New State Laws Regarding Mortgage Broker Law May Actually Increase Foreclosures

Lenders are closing their doors left and right. Over 100 national wholesale lenders have gone out of business since the first of the year. Foreclosures are the topic de jour. What's happening out there? Jim Cramer from CNBC's Mad Money recently had a rather emotional assessment on national TV just days ago. You can search for it on the internet. Is somebody at fault? Why is this happening? What are the repercussions? Recently Bank Of America made a 2 billion dollar investment in Countrywide. You know there is a credit crisis when on of the very largest banks in the world steps in to help recapitalize one of the largest mortgage companies in the world.

"The mortgage market is in trouble". There are many reasons why we are in the current crisis situation that presents itself today. While many would like to blame the banks and brokers for the crisis, they are failing to focus on the borrower and their responsibility in the loan process. Nobody put a gun to the head of the borrowers as they possibly intentionally overstated income on certain loan products. Unfortunately, over zealous legislation by various states has sought to solve the problem by creating laws that remove certain types of financing. The states are trying to legislate the free market system of supply and demand. If certain loan products have higher default rate, the investors will eventually not buy them. If no one will buy the loan, it won't be created. Instead, the State of Minnesota as with other states has removed the ability of borrowers to get "No Documentation" and "Low Documentation" loans. There is a book call "1984" by George Orwell where "big brother" decides what is allowed by society. The new State of Minnesota mandated mortgage legislation reminds me of this." For your reference, there was a wonderful DVD produced with John Stossel called The Blame Game: Are We a Country of Victims that I would highly recommend the legislature view before making any more laws that will hurt consumers rather than help. Until we start accepting responsibility for our actions, we will be a nation that likes to point fingers at others for what we've done to ourselves. The Minnesota legislation has removed responsibility for making choices from the consumer. Unlike other states that allow these lower documentation loans, Minnesota consumers now have less choice.

As of August 28th 2007, there were over 34K homes available for sale within the Twin Cities real estate market. Any legislation that removes a potential buyer from the market because they can no longer obtain financing due to state legislation is WRONG. In addition to changes in lower documentation loans, there has been changes in Subprime lending laws too. The real estate market is dependent on first time buyers starting the "domino" effect in the housing market. Many first time buyers have no credit, limited credit, or blemished credit. These first time buyers now have limited access to mortgage products because of the new legislation that affects subprime lending. Subprime is not predatory lending. Yet it is often assumed incorrectly that the two must go hand in hand. Predatory lending is wrong. It is illegal and always has been. Subprime fills the niche for borrowers who are unable to get a traditional "A Paper" loan because of their income, job, credit or all of the above. Some areas where the foreclosures have been the worst may not be attractive to the most credit worthy buyers. By removing mortgage products from the market that could have served borrowers more likely to purchase within those areas, you are actually making the foreclosure situation worse." The credit crunch is likely to continue through 2008, according to the board of Realtors. We need credit to continue the momentum within the housing industry. Without financing, houses won't be able to be sold. There are few buyers that have the ability to pay cash for a home.

What's the solution? Let the free markets work like free markets. Have fairness among mortgage laws that apply to ALL lenders. Did you know that federally chartered banks are EXEMPT from state mortgage laws? That means the laws don't apply to everyone producing loans within a state. Is the consumer benefiting from a two tier system? How can consumers benefit when they are now given less choice and less competition? Who really benefits from these new laws-might it be federally chartered banks? Who have you heard the least amount of criticism or complaints from? This current situation is wrong and the consumer is being bamboozled by the lack of depth into the coverage by the media.

The focus has been on the borrower and portraying them as a victim. The news does not cover the stories about the home borrower who was successful in becoming a home owner using the very same programs that have been recently eliminated. The news also neglects to state that most mortgage brokers are honest hard working individuals who work on behalf of their borrower. Lastly, the articles and new programs fail to focus on all the individuals who have recently lost their jobs and careers within the mortgage business. There have been over 120 lenders that have gone out of business since January 2007. Who wants to address the hardship these families are feeling? During the third week of August alone, 13K people lost their jobs in the mortgage industry.

One proposed solution to today's current problem has been to expand FHA financing. FHA is a government insured loan. FHA is being referred to as the replacement "subprime". FHA has no published credit score standards. Shifting the risk to the government, which in essence is all of us instead of allowing the risk to be maintained in the private capital markets will be the end result. It will be interesting to review what happens over the next year. If FHA becoming the financing source of choice for borrowers with bad credit, we may be setting ourselves and borrowers up to fail once again as the root of the problem is not addressed or resolved. The root issue is personal responsibility and consequences for choices made. Not everyone is entitled to homeownership. Homeownership is a reward that is earned through demonstration of responsible use of credit.

