wrong thing. If the shelf at Store A was required to say that their model XB500 widget was $500, and they were making $140 mark up over what they paid, would you then go buy the XB500 at Store B for $550 because they weren't required to tell you their markup? Folks, just because Store A is willing to admit how much they make doesn't mean their price isn't $50 better for the same thing.

The intelligent way to compare competing loans by the terms to you: What type of loan is it? What is the rate? How much will it cost, grand total? Is there a prepayment penalty? Will they guarantee their quote, or are they just talking "bigger better deal" to get you to sign up? Ask specific questions, and don't settle for anything other than specific answers. The usual modus operandi is to hide loan costs in your new loan amount after pretending that there aren't any until you go to sign documents. Just because nobody wants to talk about costs or how much they're making doesn't mean the answer is "zero." Just because you don't have specific numbers doesn't mean it's going to be better for you - in fact, the opposite is the way to bet. Nail them down before you sign that loan application.

Caveat Emptor

Original article here

Got a search for "mortgage closing documents do not sign changes."

Unfortunately for this person, the documents you get at closing are what legal folks call a contract of adhesion. This means you can either accept it, sign, and adhere to all the terms as presented, or you can walk away. Basically your choice is to take it or leave it, in exactly the form presented.

On those rare occasions someone actually has the intelligence and good sense to walk away from a situation where the terms have been changed, the prospective loan provider does have the option of offering you a better deal as incentive to do business with them. Like, say, the loan they originally talked about to get you to sign up with them. Mind you, they don't have to, and the costs of that other loan may mean that they would rather do no loan than that loan. Furthermore, they've got to re-draw the appropriate paperwork.

I'm not a lawyer, but the way contracts of adhesion were explained to me is that if there is any legal ambiguity, it will be interpreted in your favor. This doesn't mean you can claim you thought it meant something different than the average person would understand; this means that if there is a legally ambiguous wording that could legitimately be interpreted two different ways, and you and your lender disagree as to the meaning, the courts will generally rule in your favor. Once again, the law is different from place to place and the courts have the final say; check with your lawyer.

In the loan world, it is much more common than not to be offered a loan contract at final signing which differs in some material form from the loan terms that were described to you in the beginning. The loan provider will generally offer you a loan of the same type, and usually at the same rate, but most often the costs to get that rate will be significantly higher than were listed on the Good Faith Estimate or Mortgage Loan Disclosure Statement. Neither one of these forms is in any way, shape or form a legal commitment, nor are any of the other forms you get at the beginning of the loan process, such as the Truth In Lending Advisory. This has improved for consumers somewhat since the new rules for the 2010 Good Faith Estimate became effective, but there are companies out there who have the loopholes completely wired to let them pull a legal "bait and switch" like the worst of the bad old days.

The only thing that means anything is the loan contract, or Note, that you are offered at the end of the process, together with the HUD-1 form, which is the only accounting of the loan required to be correct and complete.

The difference between the initial teaser loan they talked about and loan contract they actually got approved is one of the reasons why the less than ethical providers out there often want a cash deposit for the loan, particularly if their rates are not particularly competitive and they know it. If they're nervous someone will come along behind them and offer you a better deal, they want a cash deposit so that they still get something if you pull out, and many folks obsess about the cash deposit to the point where I could offer them a deal that saves them several times the cash deposit, and they still wouldn't switch. This isn't to say not to pay the twenty dollars or whatever it costs them for the credit report, this is to say don't deposit the appraisal fee (several hundred dollars, which should be paid at point of service) or even part of a point "to be refunded if the loan funds within (a certain amount of time)". Chances are the loan isn't that great, particularly not the real loan they are really going to offer, and that's why they want to lock you in by having something to hold over you if you don't sign on the dotted line at the end of the process.

Caveat Emptor

Original article here

I keep getting hits for this, so people must want it explained. Loan Amortization is nothing more than the process of paying the loan off by regular payments over time. Leave it to the experts to come up with a fancy word for an everyday process, eh?

A loan which is fully amortized (or fully amortizing) is one which the required payments will pay it off in full by the end of the term of the loan. Fixed rate loans are the classic example of this. A thirty year fixed rate loan is a classic example. It has 360 payments of equal amount, at the end of which the loan will be paid off, assuming you have made all the payments on time. The last payment may be somewhat smaller due to the fact that they may round the payment up to the next penny, and over thirty years it makes a difference.

However, most hybrid ARMs are also fully amortizing loans. The difference between these and the fixed rate loan is that the rate, and therefore the payment, is fixed only for the first few years, and after that the rate varies based upon an underlying index. Nonetheless, the loans are still calculated to pay off the entire balance by the end of the loan. You are welcome to keep them after the fixed period if you want to, but few people do.

Balloon loans are partially amortized. Their payments are calculated as if they were a longer loan than they are. Because they amortize based upon a longer loan period, the regular payments do not pay the loan off in its entirety by the end of the loan. Unlike the hybrid ARM, these loans are over in a shorter period of time, and you do not have the option of keeping them. You must either pay the loan off in full, whether by paying it or by refinancing, or sell the property.

I don't see it in a federally approved list of loan terms, but I have heard interest only loans called delayed amortization. These loans, whether fixed rate or hybrid ARM, have interest only payments for a given time, and then amortize over the remainder of the loan. For instance, a five year interest only loan is then paid off (amortized) over the remaining twenty five years of the loan. Note that when they start to amortize, they will then have payments that are higher than the equivalent fully amortized loan, because the balance is paid off over a shorter period. They will also typically carry a higher interest rate (most subprime lenders - when we had real subprime - charged 1/4 percent higher interest rate for an interest only loan, and there are additional limitations on availability. "A paper" lenders have an explicit adjustment, which may be a cost in points or may be a slightly higher rate. Whichever it is, it shifts the tradeoff between rate and cost upwards).

