Episode 101: Bobby Ashburner

Bobby Ashburner is a loan officer and mortgage expert working in Virginia. In this episode, Kenny and Bobby discuss life, the housing market, the state of the world, and more. Check out his website: www.Choosebobby.com Read more about Bobby below.

About Bobby

Bobby graduated from San Diego State University with a Bachelor’s Degree of Science in Applied Arts & Sciences as well as Business Administration and Finance. During his free time he enjoys being with friends and family, summers on the beach and winter vacations in the tropical islands. He keeps it healthy by running both half and full marathons such as Tough Mudder, Ragnar Relay, The Marine Corp Marathon and other team-oriented events.

Community Service

• Chair of the Enterprise Mortgage Charity Golf Tournament from 2003 through 2007
• Recipient of the David Collier Award for Outstanding Achievement Award for the
Bad Pants Charity Golf Outing to benefit the Up Center in 2009
• Teaches VDHA First Time Homebuyers Class

Since 2007 Robert has been teaching VHDA education classes for First-Time Home buyers.
If you would like to learn more or would like to register for Robert’s next VHDA First-Time Homebuyers’ class please contact Robert today!

Honors & Awards

• Information Technology Chair TMBA – 2000
• Director TMBA – 2006
• BNI Team performance – 2009 – 2010
• Bronze Cir Top Producer for VHDA -2012-2013
• Norfolk Redevelopment Housing Authority Homenet Certificate of Appreciation-2014

Transcription

Kenny:  Hey, So my Guest today, over here, is Bobby Ashburner of Coastal Mortgage

Bobby:  Coastal Town Mortgage

Kenny:  Coastal Town Mortgage. Thanks for correcting me there. Bobby has been a friend of mine for years. He’s been in the mortgage business since 1996 and as you know what’s important here in KP’s BlackBox is having a conversation that deals from oxygen to money.  The two most important things, in my opinion, that are necessary to live. Try to live a day without some oxygen. Try to live a day without some money and let me know how that works for you.  And if you find successful ways to live without oxygen and money, I want to know about it. and so do our guests. But here today we are going to take the black box dive into all things mortgages. And off camera Bobby and I were having this conversation about a lot of times consumers uh mortgage prospects have questions that maybe are just a little too afraid to ask. and so what we want to do in black box is deep dive those questions, Bobby, and really get down to the nitty gritty of how a mortgage works. Why we have mortgages to begin with and then how we can use that mortgage in your overall financial strategy.  Man, again, thanks for being here today, really happy to have this opportunity to talk to you and to educate our audience about all things mortgages. How are you doing, number one?

Bobby:  I am doing well thank you. Thanks for having me.

Kenny:  Absolutely. 

Kenny:  We are in this environment as we are recording this. We are still in the COVID-19 time and here in Virginia, Friday, what’s the date today guys?

Crew + Bobby:  It’s the 15th. 

Kenny:  This is kind of like our grand opening right?

Bobby:  It is. 

Kenny:  The state is saying “Hey, we are going to tip-toe the waters of trying to get back to normal,” and you were telling me off camera that today is your first workout.

Bobby:  First day back to the gym. Waring’s is open. 

Kenny:  Waring’s now that’s a name that goes back decades.

Bobby:  Decades. Yes

Kenny:  Shout out to Waring’s and all the folks over there. So you are going to start your routine back in the gym today.

Bobby:  Today is the Friday faithful.4:30

Kenny:  Friday Faithful, now is that a group of people?

Bobby:  It’s a group of people that meet at the gym every Friday at 4:30 to 5:30

Kenny:  Now I’m starting to get back into working out and you can’t see it on camera but I am starting to get this little tens machine.

Bobby:  Yeah, tens unit

Kenny:  The tens unit on my back I can sit and it vibrates and as I was putting it on earlier, I shocked the living you know what out of myself, and I let out a little girly scream. 

Bobby:  Yes, you did.

Kenny:  If that happens in the middle of our video podcast today you will see it but hey down to business. You started in the mortgage business in 1996. 

Bobby:  Yeah

Kenny:  Tell me about it.  How did you get your start?

Bobby:  A friend pulled me over to the side at the gym and said “Hey…”

Kenny:  Waring’s Gym?

Bobby:  Actually, it was a gym that is no longer in business.  It was a place that was called Hard Bodies. 

Kenny:  Oh, Hard Bodies.

Bobby:  Hard Bodies at Hilltop

Kenny:  This is not a porn shop Bobby, come on.

Bobby:  No, no. 

Kenny:  Sorry, I take it down quick.

Bobby:  No, it was the only gym in town that was a IPFA transfer. So, my gym membership from San…

Kenny:  That is the bodybuilder federation isn't it?

Bobby:  …San Diego transferred to here so my $14 a month in San Diego was paying my gym memberships in Virginia Beach, so, that’s why that gym .

Kenny:  Okay, s o, you are working out with a buddy and he says “Hey try this mortgage thing out”

Bobby:  Yeah, I got a degree in finance. I’m stepping out of secondary and going into Loan origination. and come meet George and Janet Moore and find out what this is all about.

Kenny:  Okay.  Those are the people involved in the mortgage business.  Shame them. 

Bobby:  Shame them. They told me it was all golfing and going to dinner and having a good time.  And at the beginning, it kind of was that way. 

Kenny:  Yeah, The old days of the mortgage industry. 

Bobby: Yeah, the old days. 

Kenny:  So, a lot has changed since then. 

Bobby:  A lot.

Kenny:  everybody knows we had this big crisis.  Another crisis, about 12 years ago that the mortgage lending crisis and the meltdown that everyone kind of refers back to. Five years from now we will be referring back to the COVID-19 crisis.  The one that you and I remember explicitly is the mortgagee crisis of 2008.  Why did that happen in your opinion?  I’ve heard speculation and being in the financial business and there was an analyst who really didn’t compute that prices could drop below zero from a pricing point of view. 

