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Why is the Big House Pricing Issue Happening? Find Out Which Loan is Best for You!
Corwyn:
Good morning. Good morning. And good morning guys. You today are in for a treat. Because look here, I have, went back, I went back to get my dude. This is my dude. Every time we see each other, we say, “Dude”. Hey guys, look. You’re in for a fabulous show. Welcome to EXIT Strategy Radio Show, guys, I’m your host, Corwyn J. Melette, Broker and Owner at EXIT LowCountry Group in beautiful North Charleston, South Carolina. As always guys, we will give you an action-packed. We’ll give you a fun episode. And guys, we’ll make sure that you got some information that will be useful in the endeavors that you set forth to accomplish. Alright, so today guys, it’s no different. We have with us David Kliewer, with Paramount Residential Mortgage Group. Dave, how are you doing today?
David:
I’m doing great. Thanks, Corwyn.
Corwyn:
So look, I gotta hit a normal intro doo doo doo dude, dude. So thank you so much for being here with us today. Yeah. So if you don’t mind, give our listeners a smidgen, if you will, about you, like where are you from? What got you into the mortgage industry? You know, just, just tell our folks about you.
David:
I’m originally from Chicago, I went to school in Northern Indiana. I came to Charleston. Cheese! was a little over 20 years ago. I can’t believe it’s been that long. When I started, I had to work in the RV business, Recreational Vehicles. And I thought, well, what’s good, I worked in manufacturing and on that and sales and I thought what’s a good way to a good industry to switch over here in Charleston? And I started selling mobile homes. And I didn’t enjoy that. Because it’s, it was, just not, it just wasn’t fun for me like a recreational vehicle was. And so what I did is I took the part that I liked from that, which was the financing end and a mortgage lender. So I did that pretty quickly after moving here, so okay,
Corwyn:
Well, I don’t think I ever knew that you sold RVs. That’s a whole nother conversation. Yeah, have had at another time. But I will kind of drop this piece. And I remember I was in the midst of a transaction some years ago, my client was well I think he still is he was a regional for a mobile home, nonmobile home for RV dealerships. So he’s a regional, you know, what have you and, and you know, and he in the midst of a transaction, he just, you know, just kind of said to me one day while we’re together, he’s like, “Corwyn” he said, “Look2, he said, “This doesn’t make sense to me”. He said, “I can find it. So I can finance, approved someone to buy a half million million dollar RV, in 72, 96 hours a day with it”. Yeah. A house. Why take your 30 days? He could? I can’t understand that. So I may ask you that question. But thank you so much for sharing a little bit about your background and your history. Yeah. So you know, you’ve been in the mortgage industry for roughly how long now?
David:
About 20 years. As I said, I made that move pretty quickly after moving here, after being in the mobile home side of it. So
Corwyn:
So, I’m gonna ask you, you know, and this is a question that obviously, you know, you know, is part for, as part for the season that we’re in, and I don’t want to harp on it as well on it. But you know, as we have been, you know, meeting, interviewing and you know, discussing, you know, the market in general with, you know, other practitioners, you know, obviously, you know, lending lenders and lending partners, things of that nature. And just, you know, and we’ve done it, you know, again, both in meetings, we’ve also, you know, as we had the opportunity on air to kind of have those conversations, tell, tell our listeners, you know, what is it that you’re, you know, relaying or saying to a consumer in this time? There’s so many, so many people are really, you know, disoriented by, you know, about the current, quote, unquote, climate. But you’ve been 20 years. So you’ve seen, you’ve seen, what you’ve seen, you’ve seen this before, yeah, this part, but you’ve seen worse so.
David:
So, really, what’s happening right now is, there’s a big pricing issue. And a lot of that has to do with what the Fed is doing with rates, but at the same time, there are bonds that are going down. And, like the T-bill, the Treasury Bill. That those two things working against each other really put us, lenders, in a tight position as far as pricing is concerned. So we’re at a point right now, where pretty much every lender you go to, you’re gonna see really high-interest rates, comparatively, you know, maybe at times three to four times higher than we were just earlier this year. And, then on top of that, there are going to be points. And the problem is, is that just to break even, that’s what we are having to do. And that’s what other lenders are having to do. Now, there have been a number of lenders out there that have taken the money that they’ve used for refunds that they earn in the past year or so doing refinances like crazy, and deserting tons of money, and they’ve got this big pot of money to use, they’re losing money on every deal, just to take up market share, and grow that business so that they can grow their need. We had not been doing that. But it’s not necessarily illegal. But at this point, it is against the rules as far as Fannie Mae and Freddie Mac are concerned, they stopped down on that, just so that there’s an even playing field. Now, if a lender had their own money, and they wanted to do something like that, and it wasn’t backed by Fannie or Freddie, then that’s a different story. They could still do that, but I’m not sure. I’m not sure who or if they are, they are doing that. Maybe secrets away that I shouldn’t be but
Corwyn:
So what I just heard was, if it’s a direct lender, they’re, you know, they’re not on a direct lender, they’re not, you know, bank or they’re not writing or selling directly to Fannie or maybe they have private investors or something of that nature. And those kinds of things they can do. Is that, is that the right understanding? Was it?