If there were such a thing as an interest only loan that stays interest only until you refinance, it would be an unamortized loan. Years ago, I was invited by a company to take a seminar because they offered these to financial planners clients. Fortunately, when I checked NASD regulations, I found out that what they were trying to sell was prohibited. The interest rates they were talking about were very high as well. The reason I said "fortunately" about finding out NASD regulations prohibited what they were doing is that I later found out that they were a scam and shut down by the regulators. I might have found out had I done all my due diligence, or it's possible I might not have. Either way, I'm glad I didn't have any clients with them.

Finally, there is the negative amortization loan, where if you make the minimum payment your loan balance actually increases, effectively digging yourself deeper into whatever hole it was that motivated you to do it. There are circumstances where they are the best thing to do given the situation, but in my opinion, (at least for owner occupied property) it should be a temporary solution of last resort.

Caveat Emptor

Original here

One of the things that has constricted the most with the current paranoid lending environment is the ability to use rental income to qualify for a mortgage. It seems that lenders are seizing upon any excuse to deny income from rental property. Since the denial of rental income usually means that debt to income ratio is too high to qualify for a new loan, this means that if all of the ts are not crossed or if any i is left undotted, you don't qualify for the loan you're applying for.

The lenders do not have an unreasonable concern. Due to bad advice telling people to walk away from upside-down real estate (Seriously, don't walk away from upside down real estate if you can avoid it), and the phenomenon of "buy and bail" the lenders are losing money. It is not unreasonable of them not to want to lose money, and if you're planning to stiff your current lender, that is quite rightly something they should expect you to disclose and they are within their rights to guard against. It is a reasonable position to take that someone who stiffs one lender is more likely to stiff a second. Indeed, the entire credit model currently used is based off this well-documented fact. If you're planning to stiff someone, even though you haven't yet, that's something a reasonable person would agree should be grounds for rejecting your loan.

However, loan standards have gone completely overboard. One phenomenon that was (barely) tolerable when it was just a requirement for government loans was the requirement for appraisals on all property a loan applicant might own. Even if there's a stable, fixed rate loan in place with a positive cash flow, for the last couple years FHA loans and VA loans have both required exterior appraisals on other property the loan applicant might own. Furthermore, the standard for acceptance is a minimum of 30% current equity! As you can imagine in the current market, even if someone bought six or seven years ago, this can be hard in a lot of cases. Someone with an 800 credit score and thirty year fixed rate loan on their investment property, and 28% equity cannot get credit for rental payments, no matter how positive the cash flow! Is that brain dead or what? These people have taken care of their credit rating their whole life, invested frugally, managed their money well, have no late payments, have a positive cash flow every month on the investment property, have eighty or a hundred thousand dollars net equity even in a severely trashed market (as in that's what they'd get if they sold their $400,000 property), and the situation is even completely sustainable because the loan they have now is never going to adjust. Nonetheless, because they are being tarred with a broad brush of general market trouble, these folks cannot afford to buy a new property in the area their employer moved them to, thousands of miles away. If you know of a set of circumstances more likely to encourage people to do something shady, I'd like to hear about it.

At a cost of $300 per rental property appraisal, that's a not inconsiderable additional cost, either, especially since it has to be paid before the new loan funds in most cases. However, due to limits built into government loan programs, this didn't strike all that often when it was just official government loans. Now that the feds have their fingers into Fannie Mae and Freddie Mac, however, it's been expanded to include the entire A paper loan market, as even non-conforming loans tend to copy the standards expressed by Fannie and Freddie in all particulars except loan amount. The only exceptions currently being made are in portfolio loans, with all of their disadvantages, chief of which is a higher interest rate. We should all send Chris Dodd, Barney Frank, and other unindicted co-conspirators (including Barack Obama) a note of heavily sarcastic thanks for preventing the overhaul of Fannie and Freddie long enough so the government could take them over after ruining them. Maybe if all the guilty parties would take the "campaign contributions" made to encourage them to do this and use it to ameliorate the fallout, it might amount to a tenth of a percent of the damage they did, and are continuing to do.

In short, getting credit for rental income on an investment property has now become incredibly difficult when you're applying for a loan. This has the effect of artificially constricting the real estate market, because the mortgage market controls the real estate market, and it also constrains the start of any recovery. People in good solid situations cannot qualify to buy investment property, and the loan standards are making it harder for them to qualify for buy a new primary residence if their employer has transferred them or they've had to move to get a new job. The alternative of selling the previous property has a lot of reasons against it right now (off the top of my head, adding to supply in an oversupplied market, turning temporary losses on paper into hard losses with permanent consequences, and having to give up extra equity in order to compete with other properties on the market). Lest you misunderstand the socioeconomic consequences of this, it isn't the rich folks with mansions in La Jolla, Rancho Santa Fe, or up on Mt. Helix who are getting toasted by this. The people getting hurt are the middle class folk in the corporate trenches who work hard, save their money, and have to go where their job is.

Once upon a time, this was a legitimate use for stated income loans (and "no ratio" or NINA loans as well). The lenders would (and will) only allow a 75% credit for rental income, despite vacancy ratios consistently in the 2-3 percent range in markets like San Diego and New York. It is very possible to be making money hand over fist, even showing such on your taxes, and still have the accounting lenders use in loan qualification show you as losing what was left of your shirt and undershorts every month. Unfortunately, once people figured out the illegitimate uses to which stated income could be put, it was only a matter of time until lenders stopped accepting stated income loans and regulators started regulating it out of existence. There are no longer any lenders offering stated income loans that I am aware of. Federally Regulated institutions cannot, and since people who needed them went to few remaining institutions like a shot, they got nervous about stated income being too large a proportion of their portfolio and stopped offering them.

