It has been a long time since I last blogged. Since that time many new rules, guidance and opinions of the mortgage industry have changed. I will be posting more about the future of lending in subsequent blogs.

The Frank Dodd Bill has dramatically changed the landscape of the financial service industry. Like most government bills, the intent of bill was to protect consumers and the economy against the mistakes of the past. Unfortunately the unintended consequences have added to a moribund recovery, limited access to credit for millions of Americans and created more paperwork than you can imagine.

To appreciate how we got to this point, one must understand the history of the mortgage industry and how we arrived at this day. When I entered the industry in 1992 there were only a few classes of lenders:
- A-quality lenders that offered the best terms to full doc, very good credit clients.
- B&C-quality lenders that offered loans to borrowers at 2-6% higher than the rates that A-quality clients qualified for. B&C-quality clients had a various credit and qualifying issues. Some were slow payers, some had inconsistent income patterns and some had a major negative credit events like foreclosures or bankruptcies on their file.
- Hard Money lenders. These lenders made lending decisions based primarily on the equity of the property. Lending to people solely because their property had equity often resulted in forced sales and foreclosures because the lenders did not look at the entire picture.

Through the 1990’s and into the early 2000’s it was a fun time to be in the mortgage industry. When ACC was formed on May 13, 1999 it was formed with the mission statement that we could find the right loan for the borrower. Because we started out as a broker we had access to hundreds, if not thousands of different loan programs. I always prided myself on the statement “If we can’t find a loan for you, no one can!” Although it may sound arrogant, I was never proven wrong. Those where good times.

In my opinion, the beginning of the mortgage problems can be directly traced to the stated income loans. For a small segment of the population these loans work. Business owners with viable businesses and other sources of payment are good candidates for stated income loans. The early stated income programs typically requested proof of 5 years self employment, then it was 2 years, then a letter from an accountant and finally it was whatever your wrote on the 1003. NO-DOC loans were similar to stated income loans, but they required at least 25% equity of down payment. These clients had high credit scores and where typically business owners or people that had large amounts of money in the bank and where willing to risk a large amount of equity or down payment for a house. By the end days on the mortgage industry you had 100% stated income/No-Doc loans for marginal credit quality candidates with very limited credit history.

I do not need to retell the implosion of the mortgage industry but a good book to read is The Big Short if you want to learn more about what was happening behind the scenes and how a few people made a lot of money.

Now we’re looking to the future with new rules and a long term history of mortgage lending to understand where the opportunity lies and how to properly lend in this market. The answer is very simple: You must have loans at higher rates! “What?!”, you say. We need to lower rates, that’s what the newspapers and Bernake and cheaper rates are better than higher rates!!! The mortgage industry and Wall Street need to offer safe and affordable products. Affordable doesn’t mean the cheapest but it means appropriate for the borrower. It means commiserate with their situation based on credit, income, capital and character.

The response/joke I would always offer to friends and referrals when they asked me how much of a loan I could get them 10 years ago was “I’ll get you a $2MM loan, but after 3 months when you can’t pay anymore and you have used up your savings you will be out on the street!” The mistake banks/lenders/Wall Street made in the mortgage implosion was trying to take away the human element of underwriting a loan.

ACC mortgage is in the fortunate position to have funds to lend to people of all situations that are being overlooked by the banks and other mortgage companies. Our lending decisions are based on understanding what is safe for the borrower and safe for us the lender. No one wins if a loan doesn’t perform.

Having been a lender in the DC Metro market since 1992 I am keenly aware of the trends and watch the markets closely. Although I did not predict the full extent of the dramatic upswing in home values in 2000-2005 I did foresee the peak and subsequent massive decline. The bottoming out of the real estate markets in the Mid-Atlantic and Metropolitan DC areas led to the implosion of the secondary mortgage markets as well, and potential borrowers are still feeling the painful effects.

As most people know the housing, banking and mortgage markets have been in an absolute funk since 2007. We are at or near the bottom of the housing market here in the DC Metro region. As banks try to clear up their books and sell REO and distressed properties, there is a growing tide of investors seeking real estate opportunities.