David:
Yeah, I’m sure that anybody that has pools of money, like that would be Fannie Freddie approved as well. But it would be private pools of money that they would use to do that. But again, that’s only a short-term solution, because they’re gonna I mean, they’re losing a lot of money by doing that. And you know, they can only hemorrhage for so long. So what, we’ll see what happens with that, if anybody starts to start to use that a lot or what happened?
Corwyn:
So you touched on something that, that most consumers, and to be frank about it most real estate professionals, you know, have a misunderstanding about there is not a direct correlation between the Fed rates and interest rates and lender rates. The lender rates are controlled by the market. Correct! You know that’s, that’s, that’s where it comes from. Pricing as you say, so what
David:
It’s more and more controlled by inflation.
Corwyn:
Okay, so inflation really impacts that is what Ido, okay, they
David:
Inflation and the T bills. That Treasury bills, okay. And inflation, there’s not a more direct correlation, let’s put, let’s put it that way. It’s not you know, you can still have t-bills going down and rates not reacting the same way to that and say, there’s a, you know, and well, another war going on somewhere else that we hadn’t known about, and, or something gets bombed or some big issue that happens in the market reacts definitely towards that happens sometimes.
Corwyn:
And that’s, that’s really interesting because, you know, inevitably consumers, you know, we believe we can time everything. I mean, it’s almost like, like, we believe that we can play double dutch with the real estate market. Fan I, you know, I write, you know, say you see the
David:
Yep, yeah.
Corwyn:
So that’s literally what the consumer believes they can time the market. And in turn, they oftentimes look, look to their real estate professional professionals, whether that be their realtor, whether that be, you know, their lender, or whoever to quote-unquote, assist them in timing the market. Sure. But the problem with that is like you say it, look, you plan your jumping rope, that’s one thing. But the real estate market, and I’ve never said this before today, but just envisioning it. It’s like a double dutch with 13 ropes. And hold on, here’s the thing now, it’s 13 ropes held by two people that got 17 hands. And then yeah.
David:
Yeah! Right, right, I used to call the Simpson system of lovers. So it’s the same thing. There are so many things going on, you can’t, you can’t predict what’s going to happen. And especially if you’re talking about buying a primary residence, don’t make your decision on what the market is doing. That’s a large, long-term investment. And eventually, you know, you’re going to, you’re going to make your money back. And then some, but it’s as far as predicting what is going to happen, once you have a contract, the lender is going to sit there and say, All right, next 30 days, or however long the contract is written for, what do we think is going to happen with rates and either they pay attention to that, or they pay for products to give them a heads up if things are, you know, going to happen? Within a few days, we actually got answers usually. I get a text and a phone call 30 minutes before something happens. And then I can decide to lock somebody in or not. But that’s, that’s the point where I’m saying to the borrower, listen, this is a really weird market. Let’s, let’s lock things that we’re where they’re at now, even though it’s not optimal. Because, you know, yeah, sure, rates might go down, but they also might go into the double digits, you know, so let’s be conservative on that. Yeah. And if they, you know, eventually go back down into the twos and threes then refinance.
Corwyn:
So, and that’s logic speaking, right? So, you know, obviously, you know, we don’t always work from a word well, from logic, sometimes we are emotional, and, you know,
David:
Ohh especially buyers with first-time homebuyers, and you know, Yeah, cuz, and they shouldn’t be because they want, they fall in love with the home. Investors are different, but you know, yeah, I understand that.
Corwyn:
So the question in that and behind that, you know, this is the conversation I’ve been having recently, I said, “Look, the rate set 3% really is abnormal.”
David:
They’ve never one continuous time, they have they’ve been at that rate, ever!
Corwyn:
So, you know, when you look at history, and you got 20 years of industry history, but when you go outside of that, look, historically, you know, we’re still even now in a good rate market.
David:
My parents bought their first house at an 18% rate, and they were just so blown away and excited about it.