If you need a loan but are unable to qualify because of these ridiculous requirements, what can you do? Well, most people can't really create thirty percent equity while at the same time coming up with a down payment. Even if they've got the cash for one, they don't have the cash for both. For those in such situations, there are some serious decisions that need to be made: whether to sell their former residence so they can buy now, rent for a while until they do have the required thirty percent equity, or pay higher rates for portfolio loans. A general knowledge of phenomena like leverage and the fact that Buyer's Markets Are A Great Time For Moving Up (but a lousy time for moving down) gives me general ideas of what's likely to be best, but every situation needs to be evaluated individually, and there is no such thing as a risk free move. Anything options you might have - including to do nothing - all have their downside risks.

If you can meet the basic qualification (30% equity on all investment properties), you can prevent something stupid from disqualifying you. All monies received on rental properties need to have a paper trail leading back to the renter - especially deposit checks. Do not accept cash if you can avoid it. If you can't avoid it, create a receipt and make a copy of everything, and have the tenant sign everything, including that receipt for money they are paying you. Include a clause about cooperating with any mortgage applications you may submit in your rental agreements. Lenders are requiring a canceled deposit check, and the only way to get that may be from the tenant. All leases should be for at least a one year period. I hate to say it, but it may be worth paying a management company to manage your property in order to have third party verification of the accounting, even though lenders are increasingly skeptical of any third party attestations. There have been too many attestations that did not tell "the truth, the whole truth, and nothing but the truth."

It isn't impossible to get credit for rental income, but due to the current environment, most lenders are making it far more difficult than it should be. Take action ahead of time, and be aware that having a rental property can severely impact your budget for buying a new primary residence, particularly if you don't have the required equity. Better to limit yourself in the first place to something you will be able to afford per current underwriting guidelines, because otherwise you are risking the deposit and any money you spend investigating that property. If the lender won't give you credit for rental income, a property that you thought you had good reason to believe within your reach can be completely beyond the realm of possibility.

Caveat Emptor

Original article here

A few years ago, underwriting standards were way too loose. Lenders were competing for loans, and the presumption was that with real estate having continued to gain in value, it was difficult to actually lose money on real estate. Needless to say, that presumption has now changed. Lenders are stuck on the horns of a dilemma. They have had massive losses on real estate loans, yet real estate loans offer a very large profit center. Furthermore, because The Mortgage Loan Market Controls the Real Estate Market, the more they constrict lending policy, the more money they lose on those people who have no choice but to sell. It's a tragedy of the commons type situation, though, as any given lender loosening their loan policy exposes themselves to the risk of a bad loan, while only reaping a fraction of the benefit on their existing loans.

Therefore, the individually rational decision for them is to be very careful that the loans they do make are going to be repaid. And boy are they. Underwriting standards have become completely paranoid. Things that were not an issue at any time in the last ten years are becoming "Loanbusters." There have been quite a few additions to that category of late.

To give an example, I spent three full days arguing about a rental property my client had 2000 miles away. Because the client had accepted a cash deposit as opposed to a check, they did not want to give my client credit for the monthly rental, despite the fact that the property had been rented for several months. With the rental income, my client was able to satisfy debt to income ratio requirements and the new loan was no risk at all. Without the rental income, debt to income ratio was too high. The client had everything else - bona fide transfer from employer, plenty of income documentation, time in line of work, etcetera, and remember that the property had been rented for several months - with canceled rental checks to boot. But because the basic underwriting standard is to demonstrate payment of a deposit via a canceled check in order to credit rental income, I had to argue the case - along with the reasons for the underwriting standards - up four levels in the process before I got to someone with the authority and understanding of the reasons for the underwriting standards to agree to an alternative standard my client could meet.

You can help yourself in advance of applying for a loan. Have a paper trail for all money - especially anything having to do with any rental property you might own. Document all of your income, especially on your taxes. Pretty much every single loan done right now is requiring IRS form 4506T. The only exceptions I'm aware of are portfolio lenders, and damned few of them. Be careful moving your money around, and be certain there is a paper trail sourcing all money that appears on any of your bank statements. Where did the money come from? Also be aware that just because you made $X this month does not mean lenders will necessarily accept your income as being $X per month. In general, income is averaged over the previous two years, so if you've had a big raise you were counting upon for loan qualification, you might not get full credit for it. In case of doubt or dispute, the numbers on your tax form - that you reported to the IRS and paid taxes on - becomes the ultimate fall back.

It has become more expensive to get a loan, and more problematical. Investment properties, in particular, are creating many problems. For several years, government loans required exterior appraisals on investment property (at a cost of about $300 each), even if they weren't involved in the current loan application. They want to see 30% equity on every property - difficult in the current market. Fortunately, people with investment property have always been comparatively rare on VA and FHA loans due to limits built into those programs. In the last two weeks, however, these standards have spread to conventional Fannie Mae and Freddie Mac loans, a much bigger problem. Once again, portfolio lenders may be the only alternative. Since portfolio lenders tend to have significantly higher rates, not having 30% equity on an investment property can mean you can't get a loan that makes it worthwhile to refinance, and it might mean you can't qualify to buy a property, even if the investment property is thousands of miles away from your current job. Is this brain damaged, or what? However, it's the way things are right now - and I guarantee your loan officer isn't any happier about it than you are.

Rates are great right now - so much so that it's easy for most people to find better loans than the one they've got. Actually qualifying for that loan is much more problematical, and by "qualifying" I mean meeting all of the underwriting and funding standards so that you actually get that loan. The best loan quote in the world isn't going to do any good if the loan can't be funded. My processor is telling me stories of other loan officers she works with that are losing sixty to seventy five percent of the loans they work with. If you don't think that's having an effect on the prices they have to charge and the margin they need on successful loans, you'd better think again. They can only work on so many loans at once!