About Venture Development Inc
Venture Development is Minnesota's Premier Mortgage Broker http://www.ventureloanapp.com. They are based in Edina, Minnesota and provide a wide range of mortgage products for purchase, refinance, investment property, and commercial loans. They have been established since 1995.

John Mazzara is a broker associate with RE/MAX Associates Plus. John has been successfully selling homes since 1986. Minneapolis Real Estate can be searched at http://www.MinneapolisStPaulHomes.com He has achieved Platinum club and Hall of Fame status within RE/MAX. John was voted as a Twin Cities Super Agent by MplsStpaul Magazine. John Mazzara CFP CLU CHFC CEBS CMB MBA MS is an independent financial planner in the Twin Cities, MN

Introduction to Real Estate Insurance for Realtors and Mortgage Brokers

Insurance requirements have become such an integral part of the real estate and loan transaction, they must be included in any comprehensive discussion of real estate finance. Every purchase transaction will require title insurance, and every mortgage will require homeowners insurance. In some situations, lenders may also require flood insurance and/or mortgage insurance. Even purchasers of condominiums and townhouses will have other insurance options to consider.

Title insurance was devised to eliminate most of the problems created by abstract attorneys and the abstract opinion. Title insurers examine all the recorded documents pertaining to a specific property to produce an insurance policy that covers the purchaser, the lender, or both, from any defects to the title. Title insurance policies are now fairly uniform, and the insurance companies have the financial resources to defend and compensate their insured.

Owner's Policy

The owner's policy insures a purchaser that the title to the property was transferred free of any defects, except those which are listed as exceptions. The settlement agent will obtain and record the documents required in the title commitment. In most real estate transactions, the seller will pay for the owner's policy. The buyer pays for the lender's policy and endorsements.

The owner's policy is valid as long as the ownership of the property remains the same. Transferring ownership of the property to another ownership entity, such as a family trust or a spouse by a quit claim deed may void the title policy. Whenever possible, the owner should use a special warranty deed instead of a quit claim deed to facilitate changes in ownership. This will keep the title insurance intact.

Lender's Policy

Often referred to as a loan policy, this is issued to mortgage lenders to protect their interest. Typically, lenders require standardized forms be used. The lender's policy will guarantee the validity of the loan documents, and will follow the assignment of the mortgage or deed of trust when the loan is transferred.

Homeowner's Insurance

Also referred to as Hazard Insurance, homeowner's insurance provides protection against damage to real estate improvements, damage to contents, and liability coverage. Every time a home is purchased with a mortgage, the lender requires the owner (borrower) to obtain property insurance as a condition of the loan closing. This insurance must be maintained until the home is paid off. This is a comprehensive policy that provides coverage for most available perils, including full replacement of improvements, liability, temporary living expenses, outbuildings, and contents. The contents coverage extends to losses away from the premises, such as in a car or storage unit. The insurance premiums are usually included as part of the mortgage payment (the 'I' in the PITI payment).

Flood Insurance

Prior to 1968, flood insurance was virtually unavailable through either the private sector, or the federal government. Until then, the Federal Government attempted to control coastal and river flooding through re-channeling of water, and using dams and levees to restrict the flow of water. The dams had the added benefit of producing hydroelectric power, and providing storage for irrigation. But the increasing cost of these projects, as well as the high cost of flood- related damage, influenced the government to explore offering flood insurance to reduce the disaster related payments. Typically, floods affect entire communities or towns, so the local leaders often looked to the federal government to provide disaster relief for the victims. The question debated by the Federal Government was whether they were better off using their limited funds to provide disaster assistance to flood victims, or to provide federally sponsored flood insurance coverage. Congress realized the government could not keep absorbing the escalating costs to taxpayers for flood disaster relief. This led Congress to establish the National Flood Insurance Program (NFIP) in 1968.

Lenders Mortgage Insurance

Mortgage Insurance is provided to enable lenders to close loans with small down payments. It is usually required when the down payment for a purchase is less than 20%. Mortgage insurance is strictly for the benefit of the lender. In the event of a default or foreclosure, the mortgage insurance company will pay the loss suffered by the lender. Typically, when properties are foreclosed on, the sale price at the auction is less than the current loan balance. This difference (along with the foreclosure costs) is the loss suffered by the Mortgage Insurance Company. Depending on the situation, the MI Company may attempt to recover this loss from the borrower. They can file for a deficiency judgment in court. Mortgage Insurance is provided by both government agencies (FHA) and private insurance companies.

Condominium insurance is a master policy that protects both the condominium association and each individual owner.

Credit Life Insurance

This is insurance that pays off the loan with the death of the borrower. This is basically Decreasing Term Life Insurance, where the benefit amount decreases at the same rate the principal balance of the loan decreases. The beneficiary is the lending institution. Very few mortgage lenders offer this type of insurance, and even less require it as a condition of the loan. However, deeds and deeds of trust are recorded and become public information. Many insurance companies 'fish' this information, and send notices to all listed borrowers. They will send out official looking documents trying to entice the owners to purchase insurance. These offers are not a good value and should be avoided.