Bobby:  So from a real estate investment perspective, no one ever thought that the price of your house would go down. They forgot that the prices of houses went up AND down. But there was a whole lot more to it than that. There was excess capital going back to 2000 from when they were concerned about the Y2K. So that excess capital remained in the market through the tech bubble and then it continued and then when the tech bubble popped, the money shifted to mortgages and went crazy. 

Kenny:  I’m sorry, my producer over here is telling me I'm looking like a slouchy old man.

Ian:  Your shirt got a little bunched up

Kenny:  I’m bunched up.  It’s my back.  It’s killing me, Ian. It’s crazy. 

Ian:  Sorry. 

Kenny:  Sorry, I threw us off. Sorry, audience, you will get to see old man sitting in the director chair here.  It sucks.  I digress.  Please

Bobby:  So there’s too much money flowing around and so everything kind of went crazy. It’s difficult to talk about because there is in some instances

Kenny:  Like an onion? Many, many layers…

Bobby:  Yeah many, many layers because there— people weren't being played favorites to deliver loans into the secondary market so one lender might have a higher price than another lender. which started people to go around going through Fannie Mae and Freddy Mac. 

Kenny:  Can I stop you there?

Bobby:  Yeah.

Kenny:  What is the secondary market—for those that—what does that mean?

Bobby:  What that means is — so, everyone in Virginia beach wants to buy a house. All the banks in Virginia Beach don’t have enough capital in the banks to lend to everyone to buy a house.  So, we borrow money from other parts of the country or other parts of the world.  And we are to facilitate the lending of those transactions.  

Kenny:  Okay.  Tracking with you.

Bobby:  And so that is why we have a secondary market so a bank originates a loan, a bank will decide to hold it for the life of the loan or sell it for cash.  And that’s what most people do.

Kenny:  So, I was taught in economics there is this kind of velocity of money and you have this fed reserve. 

Bobby:  Other parts of the world in order to facilitate the lending of those transactions, so that's why we have a secondary market so a bank originates a loan. A bank will decide to either hold it for the life of the loan or sell it for cash and that's what most people do. 

Kenny:  So, I was taught in economics there’s this kind of velocity of money. 

Bobby:  Yes.

Kenny:  You have this Fed reserve. 

Bobby:  Yes.

Kenny:  Who's lending money to the local bank overnight through—go ahead, help me. 

Bobby:  Yeah remember back in the day it was taboo if you had to go to the window. you were not supposed to go to the window, were you?  You weren't operating properly.  You were going to see a regulator, come and talk to you. 

Kenny: (Laughing) This is what you get in live podcasts.  We have these cool pictures on the walls, man: So much like the mortgage prices, things collapse, things fell. So, go ahead with that thought.  We will keep rolling here and we will have a guy fix that. 

Bobby:  So as everything started getting more crazy. I used to tell people if you could fog a glass over the phone you can get a loan. Yeah, yeah, not anymore,  We're back to proper standards of a “who are you?”  Do you have the capacity to pay for them?  Do you have a job? Do you have income, free self-employed?  Do you write off all of your income and actually don't have enough income? We have to look at all of that.  Qualify, so many people involved in the process. People forget there's people involved in the process.  There's a person, he's gonna look at your documents and say this person qualifies because they have shown me the documentation. It says that they qualify.

Kenny: And so those lenders, even in that secondary market, they are probably putting a guideline on that local lender to say, “Follow our guidelines or you may not be able to lend any more or you may not be able to fund your loan if you didn’t check these boxes.“

Bobby:  If you don’t check all these boxes your loan will not be purchased and then you will be stuck with a loan on your books and nobody wants that. 

Kenny:  So, the local bank.  Let’s say, Town Bank. They’ve got a limited amount of resources based on the deposits of all of their banking customers.  Okay, so, those banking customers provide a certain amount of liquidity to the bank to lend out to other people once they reach that capacity, they have to go to the secondary market.  

Bobby: We sell those loans off to replenish our capital. 

Kenny: Okay makes sense. Thanks for defining that.  So, 2008, what happened?

Bobby: 2008, the federal reserve finally decided that they were going to start raising rates because they were concerned with inflation and that essentially put a short squeeze on all the loans that had been— I shouldn't say “all”—a lot of the loans that had been written that were of a riskier category. Payment option arms, in other words you could make an interest only payment, you could make just an interest payment, you could make just a principal payment, you could make a partial payment. 

Kenny: Like the negative am loans, negative amortization loans.

Bobby:  Yeah, and they would negatively amortize. and—

Kenny: Which means the balance of the interest that you deferred or you hadn’t paid was being added back into the balance. 

Bobby: Well, what was even crazier is that so they would say “here is a 30-year amortization loan and you can make all these payment options you want, but the entire loan is due in 5, 7 or 10 years.”

Kenny:  Holy cow!

Bobby:  Yeah, and so, let’s say that you were dealing with some credit issues and you didn't have those fixed before you wanted to buy the house and you take one of these riskier products with the assumption you would fix your credit and get back on path and then come and refinance out of it. Well, when the market turned, prices dropped, you couldn't refinance out of it.  There’s no liquidity. 

Kenny:  Wow. we were talking last week, this phenomenon that happened in 2008, eerily, is maybe creeping up again, but it’s a little different now than what it was. Can you talk to—Can you speak to that?

Bobby:  From that perspective I really don’t think we are going to see anything like 2008. We have been underwriting loans so soundly for so long that it will take a huge shock to the economy which is why we are seeing all the stimulus right now trying to make sure people can make their payments or give them a forbearance. 