The importance of this is much greater for purchases than it is for refinances. On a refinance, you still have your existing loan. If the new loan doesn't get funded, it's usually not such a big deal. You still have the property, you still have the existing loan, and you can try again. On a purchase, you've got a good faith deposit at risk on a ticking clock. One loan getting rejected can mean you lose the deposit, the property, and anything you've spent investigating it.

Given this, what advice do I have to give? Underwriting standards and flexibility vary from lender to lender. Because one lender is not willing to compromise on an issue doesn't mean that nobody is. However, for the average person applying with a direct lender, it's a matter of cut and try. If the loan fails, you have to start all over, and that includes paying for a new appraisal. A new inspection, too, if you have to find a new property because the seller got tired of waiting and sold to someone else. All of this is wasteful of money, not to mention your time and patience.

Brokers (and correspondents), however, have already had experience with what lenders are being hardcore and unreasonable about what issues, and which are acting in a matter closer to sane. Furthermore, if you're the one where they find out with a problem at a particular lender, they can resubmit the loan package elsewhere, and because the appraisal is done in their name, they don't need a new appraisal, and brokers can usually use exactly the same loan package except for one piece of paper.

You also want to choose a loan officer who has the time to argue your case with a particular lender, and motivation to do so. If you're one of fifty loans that month, the loan officer doesn't have the three days I spent arguing with underwriters so that you can get the great rate you have locked in - not to mention losing time on a purchase contract if you have to resubmit to a new lender. If your buyer's agent does loans themselves, it might be worth considering for this reason alone. I would like to think I would have argued just as hard anyway, but I wasn't just arguing about a loan that meant a standard loan commission to me. I was arguing over a loan that meant not only that, but an agency paycheck as well, and the house my new friends had their heart set on, the months of work we spent picking it out and negotiating the sale, and their deposit. I had all the motivation I could possibly want. My processor was floored that I argued it up as far as I did, and that it worked. Most of the loan officers she works with were letting arguments drop a lot earlier than that. Quite a few are basically just wringing their hands in despair. That seems to be consistent with the stories I'm hearing from consumers elsewhere.

Caveat Emptor

Original article here

The short answer is "Because it costs less". It costs more money to get a lower rate - simple fact. It takes time to recover the extra money you spend to get a lower rate via that lowered cost of interest, and most folks don't keep their loans long enough.

There is always a trade-off between rate and cost on a given loan type. If you want the thirty year fixed rate loan half a percent lower than everybody else is getting, you're going to pay for it in the form of discount points. The higher cost always goes with the lower rate. You might as well consider it a law of nature in the same league as gravity, because it is a law of economics. If you don't want to pay high costs, you end up with a higher rate. End of story. There are all kinds of games that can be played with loan quotes, but the fact of the matter is that of the tens or hundreds of thousands of rate sheets I've seen from over two hundred different lenders from A paper all the way down to hard money, every single one of them conforms to this fundamental truth. A 6.00 percent loan will cost more from the same lender at the same time than a 6.50 percent loan of the same type. Some lenders have different trade-offs than others because they are aiming at different target markets. I could tell you about lenders that rarely have a rate below par on their sheet, and lenders that rarely have a rate above par, par being the point at which there are no discount points to get the rate, but no yield spread either. Some lender's par may be lower than others, or higher. The par on a completely different loan type, or loan program, will be different. Par varies with time, the qualifications of the borrower, the type of loan they desire, the type of documentation they are providing, and other concerns as well.

The cost of a loan is sunk - spent at the beginning in order to get that loan. Once you have the loan, the money you spend to get it is gone, whether you paid it out of pocket or rolled it into your balance. If you sell or refinance before you have recovered it via lower interest costs, you don't get it back. Actually, if you roll it into your balance, the money isn't gone, because you still owe it and you're paying interest on it. If you sell the property, it will mean you get less money, and if you refinance again, your balance will still be higher than if you hadn't added that money to your balance. Paying it out of your pocket is no better, because you could be investing that money, likely at a higher rate of return than the rate on most loans.

Now here's a very old rate sheet I saved from a random lender. The rates are very different now. All of the lock periods I am quoting to were thirty days. I'm going to presume a $400,000 total loan, as if you're doing a cash out refinance to a specific loan to value ratio, but the principles are the same no matter the loan size.

Alternatively, If you owe $400,000 and roll the costs into the balance, it becomes the following. Actually, the costs are mostly higher because points are computed based upon final loan amount, while I was too lazy to recompute from the previous example. Also, the maximum conforming loan is $417,000 currently (in most areas - San Diego, among others, is higher), so going over that would cause the rates to rise notably, but assuming you have a 7% interest rate now, this is how quickly you would recover the costs of the new loan:

People shop loans by payment. They shouldn't, but they do. Furthermore, a lot of people seem to get quite a stroke out of bragging that they have a low interest rate. But if you add $19,000 to your balance and only keep the loan long enough to recover $15,000 in interest, you've gotten a negative 20% return on your money - not including the time value of money. Furthermore, this money usually equates to the fact that you're going to have a higher balance and end up paying more money and higher interest on your next loan.

It may be counter-intuitive, but it is easier to qualify for a loan with a lower rate, because the payments are lower, and therefore the Debt to income ratio is better. So any time somebody tells you that you didn't qualify for the same loan at a lower rate, you know it's nonsense. If you qualify for the program at all, you qualify more easily with a lower payment. This begs the question of whether you qualify for the program at all - your credit score could be too low, or it might not allow a loan to value ratio or debt to income ratio or any of many other situations you find yourself in, but if you qualify for the program, you will qualify at the lower rate. It may be smarter to want the higher rate, but that can be effectively eliminated by debt to income ratio.