Summary

Title insurance protects both the purchaser and the lender for hidden defects in the ownership of the real estate. There are many endorsements that provide the lender additional protection that are charged to the buyer. Even though the seller provides the buyer with clear title, it is the buyer's responsibility to pay the necessary premium to have the lender included in the coverage when purchasing a property.

Landlords and tenants have special insurance needs that should be addressed. Owners of condominiums and townhouses need to purchase contents insurance.

Mortgage lenders do not require credit life insurance. Companies that promote this coverage are predatory companies that should be avoided.

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Success Story - National Mortgage Protection Insurance Marketing Firm

My records indicate that 70% of insurance marketing, brokerage, and recruiting firms fail within 3 years. The reason is often the inability to implement insurance broker strategy techniques. Here is a review of a national mortgage protection insurance marketing firm, which is successful. Some of the info presented may either give you motivation and inspiration, or provide some insightful tips.

The mortgage insurance marketing firm is named, "The Mortgage Protection Doctor & Associates," to which I have no affiliation. I thank Jeff Futrell, the president, for allowing me to share some of the reasons for his success dating back to 1995. The two main insurance products sold by the firm are mortgage protection life insurance and white and blue collar disability insurance to protect the client's investment in their home. Each of the products account for 50% of the business produced.

Even firm needs uniqueness to attract brokers and get premiums written. Jeff says that competition in the mortgage life insurance business is extremely competitive. As a result, he has developed a three-part strategy to separate him from the competition and to ensure his brokers have excellent earning capabilities.

Insurance Broker Strategy One By representing over 40 insurance carriers, the brokers are free to chose which insurance companies provide the right benefits. In many of his competitors' alliances, they write almost all their mortgage life insurance with one to four carriers. Here the agents have complete independence to select whom to write insurance with, and they do. One of Jeff's mottos is, "Promoting clients needs and policy benefits over commissions."

Insurance Broker Strategy Two Here comes in the strategy of multiple insurance policies selling. So many mortgage protection marketers focus on the mortgage life insurance sales. Jeff does this, but has his brokers at the same time implement mortgage disability insurance sales. His brokers have a very respectable closing ratio of 60%. When you consider this is a double sale, mortgage life insurance plus mortgage disability insurance, this takes on a different light. This closing ratio would actually be better than a mortgage life insurance expert would with a 100% closing ratio, as Jeff's brokers are making two sales.

Insurance Broker Strategy Three Something overlooked by almost insurance marketers, is contracting brokers and then helping them find clients. This is why in many insurance marketing and brokerage firms, 50% of the brokers recruited have not written a single case in the last 12 months. The Mortgage Protection Doctor has developed a highly effective lead acquisition method in house. Brokers participating in the program have lead sent out by direct mail to pre-qualified mortgage insurance prospects. The broker then directly receives the exclusive fresh leads back to enable promptly setting up a sale. This is a jumbo advantage over using a third party to provide what may be unpredictable and untimely broker leads.

Marketing Strategy Besides the three broker strategy methods above, Jeff takes his recruiting of agents very seriously. He starts by acquiring from an insurance name list compiler, broker names for a key marketing territory. His goal is to use an ongoing, consistent mailing campaign to recruit only brokers that meet his specifications. The mail method is sending oversized postcards with a special reply incentive out to these brokers. Secondly, he has tried advertising in Craigslist with mixed results.

Secret to Success As you quickly notice, everyone successful in insurance marketing and brokerage has his or her own reasons and secret methods. In this case, it is a proven lead system for brokers, a consistent recruiting pattern, and a relationship with strong insurance carriers. Above this rides the strong commitment to independence, both for the brokers and the firm. This is demonstrated by the fact that the top five carriers selected receive 75% of the business produced. What is highly irregular is that these top five insurers share this 75% evenly. That is truly proof of independence.

Additional Comment When the average insurance marketer is questioned what a producing broker is worth to them over a three-year period, the answer averages $3,600. With Jeff's operation the figure is $30,000. You have to spend money to make money. In addition you should operate a little bit unique from other so called competitors. Very important is that your brokers require close communication and every opportunity to write your products. This is an inspirational success story that engages all three key elements.

Well published author, Don Yerke likes to concentrate on what you don't know or what no one else dares to print. Tell it like it is.

Watch for his new paperback book debuting on Amazon early this summer. It is loaded with great insurance marketing and recruiting information.

Come and get your FREE "Think and Grow Rich" Ebook by Napoleon Hill instantly. The website address is [http://www.agentsinsurancemarketing.com]