Kenny:  It’s not the consumer’s fault what happened.  Here the federal government…

Bobby:  —It’s not the consumer’s fault—

Kenny:  --Implemented a system that shut down our economy so the people who are struggling right now.  No shame.  Take the shame off.  You are in a position you are in because the federal government in its wisdom. Right, wrong, and indifferent, made some decisions that has affected all of us equally.  What do you see in terms of the strength lending and consumers who may be thinking about refinancing or purchasing today?  What do you see happening?

Bobby:  So, it’s kind of unfair.  Anyone who is an essential worker and has a job is fine.  They’re not worried.  Their income is not in jeopardy.  And so, they qualify.  You have your restauranteur.  You have the all the people who work in the restaurant. You have all the industries that have been shut down, then you have a problem. 

Kenny:  I was listening to a Joe Rogan podcast and he had a steak house entrepreneur out in Los Angeles and it was really, really sad to listen to this guy’s story and what he is trying to do to stay open.  A really posh place in West Hollywood and this guy’s

Bobby:  Serving meals on the sidewalk.

Kenny:  Yeah, and trying to serve the first responders and the emergency medical professionals and anything he can do to stay alive. And one of the things I would say to our listeners and viewers is support the local businessmen.  Support the local economy.   And in Virginia, hey, get out there and buy.  It feels like in some ways, this is what back in the great depression, the way you got the economy again, is go buy. 

Bobby:  Spend money.

Kenny:  Spend money, take the stimulus check you've been given and reasonably put it back into the economy to keep the economy moving to keep small business moving. 

Bobby:  Well, you remember that was George Bush in 2001. It’s like get out there and be a consumer.  Don’t stop living.  This whole COVID thing has stopped that which is — that’s the different part about that. 

Kenny:  So if I can, let’s redirect this conversation a little bit to this borrower that you were talking to me off film here and really wanting to be able to ask you questions, but maybe felt a little embarrassed to show some chinks in the armor that they didn’t have all the answers.  Can I just break down some lingo in the business? you had a great definition for interest rates and I said, “okay Bobby, What’s an interest rate as it relates to mortgage—define that for us.”

Bobby:  So, it’s the cost of capital for someone to provide you with the ability to go purchase that house over 30 years. 

Kenny: The cost of capital?

Bobby:  That’s their risk adjusted return on their investment in your purchase. 

Kenny:  Cost of capital? Cost of money?  That’s the factor that you are going to pay for the principal amount of money that you want to borrow. To that interest rate, then, is tied to a term or a period of time. Most mortgages can be bought in what terms?

Bobby:  Most are thirty years. We see some 15 years, sometimes,  A.R.M.s are more attractive but right now—

Kenny:  And an A.R.M. is defined as?

Bobby:  Great. Adjusted rate mortgage.  See the mortgage alphabet soup, I get lost in it myself.  I just start going to my acronyms. Adjustable Rate Mortgage would be where you have terms adjusting based on an index and a cap.

Kenny:  And how often can those rates adjust?

Bobby:  It depends. It depends on the A.R.M. that you buy or the A.R.M. that you use. 

Kenny: So it could be a one year, 3 year, 5 year, one month…

Bobby:  Right, most are adjusting annually.  And they have a cap that sets a bottom so it can go no more than 1% down or 1% up and so it can go no more than 5% up or down over the length of the loan. 

Kenny:  Okay hence, adjustable rate.  Rates can adjust down if rates drop and also it can adjust up if rates go up.  If and when rates do go back up, does your tea leaves tell you when rates are going to go back up?  You know, as of 2020, we are in May right now so, when are rates going up, Bobby?

Bobby:  So, there are times in the market when you are just left with, you need to look at the market every day.  That’s where we are right now.  In order to really forecast what’s going on out there it’s really difficult.  If you look at the base price of a mortgage backed security you would say rates should be much better than they are but they’re not.  So…

Kenny:  And what do you think is driving that?

Bobby:  What’s driving that is the backside, the serving side.  Lenders don't know whether or not they are going to receive payments from the borrower and in some contracts that loan servicer must forward the principal and interest payment to the person who put the capital up for that loan regardless of whether or not it was received.  And if you have to make someone’s mortgage payment for six months or twelve months as a servicing company you've got a real hard thing to do. If you can stay afloat. 

Kenny:  We could spend a whole podcast just on that conversation. We will have you back another day and have you deep dive this stuff.  For the sake of time, we’ve got interest rate, we've got adjustable rate, mortgage, we've got a term. 30 years is the most popular term.  You could have a 15 year, you could have a ten-year, amortization. 

Bobby:  So we see arms in 15 years come into play when the yield curve is very steep. 

Kenny:  Yield curve. 

Bobby:  Fed funds is at a what??—a quarter of percent right now?  0-.25 and a thirty-year mortgage, let’s say three percent and a US treasury is somewhere under that. As mortgage rates and 30-year treasuries go up to 5-6% and we are still at 1%, you see the steepening of the curve. So, you will see rates much higher on the 30-year fixed. and they will...you will get a better price at the 15 or adjustable rate mortgage. That’s when sometimes 15 year loans make a lot more sense than a 30. 

Kenny:  And that again goes back into if we are looking at it from a personal macro point of view, whether a person chooses a 30 year, a 15 year, should probably be looked at macro economically based on their cash flow. What do they want to do with the difference in those payments that differs between a 30 year and a 15 year as an example. 

Bobby:  In most cases I recommend people take the longer term, have the smaller payment out of their budget, so they have more money to free up for opportunities to get out of the rat race, to make investments, to get into the investment side of the world. 

Kenny:  We would refer to that in the investment world as the delta or the albatross. Your cost of money, the interest rate, to what your perceived rate of return could be with the difference in —

Bobby: What would you do with that money?

Kenny:  — So, if this is going back into your cash flow  to buy vacations and run up consumer debt. probably not a good thing. Let me be more blunt. Not a good thing.  But if you're taking that difference and looking for that opportunity to outperform cost of money that’s a risk adjust analyst that a person has to do with their advisor.