Corwyn:
So one of our partners, you know, in a conversation, you know, a few weeks ago, you know, we kind of were having this conversation. And, you know, he shared with me, he said look, he said when I got into the business, you were lucky to get the 12-99 special, you know, and you know, and you know we’re having low Dave, we have so much conversation about rates that you know, and I get it does impact affordability. Yes, it does. I agree with that wholeheartedly. Yeah. However, the issue with affordability isn’t in the interest rate, it’s in the pricing in the market. Yeah, absolutely. So, you know, those things are only impacted by supply and demand. So we still have a shortage of inventory, which, from my side, we have a shortage of available items. And in turn, we have a very high demand. So that means that people are still out here signing up for, if they could get the 12-99 special, I’m pretty sure people will still be buying the 12-99 special, they’ll do it. Yeah. Because they want, they don’t want the offer.
David:
I live somewhere. And it’s, it’s still going to be better than renting. So,
Corwyn:
Exactly, exactly. So, you know, let’s, let’s go back and, you know, and kind of, you know, have this, you know, part of the conversation, and I do want to make sure that I kind of, you know, pick up, you know because you know, you guys service, you know, everybody. You service, you know, investors, you service you know, owner-occupants, and stuff, you know, with, you know, all the country,
David:
As long as it’s less than four units, then we can do it for rolling.
Corwyn:
So let’s, so let’s talk about this, let me, let me you know, market shifts, you know, there’s, you know, everybody knows it’s incredible. When I got into the market, everything was 100% financing, and then it went to 80 20s. And then, you know, we had the market downturn, and then everything every conversation since then. So since about probably around 2000, and maybe eight-ish, ninth-ish or something, you know, I’ve never done, you know, I’ve been in the business for you know, for so years had never closed and FHA mortgage didn’t close my first FHA mortgage, until 2008 2009 time. He needs you. Exactly! For the moment out, we’re in a different market. So what do you think is going to be the product, quote, unquote, a go-to product of choice?
David:
Well, it’s still going to be conventional. Okay, if you’re looking for this way, it’s still gonna be conventional if your credit scores are decent enough, and you have 20% to put down. Even if you have 5% to put down. But even if you have 3% to put down, a conventional loan is going to be better than an FHA loan if you can qualify for it. The reason I say that is because your monthly mortgage insurance on your FHA loan is going to be there for life. It never goes away. It used to go away after a few years. Now it’s there forever, plus, you have an upfront mortgage insurance fee as well. So if you go with a conventional loan that has mortgage insurance, and like I said, your credit scores are decent enough to go into the conventional market, even if it’s a higher rate, you’re still going to be saving money in that mortgage insurance. Mortgage insurance on a conventional loan is probably going to be less as well. And then eventually, you can apply to have that removed, depending on how long you had the loan and the home and how long or how, you know, what it would appraise for.
Corwyn:
And that’s, and that’s an interesting concept and thought process, because, you know, I’m gonna share with you what consumers believe, consumers believe. Because, you know, real estate professionals, you know, have been just out here, I mean, all they say is the same thing, you buy a house for three and a half percent, down three and a half percent down three and a half percent down. And they and that’s kind of the tagline. And the three and a half percent, which we know is an FHA loan, yeah, 3% on conventional, yes, you may have to have a higher credit score to qualify, a slightly higher credit score, possibly to qualify for that program. But your savings over life alone is going to be greater than it would be with FHA.
David:
10-2 dollars less. And the other thing is that in a lot of cases.
Corwyn:
So the other thing that you said in there is, this is where people, you know, again, they miss, again, the savings with the mortgage insurance, where you get to a certain place, and you can either automatically drop off, or because it doesn’t automatically drop off anymore with FHA. But on the other side of, with conventional, if it doesn’t, but you have the value, you can challenge the lender with caps or appraisal and get that removed and save yourself without having to refinance the loan. Correct? Certainly comes
David:
I would spend more fees to refinance the loan and get that removed.
Corwyn:
So you know, how do you, how do you, you know, explain this? Because again, most times the realtor, real estate agent, pushed this person to you and said, you know, FHA loan, FHA FHA loan because they don’t know and understand what you know or understand. So, how do you, how do you address that with the consumer, let’s say when you get an application?
David:
Hey, it’s the easiest thing in the world because you just tell them, hey, listen, you’ve got the FHA side, which it’s FHA is there right now, for somebody to be able to get into a home. Somebody that is not within the credit score range that they need to be, or maybe their debt to income ratio is a little bit higher and things are a little bit shakier. They can qualify to purchase a home and maybe eventually refinance out of it and get rid of that mortgage insurance, which is what you would have to do with an FHA loan. So that’s, that is, it just makes it available to more on the market now, if you can qualify for the conventional loan, by all means, every “Never Say Never” and all that, but I can’t think of a situation where a conventional loan would be worse than an FHA loan because of what we’ve just gone through. On top of that, it’s easier and it is, it’s quicker to get done. I mean, there’s literally less paperwork, a lot less paperwork to do on a conventional loan. So it’s more lenient, as far as the property is concerned, a little bit more strict as far as income assets and credit. But, you know, as I said, the FHA, at this point is there, to get that extra market share, not to get that extra market share, it’s there for the consumer, to be able to purchase a home if they’re not quite at the conventional loan status. But I say to the consumer, if at all possible if you have three or 5% to put down, I really stressed that 5% because it cuts down on the mortgage insurance so much, and it makes it more available as far as credit scores are concerned. You know, it’s an extra 2%. And a lot of people that’s hard to do, but it’s, it’s better every time if you can go conventional.