So that's why low and zero cost loans are not popular. Most people focus in on either payment or interest rate, and when they discover that the low or zero cost loan means a higher interest rate, they're not interested. Relating to the ease of qualification issue on purchases, most people also try to stretch their budget to buy a more expensive house than they should. This makes lower cost, higher rate loans even less likely - even if the people were interested, accepting a lower cost loan would mean they can't have the house they've got their hearts set upon. But if you don't keep the loan long enough to recover the additional costs, you're wasting money. On refinances, only a true zero cost loan can have you ahead immediately, but advertising or selling zero cost loans is like King Canute trying to command the tide to turn. Most people aren't interested.

There are other considerations. At this update, rates are so low they're unlikely to be bettered ever, and if you're in the property you're going to spend the rest of your life in (and never take cash out), it makes sense to spend some money to buy the rate down. If you're not intending to sell any time soon, it's likely to be a good idea to pay part of a point or even a full one, as you're likely to be keeping the loan longer, and the median time between refinancing is likely to rise. Nonetheless, there are limits on the size of any bet you want to make, and when you pay costs up front for a loan rate, you are making a bet with your lender that you're going to keep it long enough to more than recover those costs. For quite a few years now, the lenders have been winning the vast majority of those bets.

Caveat Emptor

Original article here

One of the things that is really helping military families afford good properties is the military housing allowance and the way that lenders treat it, making it much easier for them to qualify with regards to debt to income ratio, while the magic bullet of VA loans makes loan to value ratio essentially a non-issue. Between these benefits, the military is sitting pretty for being able to afford housing.

I should mention that this math helps non-military getting a housing allowance just as much, but there are relatively few people outside of the military receiving a housing allowance.

Receiving a housing allowance actually works out far more advantageously for purposes of loan qualification than if they just paid them the extra money. $X basic salary plus $Y housing allowance is demonstrably more money than a salary of $X+Y as far as qualifying for a real estate loan goes. Here's how it works.

To start with, the housing allowance is generally non-taxable. I'm sure you know that's not the case with your basic salary. The $Y extra you get in allowance really is $Y, not the much lesser amount that you would get to keep if paid that in salary.

On top of that, the housing allowance is "soaked off" against the expenses of housing on a dollar for dollar basis. In other words, compute your cost of housing - principal and interest on the loan, taxes, insurance, Homeowner's Association dues, Mello-Roos, etcetera. Add them all up. From this, subtract housing allowance. If the housing allowance is more than actual cost of housing, we're all done. You made it, at least on the basis of debt to income ratio. If the costs are more than the allowance, all is not lost. At this point, you have to add in other debt service to whatever is left, but then so long as you are less than the normally allowed debt to income ratio as compared to your regular salary, you still qualify. Is this a great country, or what?

Here's a concrete example of how it all works: Let's say you make $3000 per month salary from the military. In addition to that, you get a $2000 housing allowance. You have other monthly debts of $250, and you want to buy a property where the monthly expenses of owning it (principal and interest on sustainable loan, taxes, and insurance, or PITI) are $2500. If you made that $5000 per month as a regular working schmoe, you would be told you aren't likely to qualify. Your "front end" ratio would be 50%, and adding the other monthly debt service makes 55%. Normal guidelines are 45% "back end" (housing plus all other debt service) for conforming loans, and you're way over that on the front end alone. Maybe in some circumstances such as disability or retirement income with a "walks on water" credit score, that might be accepted by one of the automated loan underwriting systems, but under manual underwriting rules you are dead in the water.

As the beneficiary of that housing allowance, however, things are quite different. The $2000 housing allowance draws off housing expense dollar for dollar, not at the 45% ratio of the rest of your salary. Instead of $1 enabling you to have forty-five cents of housing expense, it enables your to have $1. So subtract $2000 housing allowance from $2500 housing expense, and you have $500 left over.

If housing allowance was $2500 against that $2500 housing expense, or to use the general case, if housing expense was less than or equal to housing allowance, we'd be done, at least on the grounds of debt to income ratio. We're not done yet in this case, but the remaining $500 of housing expense plus $250 of other debt service equals $750, which divided by $3000 regular income yields a 25% back end ratio. Since this is less than 45%, bing! Debt to Income ratio works - by which I mean that you are over the most important hurdle in loan qualification.

So there you have an example where somebody making exactly the same number of dollars does not qualify where someone getting part of their salary via a housing allowance does. Since the military is pretty much the only folks that get paid that way (I can't remember the last time I had anyone not in the military with a housing allowance), advantage: military.

A couple of caveats need to be mentioned and emphasized right now. As should be obvious to the mathematically inclined, Comparatively small amounts of difference make much larger differences to debt to income ratio. Change the PITI payment to $3000, and your debt to income ratio stands at 40 percent, getting close to the ultimate edge of qualification.

You should also be careful that you really can make the payment on the loan. Foreclosure is no fun, as millions can attest right now. Make certain you really can make the payment, considering your family's lifestyle and other bills that may not be monthly debt but would be difficult to eliminate. I have written multiple times warning Never Choose A Loan (or a Property) Based Upon Payment.

Because I am normally careful to quote in terms of purchase price and loan amount and interest rate, I want to say why I did it this way, quoting in terms of payment, in this case. It's a complex subject, and the math gets hairy very quickly, and varies constantly and from market to market and time to time as interest rates and home prices change. Judging by my traffic, people are going to be reading this article months from now, if not years. I wanted a concrete, easily understood example of the subject that's not going to be completely out of line six months from now when the rates have changed and some housing markets are recovering strongly while others are in the process of crashing.

I also should observe that companies looking to help their employees while conserving costs can do this every bit as much as the military does by carving off a portion of the salary and paying it in the form of housing allowance - but in order to do that, they'd have to admit these people were employees. Pay the social security taxes lots of companies are manipulating the law to avoid, give them all the rights contractors don't have in employment. Of course, the reason why that happens is due to government action. Every time the legislature or some judge adds another cost to having employees or makes it more difficult to terminate those who need to be terminated, they give corporations another reason to avoid hiring them in the first place.

