Mortgage Mike Tag

With home prices moving a great deal higher in recent years, some are worried that we are now on the verge of another housing bubble. Although this could be true, it certainly doesn’t appear likely in the near term. In fact, housing prices are projected to continue to grow over the coming years. However, many millennials are using this fear as rationale to continue to live with their parents or rent.

Real estate used as a primary residence has proven over time to be a wise investment, regardless of the timing of the purchase. Although some built up significant equity by purchasing when prices were at their lows during the recent housing crisis, even those who bought at the peak of the market in 2007 should once again be in a strong position of equity.

Homeownership is one of the greatest determining factors that contribute to wealth accumulation. In 2015, the average net worth of a homeowner was $195,400, compared to just $5,400 for a renter. Not only is a homeowner able to better weather a financial storm by borrowing against accumulated equity, homeowners are also able to reach a point where they no longer must make a mortgage payment once the home is paid off. Further, with rents rising as rapidly as they have in recent years, a homeowner who purchased their home years ago is likely paying far less than a renter who is leasing a similar priced home. In addition, the homeowner will receive a tax break that isn’t available to those who rent.

Although inching higher, the current home-ownership rate is well below where it should be. We need to see a bigger push for millennial home buyers to help ensure a strong economy in the decades to come. If they fail to buy at a reasonable age, they could be missing out on a significant opportunity.

Our team secretly came together for this photo while we were out of town and put it up on billboards for our return.
Mike and I started this amazing journey when Austin Taylor Roberts was still in a baby carrier sleeping under my desk.CCM_Turns_19_Years_txt
It has been the most rewarding, challenging, painful, scary, and exciting thing we’ve ever done…and we wouldn’t change it for anything.
Every day we get to work with our friends who believe what we believe and share our mission to be the most Trusted, Respected & Loved mortgage company in Utah….and soon beyond 🙂
I could not be more proud of this team, of the company we have all built and to all of you who honor us with the opportunity to serve.
Here’s to another amazing 19 years!

– Tobi Roberts

 

The Hidden Truth about Interest Rates

I recently made the decision to care less about being liked by people in the mortgage industry and more about transparency surrounding what I believe. For the sake of this article, I’ll focus on how much a mortgage loan truly costs an average consumer at most mortgage companies vs. what it costs at City Creek Mortgage. Further, I’ll dive into where I see the future of this industry as well as the people who work within it.

First, I want to make clear this is not a dig at my competitors. I believe most mortgage lenders are wonderful people who work for great companies. Just because I have fundamental differences in beliefs about how much companies and people in my industry should earn, doesn’t make my competitors wrong.

The $ Behind a Mortgage

Few consumers realize how much money is made in the process of a mortgage. For many well-known local mortgage companies, a $300,000 mortgage loan generates $12,000 of revenue. What consumers should understand is that this “standard” cost of originating a loan is substantially higher than the actual cost of doing so. The result is needlessly higher interest rates and closing costs for the consumer. Although “it’s just the way things are done,” I believe once people understand what is happening, this practice will come to an end.

In total transparency, a $300,000 mortgage loan closed at City Creek Mortgage will generate up to $6,000 in revenue on average. Although still a healthy income, it is significantly below what most companies make on the same loan. By choosing to make less money on each loan, we save our borrowers in both interest rate and closing costs compared to many of our competitors. Plain and simple, that’s the truth.

As I consider the future of the mortgage industry, I see what many in the industry don’t want to face. Some may disagree with my assessment. I see a time in the coming years where a computer will be able to replace most of the work done by mortgage loan originators. I will explain my thoughts below.

The Impact of Technology

Technology is making the mortgage process significantly easier, faster & more affordable. We are already at the stage where technology can automatically retrieve taxes, bank statements or pay stubs. Since this is most of the supporting documentation required for a loan, the effort required by the consumer and loan originator is decreasing. Further, many loans no longer require a physical appraisal. Once again, expediting the loan process. When combined with digital signing and instant loan approval, it’s not difficult for one to perceive a day when a mortgage loan originator is only needed on more complicated loans. It could even be that a human is needed on only 25% of all loans closed.