Corwyn:
That, That’s, and that is very helpful. That’s the conversation oftentimes it’s not had. Yeah! Because, you know, people, you know, and I get it, you know, we want to give the bare minimum at times, you know, I was fortunate, you know, that, you know, when, you know, when I when I’ve made my what, what has been what the last purchases I’ve made, not the, you know, the most recent, you know, I use it on a primary, I use FHA. And, you know, I was prior to the change in the EMI, so that EMI dropped off, dropped off, I think has dropped off. I mean, it should have dropped off. And I need to look at that now that I’ve said that out loud. But, you know, those kinds of things happening are differentiators and game changes for the consumer. I believe it dropped off because I distinctly remember my mortgage going down. Yeah, you know, as far as the payment or whatever went. So, you know, that is awesome, you know, but I’m gonna share this piece, and David if you don’t mind, um, this is probably a great place for you to drop your contact information on for our listeners. How can people get in contact with you?
David:
Yeah, sure, you can contact me. The best way is usually by email DKLIEWER at P as in Paul, R as in rose, M as in Mary, and G as in george.net. So, dkliewer@prmg.net You can also contact me on my cell phone, you can text me, or call me at 843-364-0147. Again it’s 843-364-0147.
Corwyn:
All right, y’all call them y’all, please. When he asked him for the phone say “Dude”
David:
Please do please do please do. Yeah, please do that.
Corwyn:
That is hilarious! Look here, I get to take a lot of every time man. You know for our listener guys, you know, the thing that’s gonna help you all when is going to help you all when is having understanding. Let’s take this, and operate beyond just the emotional response. Yeah, you don’t like this. So this hit that in a third but you can’t control that. What you can’t control is you and the options in this current logic. Exactly. So in this is this way the question is coming right here Dave, because you hear people you know, the logic and what we’re explaining to people is look, we still showed an inventory which means pricing is going to continue to increase, it’s not going to, I don’t think it’s going to run away. But I don’t know if I had a crystal ball. I hit that billion if I had a good look. Yeah. Yeah. A lot of you are out to get the bill
David:
You wouldn’t give me my phone number. Well, you would, you would.
Corwyn:
So, they’ll call you and be like, “Hey, dude!” So, you know that’s the thing that people don’t get. We’re so Boston in our thought process that we don’t correlate. If rates ever come down. If you have your position in your home, you can always refinance. But if you don’t have your position, you not only got to get your position, you also got to finance it, which means you can end up paying more for the home, even though you may have a slightly lower rate, and you’ll end up paying more over the life anyway. Locking in now, reposition, if you get the opportunity, if you don’t get the opportunity you already got a great rate, right?
David:
And those are details that should, really that the loan officers should really be handling. And those are questions that they should be handling. I think that a lot of times what happens is the rich Realtors end up being the ones that the borrower’s buyers call first. And that’s kind of backward as far as the process should go. So when you talk to a realtor, the realtor is going to introduce you to the fact that you know there’s going to be a mortgage and stuff like that, but maybe tell you a couple of different types of choices. And you know, find out how much you want to put down and stuff like that. But then it’s the job of the loan officer to really get into the details. And explain why and which loan is best for you
Corwyn:
Well, dude, I really appreciate you taking time out of your busy schedule to be here absolutely at EXIT Strategies Radio Show. Thanks for having me. You’re more than welcome. And thank you again. For our listeners, guys, hey, you have gotten some good useful information, please apply it, please utilize it, please do something with it other than just hear it, do something with it. Make the decision that’s going to work better and best for you. But make sure you understand all the different facets and all the different components that go into making an informed decision. Knowing what rates are, yeah. But understanding the potential, the possibilities, all those variables, and all those things that could impact or change, quote-unquote, that future outcome is going to benefit you today. There is no better
David:
Inform you of those different items.
Corwyn:
Exactly. And there’s no better teacher and a lender. There’s no better time than now if you’re ready. Correct. Who knows what tomorrow may bring? So Dave again, my man, I greatly appreciate your time. Thank you so much. Again, for our listeners, guys. Thank you all for tuning in. As you know how I feel. Y’all should know but I’m gonna tell you anyhow, I love you. I love you. I love you. And I’m gonna see you guys out there in the street