At ACC Mortgage we are now seeing many shrewd investors making healthy returns buying, rehabbing and flipping properties. For the savvy investor, the opportunity lies in buying a property from a bank or trustee that can’t be sold on the open market.

For most small investors one of the most difficult issues today is access to sufficient capital. Real estate investors across the country are lamenting the limited availability of capital to take advantage of these opportunities. As Everett Mamor said:

Money is a headache, and money is the cure.

I truly do believe that the real estate market is at or near bottom. And because of that I also believe that now is the time for me to lend money for real estate investment to investors large and small. Banks are still mired in maintaining capital reserves and avoidance of regulatory back lash. This environment has created an opportunity for experienced private lenders to help experienced investors take advantage of real estate investment opportunities. As Bob Hope said:

A bank is a place that will lend you money if you can prove that you don’t need it.

ACC Mortgage is not a bank. We are actively seeking to lend money for the right real estate investment deals today. We are ready, willing and able to close financing deals quickly. It’s what we do best.
 

What Does the Right Deal Look Like?

1. It looks like opportunity and timing
A. Time to market
B. Property condition
C. Discount
D. Rehab requirements
E. Realistic 6-month profit potential

2. You have skin in the game
A. Investors must have hard cash in the deal with us

What Do You Need to be Approved ?

1. Ratified Contract
2. Proof of Funds
3. Breakdown of work to be done

If you are an investor in the Maryland, DC, Virginia region who can wants to move quickly and have the right property, a realistic rehab plan and are willing to invest than ACC Mortgage is the right lending partner for you. You bring us the right deals, we provide you with fast access to the cash you need.

PROMISES OF FAST AND EASY CASH

We receive hundreds of financing requests each month for fix and flip projects. People think they can make money with no risk and little to no investment of their own money. And why wouldn’t they?

Late night infomercials tout seminars “guaranteed to make you money fast in real estate investing”, DVD programs promise to teach you how to cash in on the house flipping market with no risk, and an internet search returns endless pages of information available for free and for sale.

The market has crashed down from an unprecedented real-estate high – just a few years ago it seemed impossible to lose in real estate. Lenders were approving loans for 100% or more of property values, bidding wars between buyers were frequent, houses were selling for more than the asking price within days of listing. Investors were making money hand over fist.

TODAY’S REAL ESTATE MARKET LOOKS NOTHING LIKE IT DID

Today’s real estate market is operating on an entirely different playing field. The melt-down in the economic markets and the subsequent decline in real estate values has led to the highest inventory of available properties in 40 years at the lowest prices in years. Many folks see this as an opportunity to get into house-flipping and are looking to cash in. Times are different, and so are lending standards.

WILLING TO INVEST? THEN WE ARE TOO

Here’s the truth about risk and reward in the house flipping business in this economy. There’s no free lunch these days, and it takes money to make money. Our fix and flip lending philosophy at ACC Mortgage is simple – no risk, no reward. If you are willing to take a risk, we are too. If you are willing to invest your hard-earned money in a project, then we are willing to lend you money for the project.

We are certainly willing to underwrite fix and flips, and have successfully partnered with investors in many such endeavors. However, the finances must make sense and the risk appropriate for both borrower and lender. So what does that really look like?

A RECENTLY APPROVED FIX AND FLIP LOAN

Here’s a great example of how ACC Mortgage approaches lending for fix and flip investment properties:

• Bank-owned property
• Selling price – $130,000
• Cost to make marketable – $20,000
• Total investment – $150,000

• Estimated selling price after “fix” – $200,000

• ACC Loan Amount – $104,000
• “Flipper” Investment – $46,000

We completed a thorough review of the plans, a market analysis of the area, and an accurate property valuation prior to underwriting the loan. The investor was willing and able to invest in the project and by doing so assumed an equitable share of the risk. The property sold for $200,000 within 6 months of purchase. The investor made close to $50,000 on the deal.

WHY SOME LOANS AREN’T GOOD DEALS

In many of the loan applications we receive the borrower is not willing to take on a fair share of risk. Using the above example, many investors are asking for a $150,000 loan on a house that is projected to sell for $200,000. What if the house sells for $160,000? After realtor fees and other associate selling costs the lender has an extremely high risk of taking a financial hit.