Bobby: If you take that difference usually, and say, you wanted to pay your loan off in 15 years that difference in and you invested it over 15 years and you can get to the point of 15 years, you have an epiphany where you realized you typically have enough money to pay off the mortgage.

Kenny:  Mortgage freedom day!

Bobby:  Mortgage freedom day, right. and then you have to ask, wait a minute. Why would I do that? I can afford this.  I go get another 30 year loan and i keep doing the same thing and i keep growing my principal where I could pay — 

Kenny:  Kind of like what public corporations do. Instead of holding the debt over short term they can extend that debt over long periods of time and outperform the cost of money. 

Bobby:  Yes, that’s exactly right. 

Kenny:  They have the opportunity to put that capital back in application kind of like what, I think Apple computer did that. When they issued debt in the form of bonds instead of giving up all their cash to pay a dividend or a return of premium back to their shareholders or stakeholders they issued bonds or debt and felt they could outperform the cost of money. 

Bobby:  And they did. 

Kenny:  They did. Go Apple. Getting a good handle on interest rates on term there’s these other two things when we are looking at the HUD statement or that truth in lending statement from the old days. That’s called what now?

Bobby:  We call that now the closing disclosure. 

Kenny:  The closing disclosure statement?

Bobby:  You get the loan estimate first and then at closing you get the closing disclosure. 

Kenny:  The loan estimate is when the person meets you for the first time and the person says “Bobby, give me the breakdown of what could be possible.”

Bobby:  Almost. 

Kenny:  Alright, help us.

Bobby:  When a customer first comes in, we take in all their information and they typically don't have a property.  Until you have a property,  we are not required to give you a loan estimate because we can’t tell you exactly what the taxes are going to be for a property. 

Kenny:  That’s for a purchase, how about a refinance? They have a property. 

Bobby:  Refinance, we tell you immediately and you will get a loan estimate immediately. 

Kenny: Okay, a refinance, they would get a loan estimate immediately, a purchase is this universe of the unknown until they identify a property. 

Bobby:  Until you are under contract. 

Kenny: Under contract and does an appraisal matter?

Bobby:  That comes in after the fact. We still assume that everyone in the process has marketed the property properly so they have an idea of what it should appraise for because they’ve done a comparative market analysis.  They've put the market up. They put the house on the market, buyers come in bid it up or bid it down. Everybody comes to a price then you are under contract.  Most cases after that you have a home inspection, then you order the appraisal.  Then the appraisal says it either fits or it doesn’t. There were times when appraisers—if you had a house for sale for 330 and you had a contract for 330 they wouldn't bat an eye to try and deliver an appraisal at 350. today if your contract price is 330 they are not stretching. They are not trying to find you extra value.  They will find the comps that make it work and they are done. 

Kenny:  You nor the borrower can manipulate the appraisal. You’d go to jail for that I’d assume.

Bobby:  You could go to jail for that, yeah. 

Kenny:  So, the appraisal has to be a standalone—

Bobby:  It’s a standalone entity.

Kenny: You can’t pick it. The consumer can’t pick their appraiser.

Bobby:  No

Kenny:  What if I just want to have my house appraised?

Bobby:  You can call an appraiser and get an appraisal. but that is not going to be used in your loan file. 

Kenny:  The lender is not going to use my appraisal. Okay.  They want their own independent appraisal. Alright. Can appraisals be different depending on who I borrow money from?

Bobby:  Shouldn't be. They shouldn't be. 

Kenny:  We hear it.

Bobby:  You hear that, but here is the thing. You borrow money from a lender who is out of the area and they hire a contract company who is regional but not local. So a guy drives down from Richmond and doesn't know our market area and doesn’t appraise a property properly. 

Kenny:  Okay. makes sense. So you get through this appraisal. we get a value of our property. Either from a refinance or a purchase point of view. I know my interest rate is a cost. I know an appraisal fee’s going to be a cost and probably a cost for the credit report and all that. But if we get into the pricing of a loan outside of the interest rate there’s these terms called discount and origination. Help our audience understand a little bit about those terms. 

Bobby:  You should try to think of loan origination and loan discount as a fee that will be used to lower your mortgage payment, lower your interest rate. There are a lot of lenders that charge an origination charge. We charge a flat fee. It’s just a flat charge that we charge in order to process and close your transaction, process, underwrite, and close. 

Kenny:  So kind of like a flat fee?

Bobby:  It’s a flat fee.

Kenny:  But there could be an origination on top of the flat fee?

Bobby:  At that point it really turns into a discount point. and that’s what is—that’s where you should hope anything you pay to the lender outside of a third party service is used to lower your interest rate. Most lenders have some level of processing, underwriting, or doc prep or whatever you want to call it. But they have a charge for that and that typically falls into the origination bucket.

Kenny:  So, in the bond market you'd talk about a premium, par and discount, is that similar in the mortgage origination world?

Bobby:  Yes, if, in the bond market or mortgage backed securities market, you are looking to price a loan if the market price that day has no points, is 3.5% and you want 3.25% but maybe 3.25 costs you a point so $3k on a 300k loan, where if you went to 3.25 you might get a point back. That would call on your credit. 

Kenny:  What’s best? What should a consumer do? Thats a loaded question, huh?

Bobby:  Depends on a consumer’s situation. If a consumer has a contract where their agent. If they are working with a good agent, that agent has negotiated into that sales price,—purchase price of that house, closing costs assistance. Closing cost assistance is limited on the loan programs you are using. So, you want to make to work with your lender to make sure what your limits are with the product you are using to what you should even be asking for. 