Caveat Emptor

Original article here

what happens when house doesn't appraise?

I presume this question meant "for the necessary value according to the lender's guidelines".

Lenders base their evaluation of a property upon the standard accountant's "Lower of Cost or Market." This is intentionally a conservative system, because the lender is betting (usually) hundreds of thousands of dollars upon a particular evaluation, and if something goes wrong, they want to know that they'll be able to get their money back. Or at least most of it.

When you're buying, purchase price is cost. When you're refinancing, there is no cost basis, we're working off of purely market concerns, except that for the first year after purchase, most lenders will not allow for a price over ten percent increase on an annualized basis. Six months, no more than five percent. Three months, about two and a half. Mind you, if you turn around and sell for a twenty percent profit three months later, the new lender is going to be just fine with the purchase price, as long as the appraisal comes in high enough.

But as far as a lender is concerned, you can see that no matter what the appraisal, the property is never worth more than purchase price on a purchase money loan. There is a transaction between willing buyer and willing seller on the books and getting ready to happen. It doesn't matter if the appraisal says $500,000 and you're buying it for $400,000. The lender will base the loan parameters upon a value of $400,000.

But what happens if the appraisal comes in lower than the agreed purchase price? For example, $380,000 instead of $400,000? Then the lender considers the value of the property to be $380,000, no matter that you're willing to go $20,000 higher. You want to put $20,000 of your own money (or $20,000 more) to make up the difference, that's no skin off the lender's nose. Matter of fact, they are happy, because it means they still have a loan, where they would not otherwise.

Keeping the situation intact, if you planned to put $20,000 down (5%) on the original $400,000 purchase price, the loan is probably still doable (or was when this was originally written in mid 2006, and 100% financing will almost certainly be back), albeit as a 100% loan to value transaction instead of a 95% one, which means it will be priced as a riskier loan and the payments on the loan(s) will doubtless be higher than originally thought. The same applies if you were going to put $40,000 (10% of the original purchase contract) down, except that the final loan will be priced as a 95% loan ($360,000 divided by $380,000 is 94.74 percent, and loans always go to the next higher category as far as loan to value ratio goes).

Suppose you don't have the money, or won't qualify for the loan under the new terms? That's why the standard purchase contract in California has a seventeen day period where it's contingent upon the loan (many sellers agents will attempt to override this clause by specific negotiation). If you get the appraisal done quickly, you have a choice. You can attempt to renegotiate the price downwards. How successful you will be depends upon several factors. But if you're still within the seventeen days, the seller should, at worst, allow the deposit to go back to you, and you go your merry way with no harm and no foul, except you're out the appraisal fee. This is not to say that the seller or the escrow company has to give the deposit back; they don't. You may have to go to court to try and get it back, depending upon the contract. The escrow company is not responsible for dispute resolution. If the two sides cannot agree, they will do nothing without orders from a court. If the seller wants to be a problem personality, you can't really stop them without going through whatever mediation, arbitration, and judicial remedies are appropriate.

Suppose the appraisal comes in low on a refinance? Well, that's a little more forgiving in most cases around here, at least with rate/term refinances where you're just doing it to get a better loan. If you have a $300,000 loan and you thought the property was worth $600,000 but it's only worth $500,000, that just doesn't make a difference to most loans. Your loan to value ratio is still only sixty percent, and it probably won't make a difference to residential loan pricing (commercial is a different story, and if you have a low credit score it might also make a real difference). On a cash out loan, it can mean you have to choose between less favorable terms and less cash out, however, especially above seventy to eighty percent loan to value ratio.

Once an appraisal happens, it is what it is. If the underwriter sees one appraisal that's too low, they're going to go off that value, and if you bring another appraiser in, the underwriter will usually average the two values, so even if the second appraiser says $400,000, the underwriter who has seen a $380,000 appraisal will value it at $390,000 (not to mention you pay for two appraisals). And a low appraisal can mean that the reason you were refinancing becomes impossible, in which case you're better off walking away.

What can you do about a low appraisal? Your options reduce to four: You can come up with more cash than you initially planned. This option is not available to most purchasers, but it is there. You can renegotiate the purchase price. Not too long ago, when the quality of appraisals was better and more controllable, this was a very good option, but right now with Home Valuation Code of Conduct, a low appraisal means a lot less than it used to regarding leverage to renegotiate price. You can begin the process again with a new lender, hoping the new appraisal comes in higher - assuming the seller will wait. Or you can walk away and look for a different property.

Caveat Emptor

Original here

A while ago, I wrote Sourcing and Seasoning of Funds. You'd think I have a set spiel I give out, and I do. But I had a case where I didn't think I'd need it, and it burned me. Nice clean loan, plenty of down payment all sourced and seasoned, and then almost $100,000 appears in the account on the last statement as I'm getting ready to close it. Instant can of worms - Oops.

Any time money mysteriously appears, the mortgage loan underwriter is going to take an interest. I don't need all your financial statements, I just need enough to get the loan approved. But don't go dumping large amounts of money into the account, just like you shouldn't go apply for a non-mortgage loan while a mortgage loan is in process.

These two items are related because whenever a large amount of money appears, the underwriter's presumption is that you got another loan. Whereas there is nothing inherently wrong with doing so, when you get a loan, you're going to have to make payments. Those payments affect your debt to income ratio, the most important measure by which you qualify for a loan. The underwriter is going to want to know what the terms of that loan are, how much the payments are going to be, whether those payments are fixed or variable, and all of the other things that help them determine whether you qualify for this new loan even with making the payments for that other loan.