THE BOTTOM LINE

We consider ourselves your financial partner, and as such we require that you share in the risk. Because the lion’s share of the reward will be yours if your investment choices are solid.

Back in the summer of 2005 I accurately predicated that the real estate market had reached its peak. My opinion was based on the fact that the largest growth in the purchase market was predicated on the fact that most people buying homes during that time were the least sophisticated buyers. The lending guidelines had become so lax, that honestly, people were getting loans that really had no business getting a mortgage. You don’t have to believe me, just look at the foreclosure notices in your local paper.

I parallel this time in real estate to the late 90’s of the stock market. Every wannabe Gordon Gecko with $10,000 was opening an ETRADE or online stock trading account in order to get rich. It didn’t matter what you bought during that time. People were making more money in one day trading stocks then they could normally could make in a given month. The same had become true with real estate. People were putting deposits on real estate and selling their right to buy the home at a profit!!! Money was being made simply because financing was so loose and speculation was at a frenzy – not because we had a sudden influx of millions of well financed individuals looking for a home. Simple supply vs. demand. The fundamentals of real estate and making money had become completely ignored or forgotten.

Here is one truth: Trees don’t grow to the sky.

I personally believe that we are very near the bottom. As this recent report from S&P/Case-Shiller Home Prices Indices shows (http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_032544.pdf), we are well off those 2005 highs. I believe we have fundamentally found the bottom or the true valuation of real estate. These values are more inline with 2003 prices, which is where the market was in a perfect state of harmony. Also, note the DJIA chart which also shows the DOW in the 8,000 range during 2003, which coincidentally is where we are now.

Does this mean you should start buying up all the real estate and stocks you can afford? Of course not, but this does give you some proper base line of long term investing in both real estate and stocks. Of course this could all be thrown out of whack by excessive government spending!

BOB’S BILLION DOLLAR BLOG

Hello, my name is Robert Senko and I have been in the mortgage business since 1993. I have been self-employed in the mortgage industry since 1995 and I am presently in my 10th year of owning ACC Mortgage.
Since I closed my first loan, a $130,000 cash-out loan for women with below average credit to pay for credit card bills and her husband’s medical expenses, I have seen just about every conceivable loan scenario and situation.
Without exaggeration or hyperbole, billions upon billions of dollars worth of loans have come under my direction. This is not to say I have run a large organization, quite the contrary. I have always enjoyed running smaller, more manageable operations. This is the primary reason why we are still in business in the midst of the mortgage industry fall-out. This is also the reason I have been able to study first hand the human element of lending and money.
One of the primary reasons the mortgage industry is in the pickle we are now is because Wall Street tried to put every client into a neat and orderly box. Wall Street and their associates tried to define, bundle and package loans according to some mathematical formulas. Ivy League types created these complicated formulas to lend, mitigate risk and create huge incomes for themselves.
I ask you: How can these Ivy League types decide how to lend when they have never taken a loan application while sitting at the kitchen table of a couple trying to pay for their kid’s college education and make ends meet?
This blog will be broken down into three elements: education, entertainment and enlightenment.
Education will be used to explain the nuts and bolts of the mortgage industry. You could probably get most the education in reading Mortgages for Dummies book.
Entertainment will hopefully be something that I find amusing. I enjoy my work, I enjoy my life and I like to laugh. My sense of humor has helped me during my most difficult moments in life and I like to make people laugh.
Enlightenment is what I hope to really give back to the world. Having been in the mortgage industry since 1993 and seen tens of thousands of loans offers me a unique perspective on human psychology and money. I hope to share stories, parables and anecdotes that may offer some meaning to life.

Thank you for reading,

Robert M. Senko

As I am sure you have learned by now, the mortgage and banking situation in our country is in dire straights. This amateur cartoon does a good job of explaining what went wrong.

Video: SubPrime Mortgage Mess Explained (with voice)

The reason ACC Mortgage is still in business is because we have focused on the good old fashion tenants of lending: Credit, Collateral, Cash and Character. You will hear us talk a lot about the 4Cs in years to come.