Kenny:  Well, let me put it to you this way. I know with the other hat that I wear, in my financial practice, to assume that someone’s not looking for what’s in their best interest in terms of shopping or being competitive in the marketplace you obviously have a relationship with on-going clients that you’ve had relationships with going all the way back to 1996. But if someone new is coming to you maybe in a referral or maybe in some marketing efforts you and Coastal Town have done. When they are trying to price you and building this trust bridge. when they are pricing that loan, what should they be looking at to establish par or putting everyone in an apples to apples comparison. 

Bobby:  First, loan program for loan program, and then start with what is the rate that costs me nothing in discount — 

Kenny:  Loan program to loan program, help me understand that. 

Bobby:  If you are looking at a conventional 30 year fixed versus a 15 year fixed those are two different products. 

Kenny:  Conventional vs non-conventional what does that mean?

Bobby:  Conventional:  non-conventional would typically mean over confirming loan limits. and the prices on those are going to be higher. 

Kenny:  Alright, alright, man, you are killing me here. Over confirming loan.  People out there are going, “what the hell are y’all talking”

Bobby:  For our area 5 10k 400 is our confirming limits.

Kenny:  And it's different in other parts of the country?

Bobby:  It’s different all over the country. 

Kenny:  California as an example. I’m just pulling a state out of the air.

Bobby: Much. Much higher.

Kenny:  So here in Virginia conforming loan limits?

Bobby:  5, 10, 400

Kenny: does it matter if it’s 30, 15-year, arm?

Bobby:  That part doesn't matter

Kenny:  That doesn't matter. Okay. alright so conforming loan and then you have these backers of loans,  FHA…

Bobby:  VA

Kenny:  VA: Veterans administration,  FHA is acronym for?

Bobby:  Federal Housing Administration. HUD

Kenny:  HUD. Housing and Urban Development. Did I get that one right?

Bobby:  Housing and Urban Development.

Kenny:  Okay, and then new home buyers have VHDA

Bobby:  State of Virginia has housing authority. Virginia Housing Development Authority. 

Kenny:  Okay, so, there are lots of different choices. what you are saying then is a borrower, they are going to compare apples to apples they have to compare VHDA to VHDA, VA to VA, FHA to FHA, conforming to conforming. Non-conforming to non-conforming. 

Bobby:  Yes, and then term, how long they are looking at the loan. for 30 years, or 15 years or 5-year balloon for example possibly. 

Kenny: And then we’re back to that interest rate and the discount factors the origination factors those all come into play. 

Bobby:  So, the origination charge should be baked into that equation as well.  So one lender might say,”our origination charge is a $1000 and one might say $500.“  But maybe their par rate is an eighth of a percent more. 

Kenny: Why would my APR be different than my interest rate?  APR again, Annual Percentage Rate. 

Bobby:  Annual Percentage Rate. it was designed originally to help a consumer identify if there were items in their financing that were more than they were anticipating and so the higher — 

Kenny:  What’s an example of that?

Bobby:  So,  the larger the spread between your note rate and your annual percentage rate the more you should go look at your loan estimate at this point and look for charges that you might be paying for that you didn’t think you were such as discount points. 

Kenny:  Okay. Awesome. Will they see that in their estimate?

Bobby:  Very clearly.

Kenny:  So it’s fully disclosed? 

Bobby:  Completely disclosed. The new disclosure is beaut from the standpoint, it says, will this loan balloon? Yes or no? Does this loan have a prepayment penalty, Yes or no? It’s very clear as you go down the page. 

Kenny:  So the full disclosure is something the industry as a whole is required to operate in. Are there little small, my mom used to say “Kenny, the large print giveth and the small print taketh away.” What do we need to look for in small print?

Bobby:  So the small print ….

Kenny: Am I putting you on the spot here today?

Bobby:  The small print… 

Kenny:  You’re on the hot seat now, Bobby.

Bobby:  What you should think about as a consumer is this.  What is the cash out of my pocket? Is this loan affordable?  Does it fit my comfort level?  Am I comfortable making this payment?  And there are ways to figure that out. and then it’s. “Is the cash coming out of my pocket? and then if the APR is high, but I have maximum seller concessions and the seller is paying those costs. 

Kenny:  Maximum seller concession. 

Bobby:  So, for example, an FHA loan will allow seller to contribute 6% of the sales price towards the closing costs. VA is 4% towards prepaids and debt reduction and all reasonable closing costs. 

Kenny:  Prepaids?

Bobby:  Taxes and insurance. and the loan guarantee.  They could pay the loan guarantee fee upfront. 

Kenny:  And the loan guarantee, with VA there is a loan guarantee. 

Bobby:  That’s the insurance component of a VA loan. If a veteran has a 10% or greater service disability rating they don't have to pay that. 

Kenny:  That gets waived. 

Bobby:  That gets waived. 

Kenny:  Alright. tracking with you.  It’s important then, to look at that estimate. 

Bobby:  Look at that estimate from the standpoint of if the APR is higher than the note rate, significantly, is that coming out of my pocket. if it’s not coming out of my pocket and it’s being paid by the seller concessions, I shouldn't care about it. 

Kenny:  Okay. are there any other fees?  So, when we are looking at that good faith estimate and finally we get to closing. and you have this HUD statement that is required for all loans. 

Bobby:  The closing disclosure now. 

Kenny:  The closing disclosure. thank you for correcting me. You can tell I am old school. we will come back to that in a minute. remind me to talk to you about DOD frank and RUSPAH, the real estate procedures act. Not that we want a whole class on that today.  But, just enough to inform at a black box dive level. We will have you back another day to carry this conversation. 

Bobby:  Yeah, that is a whole other can of worms. 

Kenny:  Maybe we will have a regulator one day, to grill those dudes. 

Bobby:  That will be fantastic.

Kenny:  Put them on the hot seat. 

Bobby:  I am sure we can get one. 