So when a large amount of money appears, the underwriter wants to see sourcing and seasoning of those funds. They want to know where the money came from and how you got it and how long you've had it. If it was a gift, they want to know how the person who gave it to you got it, and they want evidence that no repayment is expected. If you can't provide this information, the presumption is going to be that you got a personal loan of some sort. Obviously, if it's a loan, you're going to have to make payments. The payments are going to add to your monthly debt service, which adds to your monthly cost of housing to determine your debt to income ratio. Every dollar you add to monthly cost of housing or debt to income ratio is a dollar that might mean you don't qualify for the loan on your new property.

It's a horrible lie about people from Missouri, but think of underwriters as Missouri accountants. If you want them to believe anything but the worst possible interpretation of a given fact, they want you to show them on paper. That's their favorite phrase: "Show me on paper." It doesn't matter how much down payment you have, it doesn't matter how much equity in case of default. Lenders are not in the business of repossessing property; they are in the business of making loans that are going to be repaid. Especially in the current environment, they don't want to take any risks that your property is going to be one more property in their already too high inventory of lender owned properties.

When you move money from one account to another, you need to show that it has been in the previous account for a while, or where you got it from. You're going to need a paper trail back just as far as all of your other funds on this new money. If you got it from selling your previous property, the underwriters are going to want to see the HUD 1 form from that transaction. If it's a gift, they want a signed letter attesting to this fact from the donor, as well as a source of that money. If you got it from selling something else, the underwriter is quite likely going to ask for copies of the bill of sale. If you're going to be buying property in the near future (or refinancing), keep all the paperwork from anything you sell. And for crying out loud, before you move any large amounts of money around, talk to your loan officer about what you're going to need in order not to kill your loan. Even if you've got all the paperwork, it can make the difference between an easy, straightforward loan, and one where the underwriter takes it into his head that there's something funny going on. You really don't want them to do that, because when it does happen, they can start demanding more and more information, imposing more and more conditions to approving your loan, and in general, delaying your transaction and making the completion of it difficult. Every time one of their loans goes south, an underwriter is potentially in danger of losing their job - so when they think something may be not quite right, they are going to protect their job by requiring all of the information they can think of that might show something isn't quite copacetic. If they should find something specific they can point to, your loan will be declined, and your credit file could very well get an 'attempted fraud' tag. You don't want that, as it can lead to your loan being rejected not just at that lender, but everywhere. So you need to be very careful, and very clean, about moving money around, especially so within six months of applying for a mortgage.

My loan? The client had the paperwork necessary to satisfy the underwriter. Loan funded, he's living there today. But not everyone has that level of paperwork. Better not to raise the flag in the first place by showing the underwriter the statements for the money you actually intend to use for the down payment.

Caveat Emptor

Original article here

"How do I remove PMI?" was a question that I got.

First off, a definition. Private Mortgage Insurance, often abbreviated PMI, is an insurance policy that the bank may make you buy in order to get the loan. It is a monthly surcharge based upon a percentage of your entire principal balance. You pay for it, but the bank is the beneficiary. It doesn't make your mortgage payments if you can't, it doesn't keep your credit from being screwed up, and it doesn't even keep you from getting a 1099 for income from loan forgiveness. Net benefit to you: it gets you the loan, and nothing more, ever again.

You can avoid PMI by splitting your loan into two pieces, a first loan for 80% of the value and a second for any remainder. Yes, the rate on the second will be higher, but it will likely save you money starting immediately, not to mention that it's likely to be deductible, whereas PMI is not, in general, deductible. I do not believe that with all the loans I've ever done, I've ever seen one where PMI was preferable to splitting the loan in two, from the client's point of view. Unfortunately, right now second mortgage lenders won't fund loan to value ratios over 90% because they're the ones that lose all the money if they go south.

"With all this against mortgage insurance, why does it still happen?" you ask. This is the critical question. Before the changes regarding second mortgage lenders, it was because lenders usually pay yield spread to brokers or commission to their own loan officers based upon the amount of the first loan. Pay for a second is typically (not always) a small flat amount or zero. Your loan provider makes more money by doing it all as one loan. The loan provider wants to make more money and sticks you with the bill. Doesn't that make your heart glow with gratitude? Didn't think so. But for right now, it's because there are no second mortgages available above 90% comprehensive Loan to Value (CLTV) - and most don't want to go over 80.

You can also refinance to get rid of PMI if you have the equity. Unfortunately, this means all the costs of a refinance and triggering any prepayment penalty there may be. Not optimal, unless the rates are enough better to make it worth the cost.

Now one of the things I keep seeing about PMI is the blank admonishment "don't accept PMI!" Ladies and gentlemen, whether or not you have PMI is determined by your equity situation and loan structure. If you have a single loan over 80% of value, there will be PMI associated with the loan. End of discussion. It can be a separate charge, or it can be built into the rate, and they don't even necessarily have to tell you it's for PMI - but it will be there. If you're in a situation where PMI is needed, shopping around for the lender who doesn't charge PMI is precisely the same as shopping for a liar who will hide it in the accounting.

There are two ways PMI is collected. One is as a separate charge, supplemental to your loan. The second is as an addition to the rate.

The separate charge is never deductible (or at least it wasn't until Congress passed a law temporarily making it deductible), but is easier to remove. Most states, including California, have laws requiring the bank to remove it when a Price Opinion or appraisal say that the Loan to Value Ratio goes below 78 percent (or something similar). Depending upon your state, you may or may not be required to pay for an appraisal, a cost of approximately $400, in order to have it removed. Some states require only a price opinion, others, like California, permit the bank to require an appraisal.