A Mortgage Loan Originator’s Income

In truth, the individual mortgage loan originator is usually able to set their own compensation levels. I know many that get paid 2% of each loan they close. This is in addition to what their respective company makes on each loan. For this to work, mortgage companies roll that super high commission into the interest rate they charge borrowers.

So for a $300,000 loan, not only does the company make money, but the loan officer gets $6,000 in commission. For that same $300,000 loan at City Creek Mortgage, $6,000 is the total revenue. No additional charges, or rolling commission into the interest rate like other companies. We use $6,000 to pay 30 staff members, and all our overhead. That’s why (in other companies) you can often get a lower rate by walking through an office and asking individual mortgage loan originators what their level of compensation is. Once you find the lowest plan, you can choose that mortgage loan originator and be offered lower rates and fees. Or you could do it…

The Right Way

You may be wondering how it is possible for City Creek Mortgage to make half of what our competition make on each loan. It is simple. We have a volume-based model. We have to do more loans, because we make less on each loan. We provide our loan officers with the stability of a salary and since they don’t do any marketing themselves, they can do substantially more loans per month than the typical loan originator.

I believe most mortgage loan originators who work for companies eventually will be paid a salary. An individual loan originator will no longer be able to make hundreds of thousands of dollars a year at the expense of the consumer for closing a handful of loans each month. The current system, where borrowers are paying a luxury tax each month for 30 years for overcompensated loan officers is flawed. Further, the real estate agents who claim to want the best for their clients are often the ones feeding the business to these highly compensated mortgage loan originators. It’s just wrong. Consumers shouldn’t be footing the bill for extravagant lifestyles of over-compensated mortgage loan originators. Trust me, it will change.

And that, my friends, is my explanation as to why our rates at City Creek Mortgage are so much lower than our competitors.

Consumer debt among American families was recently
reported to total $12.73 trillion. To put this into
perspective, the US government debt is just shy of $20
trillion. The outrageous amount currently owned by
consumers is higher now than the peak reached in 2008
before the economic collapse. Although consumers are
handling this level of debt better today than they did in
2008, it still represents a tremendous risk to individuals
and our economy as a whole.
Interestingly enough, mortgage debt is now a smaller
percentage of total debt than it was back in 2008. Of
course, this is primarily due to tighter lending restrictions.
This means that Americans are holding more debt in
riskier loans such as credit cards, bank loans and car
loans for example. Much of this debt is subject to
fluctuating interest rates, which is now something we
need to consider as the Fed pushes short term rates
higher.
I believe that consumer debt is usually a habit. Unsecured
debt, such as credit cards, could be a sign of spending
more than the income flowing into the household. To
break this cycle, sometimes more extreme measures
must be deployed. If the goal is to get out of consumer
debt, it could be advantageous to use a mortgage or
home equity loan to help. With values rising to premarket
crash levels, most people have a decent amount
of equity in their homes. However, I strongly caution
against this without a plan to break the cycle that led to
the debt in the first place. Otherwise, the same situation
is likely to occur.

 

WB

Warren Buffett’s famous quote “Be fearful when others are greedy, be greedy when others are fearful,” seems to be applicable to today’s stock market environment. With the US stock market recently setting new all-time highs, confidence in the market has reached a peak not seen since 2005. This strong sentiment may be reaching a point of “irrational exuberance.”

History shows that a contrarian outcome is often the result of an extraordinarily high level of faith that the market will continue to improve. A look back on previous market corrections shows that confidence generally peaks just prior to the downturn. Given the current political, economic and global uncertainty, it seems that circumstances may be ripe for a correction later in 2017.

Any attempt to foresee the direction of a market should be taken with a grain of salt. There are strong arguments to suggest the stock market will continue its climb higher well past 2018. The level of confidence however, is a concern.

The ladies of City Creek Mortgage joined The JR Way to deliver an extra special experience to the families living at The YMCA. We had a blast pampering the mom’s with hair, makeup, nail and massage services. For the kids we had stuffed stockings, games, cookies, tattoos and tons of other fun stuff. Everyone had a great time and we will be making this an annual event.

If you want to learn more about awesome giving opportunities like this, you can follow our page at Lending a Hand with City Creek Mortgage on Facebook.