Kenny:  Hey, I am all for it.  Let’s do it. 

Bobby:  Okay

Kenny:  In anything that can help the consumer be more informed is—better—it’s better. it builds a trust bridge for those of us who are in the advisor capacity.  If they really have all the information, they know that you are working and I am working in their best interest, that is a good day. and then it exposes where you have weaknesses.  And who wouldn't want to know where their weaknesses and blind spots are at?  From the consumer point of view and from the advisor point of view and everyone has weaknesses and I think it’s important that we put that out there and we go “hey, as a lender, if you have another guy that you are competing against and they keep beating you on every deal, that means you have a weakness somewhere.”  Wouldn't you want to know where your weakness is at. and wouldn't your bank want to know where its weakness is at?  So, I am all about, let’s find out our weakness and let’s expose those and then let’s expose the strength. The consumer gets to see they get the benefit from that. It’s a win-win at the end of the day. In this world of fees and we are looking at this HUD statement. What can a person expect to pay? There’s title insurance. That is an old English word, right? You go back to title, the King, and I am going to go on a little bit of a soap box here. 

Bobby:  Go for it

Kenny:  In Virginia, we are still a good old commonwealth so going back to old English law you have a governor and you have these mayors and you have nobles at the local municipality level. And we have to pay homage to those in the form of taxation.

Bobby:  Yes

Kenny:  Property tax is one of those things that comes up in a HUD statement, right?

Bobby:  Yes

Kenny:  Title insurance. When a person pays—we know we have to pay taxes, we can’t avoid the taxation. But the title insurance? Can we avoid paying title insurance?

Bobby:  You can avoid paying owner’s title. But you cannot avoid paying lender’s title. 

Kenny:  Can I avoid paying owner’s title insurance on a purchase-first purchase?

Bobby: You can avoid it but I don’t recommend it. 

Kenny:  Why?

Bobby:  If it is so important that the lender has title insurance to the point that they are going to make the buyer pay for it, you should think that you possibly want to have title insurance for yourself.

Kenny:  Alright, let me back you up there.  The lender is going to force you to pay their title premium?

Bobby:  That is correct.

Kenny:  Why is that?

Bobby:  They want protection to know that the property they have lent on is free and clear of leans and judgements. 

Kenny:  So, if you want their money. they are going to go “the cost of having our money is to pay this title premium.  One time? Or is it on-going?

Bobby:  One time. And it is to insure that—it’s not only just to ensure the lender but it also is to ensure you that you are buying that property that is free and clear.  There, so, real life example. a property that me and a friend were looking at over on Shore Drive at one point. we didn’t buy it, thankfully. The poor person who did eventually buy that property, ended up discovering a $100,000 lean in Norfolk. 

Kenny:  Ouch!

Bobby:  I don't think he bought owner’s title. the lender’s title I think he had to come in and save him. What happened was the lean was filed in Norfolk but not Virginia Beach and when they did the title search they didn't search the federal court records in Norfolk. 

Kenny:  And when you say they, who’s ‘they’ that’s doing the title search?

Bobby:  Whoever did that title search.

Kenny:  The law firm or the title company?

Bobby:  The title company. whoever did that. And that person didn't elect to buy their own title policy.  They were kind of out there until the lenders policy stepped in and cured it. 

Kenny:  Do you know how title insurance is priced?

Bobby:  Very, very, very reasonably. 

Kenny:  So, the title insurance is a one-time premium you pay to an insurance company? 

Bobby:  Yeah. 

Kenny:  Alright. So, it’s like a risk premium. 

Bobby:  Here is the other flip side to that. I am at dinner with a bunch of nurses that meet a couple times a year and one of the guys goes “I got sued and made money, want to know how?”  Of course. I’m like ‘Of course, you know.’ He got sued and made money, how does that happen?

Kenny:  He got sued and made money.

Bobby:  So he bought a house.

Kenny:  Is that a repeatable process? Can you do that over and over again?

Bobby:  I think that it was luck. That was just silly luck.  So, he bought a house. When he bought the house, the house had a mechanic's lean on it, and he paid a premium insurance policy to write over the cost of that lean. He sold the house and the next guy bought a premium title policy and insured over it. The third guy buying the house did not. He would not and wouldn’t buy the house unless someone cleared this lean.  Well, my friend went out and found. 

Kenny: When you say clear the lean you mean, pay off?

Bobby:  Pay off the debt. So, it was a $60,000 roof lean. Nice big house. Big contract on a roof. And so he went and found the contractor. Paid the contractor a small fee for the cost of that lean. A discount basically. You haven’t been paid in 15 years. Do you want some money so you don’t have to fuss with this anymore? The person said,”yes.” He wrote him a check. And went back to the title company and said if you want to clear this, you have to pay me now. I am the new owner of this lean. 

Kenny:  Okay. 

Bobby:  That’s how he made money. Very rare. I mean it never happens. That’s just another example of title insurance protects you throughout the entire life span of that property. 

Kenny:  It’s a risk premium, in your opinion, is worth writing a check for. 

Bobby:  Yeah its worth a check. 

Kenny:  Otherwise you could potentially be writing that check out of your assets. Your other assets. 

Bobby:  Yes, think of it this way. If something does go wrong with the chain of title and everybody starts to sue everybody, guess who they go after first?  The person without the title policy because they don’t have legal representation to fight it. 

Kenny:  So, they are extremely exposed. 

Bobby:  Extremely exposed. 

Kenny: We may have to fact check this, guys. There was a gentleman in Virginia Beach several years ago that was going around—

Bobby:  —Buying easements on properties.

Kenny:  Yeah, I need to look that up. That would be a fun episode. Maybe I can get that guy in here and have a conversation with him. I don't remember anything more than that. 

Bobby:  I think he retired. 

Kenny:  I think he retired, laughs. Either that or he was retired or he is at the bottom of the Chesapeake Bay. 