Just because the law says that that the bank can require an appraisal doesn't mean that the bank will require an appraisal. If the loan to value is obviously there, they might just have someone drive by to make certain the house is still basically sound. On the other hand, if loan to value ratio is close to the line, the bank has a responsibility to its shareholders not to increase their exposure to loss unreasonably. So if you just wake up one morning with doubled property values, the bank will likely waive the appraisal. If your market is gradually increasing in value and you're watching it like a hawk and make your request the instant you think the value is there, be prepared to pay for the appraisal. Around here, with PMI on a 90 percent loan being a surcharge of about one and a quarter percent per year on a $500,000 loan, you pay for your appraisal by not having PMI in one month - if you're right. If you're wrong and the appraisal comes in lower, you're just out the money.

Suppose, instead that instead of choosing the surcharge option, you choose to have PMI built into the rate. So instead of a 6.25 percent loan rate, you have a 7.00 percent loan rate. Advantage: it's usually deductible, because it's actual interest on a home loan. Disadvantage: You have to refinance (or sell!) to get out of PMI, because the pricing is built into the loan itself as part of the contract you signed. It is to be noted that by itself, this method is usually cheaper than the monthly surcharge for precisely this reason, because in order to get rid of it you have to pay to refinance, and if there's a prepayment penalty in effect you're likely going to pay that also, and so on and so forth.

So if your loan is more than eighty percent of the value of your property, you can expect to pay PMI, although it is avoidable by splitting the loan into an 80 percent first and a second for the remainder if you can find someone willing to do it, and you're likely much better off for doing so. If you're already stuck with it, contact your lender for steps to remove it providing you think the value has increased enough. If you suspect the lender is not abiding by the law, contact your state's Department of Real Estate, although lenders not abiding by the law is both stupid and, in my experience, rare. It's usually the consumer that doesn't understand the law.

Caveat Emptor

Original here

One of the things that most mortgage and real estate consumers get mixed up on is the distinction between low-balling and junk fees. Junk fees are when they add fees that really aren't necessary to what you're paying. Low-balling is when there's an essential cost (or the associated rate) that either gets underestimated or they somehow neglect to tell you about. This can also take the form of costs such as subescrow fees which happen because your representatives did not choose your service providers with your best interests in mind.

A lot of this has abated since the 2010 Good Faith Estimate became required, but there are still loopholes that unethical people can drive a truck through.

As I said in Mortgage Closing Costs: What is Real and What is Junk?, "The easy, general rule is that legitimate expenses all have easily understood explanations in plain English, they are all for specific services, and if they are performed by third parties, there are associated invoices or receipts that you can see." In my experience, the vast majority of what extra fees that appear on the HUD 1 despite not being on the earlier forms are not the result of junk fees being added for no good reason, but are the result of real fees that your agent or loan provider knew were going to need to get paid, should have known the amount, and chose not to tell you about them or chose to tell you they would be less than they are. In short, low-balling is a much worse problem in the industry than junk fees. I've had people tell me my closing costs seemed high, because despite the fact that I have negotiated for discounts from providers, other loan providers were quoting significantly lower costs. What's going on is not that my costs are high - in fact they're pretty darned low when you compare the fees clients actually end up paying - but the fact that a large proportion of my competitors will pretend that a large percentage of those costs aren't going to happen. The penalties for this, in case you weren't aware, are pretty much non-existent. It's harder now to cross the is and dot the ts of increasing what was quoted on the Good Faith Estimate, but the real crooks have the entire process honed to a science.

The reason they do is is to make it appear for the moment as if their loan is more competitive than it is. What happens is that because it appears that their loan is cheaper for the same rate, people will sign up for their loan. They then invest the six to eight weeks necessary to fund that loan working with that loan provider. By the time they discover the real costs and the rate of that other loan are going to be much higher than they were initially quoted, there's no time to go back and get another loan - and that's if the people notice, and industry statistics say that over half of the people do not realize even massive discrepancies between the initial quote and eventual loan delivered.

This is why most loan providers don't want to tell you what your loan is really going to cost. It isn't that the extra is junk or in any way unnecessary. It's that they want their loan to appear more competitive that it may really be. All of the incentives are lined up in favor of this behavior - they got you to sign up, didn't they? - and there is no penalty in law. Of those people who do notice discrepancies, eight to nine out of ten will give in and sign anyway. For the unethical, their experience is that 90 to 95% of the people who sign up because of their false quote will consummate the loan and they will make money - and they make so much per funded loan that they're doing ten times better than the ethical people who practice full disclosure. That the ethical people are almost certainly going to end up cheaper is your incentive to do what it takes to find them.

This principle applies also to many agents' "estimate from proceeds of sale" form. Despite the fact that the default purchase contract and usual custom may have the seller paying for certain items, such as a home warranty plan and an owner's policy of title insurance, many agents will leave these costs off the estimate. Unless you're selling a fixer in utterly "as is" condition, you're going to end up paying for a home warranty plan. Unless the buyer's agent utterly hoses them, leaving that agent completely open to lawsuits, you're going to pay for an owner's policy of title insurance. Unwillingness to do so is a universal deal killer unless the buyers are getting a price more than good enough to make it worth their while to pay for it themselves. Even if they've deliberately chosen escrow and title providers such that you're going to pay subescrow costs, they'll likely leave those costs off their estimates. Why? To make it seem like you're getting a better deal from them than you actually are.

I've seen more than a few people who signed up with other agents or loan providers based upon ridiculous low-balls (and over-estimates of sale price). Without exception, these people end up paying every single one of those loan costs. It's not like the people who do the work are going say, "Oh well, it's not like we want to get paid for all this work we did." In the case of sales transactions, that's if it sells - and it's very unlikely to sell at all if it's overpriced. Nonetheless, this gives the person who gives the great line of patter - a supposedly "bigger better deal" - a large advantage in getting people to sign up with them. By the time the clients learn the truth, it's too late. Most people don't want to do the research up front to find out what's really going on. They wait until after they've already been hosed to do the research they needed to do in the first place.

Caveat Emptor

Original article here