Bobby:  I think he just sort of rode off into the sunset. 

Kenny:  Wow, but the guy made money doing this, I guess. 

Bobby:  I think he did actually. 

Kenny:  That’s nuts.  We need to check that.  Hey Zach you know what’s on your — 

Bobby:  Your homework list

Kenny:  on your homework list.  Zach is not even paying attention right now. 

Zach:    I am. *muffled noise*

Kenny:  or you’re researching right now. okay. cool. Bobby, as we go through this I brought up to you a little while ago, just as an education point of view, there was this 2008. going back to that for a few minutes. then we are going to try and correlate that to where we are now in 2020. But there was this Dodd-Frank and RESPA, the real estate procedures act was changed and kind of reformed under Dodd-Frank, these two senators. What did that act do and how has that changed the mortgage industry today?

Bobby:  It put teeth into RESPA. Forever, everyone abused RESPA, like it was somebody’s step child that no one cared about and was just pushed off into the corner. Dodd-Frank actually did some good things. It provided teeth for people to go and proceed legally.  Unfortunately, I think we saw a lot in the news that it got a lot of abuse from the other side.  But all in all, I do think it did a really good thing in providing better disclosures to the consumer.  Some would say it’s just different.  I think it’s a little clearer. 

Kenny:  Okay!

Bobby:  The HUD one statement was beautiful. It was one piece of paper.  You could go down it and figure it out.  You've got to flip pages back and forth on the closing disclosure. but it does all add up. and it has the verbiage you need at the spots you need it to understand what that item means, which is helpful. 

Kenny:  I know this is probably a real estate agent question than a mortgage broker question but your personal opinion.  Not holding your feet to the fire here. But a lot of times in purchases today you will see consumers buy these home warranties that are added to the policies. Beneficial, not beneficial? Good, bad, indifferent? You see it a lot of times as a selling benefit.

Bobby:  Sometimes, you see it as a selling feature because you’ve got an older home and you recognize the HVAC system is 15 years old. You are not going to be required to necessarily replace that on a home inspection or an appraisal. you offer a carrot to the consumer. “Hey, if you buy this house, I’ll make sure you don't have an issue with the cost perspective for at least 12 months. 

Kenny:  So it could be beneficial for the right buyer. 

Bobby:  For the right buyer it’s a great tool. 

Kenny:  Especially if you don't have a lot of assets. 

Bobby:  Yeah, if you don't have a lot of assets. If you are buying new construction, I don't know that I would necessarily do that. 

Kenny:  New construction, the builder has an obligation for how long usually? about a year?

Bobby:  At least a year. 

Kenny:  At least a year usually. A good builder will stand on their reputation. you know what. we are coming up on the close of this today. we have a few more minutes. If people want to talk to you in Virginia. Where are you specifically licensed and who can you help?  and what regions can you help consumers?

Bobby:  Virginia and North Carolina. 

Kenny:  Okay, Virginia and North Carolina. Okay, from a mortgage broker/banker point of view where the lender’s licensed is important and then where you the individual mortgage is licensed, that’s also important. 

Bobby: Yeah. You can be licensed in all 50 states if you want. but you really want to work with someone who — even though you may not want to shake their hand right now, that you could go sit in front of them at their desk and shake their hand. 

Kenny:  and by the way we are still practicing…

Bobby: We’ve got social distancing here, 6 foot. 

Kenny: So,  what are you seeing in the local market in terms of, local market, and then obviously we’ve got listeners outside of the state of Virginia, North Carolina. Give me your tea leaves on where you see the market for the rest of 2020 and maybe beyond?

Bobby:  So, we are a different market, right. We are not the typical market across the country. 

Kenny:  Because of our military?

Bobby:  Because of our military. We have a lot of demand going on right now.  I’ve got people coming from Hawaii and San Diego buying houses. and Northern Virginia, not northern Virginia, Northern California buying houses in Suffolk. I have people coming all across the country to Hampton Roads. 

Kenny:  I am not going to hold you to this, but reading the Wall Street Journal, daily, and listening to experts across the land. some talk about a V-shape  recovery, some talk about a W, some I saw talk yesterday the swoosh, go Nike. Where do you see from a mortgage perspective and from a borrower’s perspective, do you think we are going to see some improvement from the rest of 2020?

Bobby:  I think we are going to see sort of stability. 

Kenny:  Okay!

Bobby:  I think the Fed has figured out how to keep rates reasonably and take some of the volatility out of the market. When the Fed came out on a Sunday was it 6 weeks ago and said we are dropping rates. that sent the market into a panic. and the mortgaged backed security market went up and down several points for about a week and a half. until it finally settled out. And it is about where it was at about its peak just before everything went crazy. So that part is good. I think a consumer is going to find fair rates for the next 6 to 12 months. They are going to find opportunities that are micro opportunities when a lender calls, pick up the phone. because they are telling you now is the time to pull the trigger. two weeks ago, VA refinance was very low.  Paying 1% back. the very next Monday, it was costing a point. What we are seeing there it was not necessarily that the price changed  or the investors price hurdles changed. or their metrics changed.  What changed was their ability to process the transactions. They had to cut off production.

Kenny:  We were talking about that last week. We are now May 2020. What are you seeing today? Someone might listen to this podcast a year from now so from May, 2020, how long is it taking on average to close a purchase? and how long is it taking to close a refinance?

Bobby:  If outside of COVID, if everyone, if the bar has been properly been pre-approved and all their documents are in the file , you can close a loan in 20 days. without a problem. There are lenders out there that say we do it in 7. but that’s really a fire drill.  That’s not comfortable for anyone that means someone dropped the ball and you are picking it up for them and that means you didn't close on time somewhere else. In my opinion. 

Kenny:  Tracking

Bobby:  Refinance, 20-30 days. you should be able to do that. Basically, it is all on the person’s ability to get you the documents you need to process the transaction. 

Kenny:  If you are a new home buyer and you are just new to this game you are a young individual or even an older individual who has never purchased a home before what’s the steps and processes a person should go through to get pre-approved?

Bobby:  The first step is to know yourself. Get your ducks in a row. A lender has to know who are you? We have to lend to that person. So we need to know who you are. we need to know that your identification matches your bank statements, your paystubs, your W2s, when you’ve moved around a lot, that’s okay. But you need to write letters of explanation. “I’ve lived here and that’s why my w2 says this. That’s why my credit says this, this address.” you’ve just got to get your ducks in a row.  You’ve got to learn online banking. You need to be able to hand your lender a PDF of your bank statement and you should practice safe use of your documents. Try not to email them. Learn how to go online, and go to the website and upload your documents directly to the lender’s website. 

Kenny:  That’s usually encrypted and protected. 

Bobby:  It’s encrypted and secure.

Kenny:  That makes sense. Do you encourage people to get like credit protection, freezing or locking up your credit like you will hear some folks talking about?

Bobby:  If you have been a victim of credit theft then yes. Otherwise, I suggest you just stay on top of your credit. go to annualcreditreport.com. It is the only free location to get a copy of your credit report.  AnnualCreditReport.com pull it every 4 months, we are in Virginia pull Equifacts, then pull Transunion, and pull Experian,  Those are the three major credit report agents. if you see a problem pull all three immediately. 

Kenny:  When I go to borrow money, do you guys charge me, the lenders, do you charge me for the credit report? 

Bobby:  It gets charged to you but in most cases, you are not going to have anyone ask to charge you for your credit report upfront. 

Kenny:  Okay. At the closing, that is one of those line items?

Bobby:  That is one of those line items. 

Kenny:  What does that usually cost?

Bobby:  About twenty bucks. 

Kenny:  And an appraisal typically costs what?

Bobby:  Appraisals, I mean…

Kenny: I know it ranges from state to state, region to region. 

Bobby:  Yeah,  but you can’t believe what a value an appraisal is. When I got into this business appraisals cost $400, guess what they cost today? $400-$550

Kenny:  Those guys are hating life. Inflation?

Bobby:  They are not seeing any inflation. 

Kenny:  Wow. Why has that price not gone up?

Bobby:  Well, that’s the price of the appraisal. That doesn't mean that’s necessarily what the consumer is going to end up paying.  They might end up for an appraisal management service another fee of $150-$200

Kenny:  An appraisal management service. So you will see that on the HUD. 

Bobby:  Yeah. or it might just be rolled into the cost of the appraisal by the lender. It's a cost to obtainment so a lender might use a third-party vendor to make sure that they are in compliance with not having any communication with the appraisal company. 

Kenny:  So that appraisal management company is like the hired gun to give that level of handing off that responsibility. 

Bobby:  Yeah. Gives that distance. 

Kenny:  Makes sense. Alright. man there is so much we could talk about today. we are coming up on closing this out. we’ve got about 10 minutes left. but

Bobby: We’ve got this long

Kenny:  man, I beat you

Bobby:  Yeah, you beat me. 

Kenny & B:  Cheers

Kenny:  Maybe I need a refill. But I would love to have you back at another day and we can deep dive this some more.  Hopefully this was value to our listeners. It was for me. I learned a lot today so thank you. I’d love to get you back on the show at a later date and maybe we will bring in a regulator, if we can find one that wants to talk to us. 

Bobby:  I think I can find one. I would imagine we could find one through mortgage insurance company. 

Kenny:  Okay, let’s do that. That would be fun just to deep dive that.  Really from the spirit of our show and deep diving the black box and you know, when you think about this black box my mind’s eye goes to, unfortunately, when a plane goes down when a crash happens. When you listen to the media and you listen to the experts the first thing they talk about is the black box. Finding the details of what really happened. You get eye witness reports. You get these outside opinions of what they think happened.

Bobby:  What was mechanically happening with the plane. 

Kenny: Yeah. So that tells the entire story. In the spirit of our video podcast is deep dive, Tell the rest of the story and really give our listeners an opportunity to get educated and have full disclosure. One of the things we are going to do in the future, so you are aware. We are going to have a master class of our own where we are going to give you an opportunity to show some different scenarios and show some graphics and some charts and allow consumers to tiptoe through the process as if it was really them to be able to make really good financial decisions not only today but over their lifetime. 

Kenny: Thanks so much for joining us today. We really hope you enjoyed this session. This podcast.  We look forward to having you again. 

Bobby:  I am looking forward to it. 

Kenny: uh, I almost forgot man, how can people reach you?? We will put it on our website, but if you are in Virginia or North Carolina. 

Bobby:  If you are in Virginia or North Carolina. you can reach me at choosebobby.com Thats my vanity URL it’s a lot easier to remember than http forward colon and all that fun stuff. www.choosebobby.com takes you to the bank secure website at Coastal Town Mortgage and that’s how you can reach me immediately. 

Kenny:  If anyone who is listening who’s in Virginia or North Carolina, Bobby is a guy I trust. and I’ve got a number of mortgage lender brokers that I work with. But Bobby is one of those that at a high level that has always been transparent to my clients at my financial firm. 

Bobby:  Thank you!

Kenny:  So thanks for taking care of my clients and customers. We appreciate that and I know they do too.  You are a cool dude, man.

Bobby:  Thank you

Kenny:  Thanks for hanging out today.

Bobby:  Pleasure! 

Kenny:  Thanks for spending this time with us

Bobby:  I look forward to a lot more of this. this is fun. 

Kenny:  Alright. Great. Have a great one. 

Bobby:  Thanks. Cheers Kenny:  Cheers.