LendingaHandYMCA

Recently it was brought to my attention that one of our closed clients was writing about their experience with City Creek Mortgage. This is far from a common REVIEW. It very well may be the first chapter in our soon-to-be-written book on The Perfect Client Experience. I am monumentally proud of my entire team for carrying out our vision so genuinely and for amazing clients like Kennie Christiansen and his fabulous wife Tracee for taking the time to articulate their experience. This was NOT paid for or even asked for which makes it PRICELESS! To read the full experience click here: kenniechristiansen.com/2017/01/03/best-utah-mortgage-company-real-estate-team/

 

 

2016 was a great year for the Utah Housing Market. According to CoreLogic, a well-respected source for housing market statistics, the average home in the State of Utah grew at an 8% annual pace over the last year. Further, it states that home values have nearly recovered all of their losses since the Housing Crisis of 2008. This strong report makes Utah one of the top appreciating Housing Markets in the country, which is great news for those who currently own a home.

With interest rates moving higher over the past few months, some are worried that this will have an adverse impact to the future value of homes. Although there is validity in the concern, the longer-term impact of rising rates has often proven to coincide with high levels of home value appreciation. Let’s take a look back on history to help form a conclusion.

The graph below shows four points in time when mortgage rates experienced rapid rates of increase and compare those times with their annualized rates of home value appreciation over the same period. As you can see, not only did home values remain in growth mode, they often experienced attractive improvements to home values. TRUST E D · R E S P E C T E D · LOVED

Traditional economics support the theory that as the cost of a mortgage increases with higher rates, the value of homes will fall to bring the relative cost back into balance. However, when values are rising because of growing incomes and a stronger job market, home values have room to move higher even as rates increase. Given the current strength of the housing market, the current level of wage growth is more than enough to sustain a reasonable rate of home value appreciation. Utah’s Unemployment Rate is currently at 3.2%, which is considered “full employment.” Further, the outlook on the job market is expected to remain strong for years to come; making Utah one of the greatest places to live.

Utah Home Values 2017

Although mortgage rates aren’t anticipated to experience a significant increase in 2017 (see next month’s 2017 Market Forecast), some experts and media pundits are calling for a drop in home values this year. Although we anticipate a slower pace of growth in 2017, we still see at least a growth rate of 4.5%. This is a healthy rate of appreciation and a level that is sustainable for the foreseeable future.

Of course, there is no way to say for sure what will happen, but it doesn’t appear likely that higher rates will have a significant negative impact to home values here in Utah.

High rates of home appreciation provide a tremendous opportunity to increase net worth. If you plan to move-up in the near future, you may want to make the move sooner rather than later. An extra $100,000 in home value, increasing at a rate of 4.5% could add an additional $14,000 to your net worth over the next three years. This could also be achieved by purchasing an investment property or a second home. Also, if you have millennial children, encourage them to become homeowners early in their adult life. Home ownership is a determining factor of long term financial health and security. Starting early is the key.

homeValues

Last November, I realized the power of journaling during a trip to Costa Rica with a business development group that I’m a member of.  During my stay, I was given the time to develop my thoughts and ideas.  As I sat down next to the water to think with my pen and journal in hand, I was able to map out plans, hopes, and dreams that have been on my mind for years.  I felt a burst of life envelop around me.  For the first time in a while, I felt a sense of peace and recognized many new possibilities.

Journaling is now a ritual in my life.  Having a place to land my thoughts helps me to feel more secure in my knowledge and prepares me to face situations that arise.  By tracking my feelings, lessons and ideas, I have found that I am a more well-rounded person with a greater sense of knowledge and perspective.     

If you aren’t currently journaling, I encourage you to try.  It may seem like one more thing to add to a busy life, however, I believe it is something that you greatly benefit from immediately.

Within my own family, I have recently experienced first-hand the need for proper planning for aging parents and family members.  I found this especially true as it relates to health care and housing.  If proper plans aren’t established early on, it can complicate the process and cost far more than anticipated or necessary.

I strongly suggest every adult have a will and estate plan established by a reputable estate planning attorney.  The cost to establish a plan is minimal compared to the price of wishing one was in place after it is needed.  If you need a referral, please reach out to me.  I’ll make sure your estate planning needs are in the hands of a capable professional.

Key areas that should be considered early on:

  • Vesting of home, assets and other items of value
  • Long-term care needs, costs and insurance
  • When to begin taking Social Security distributions
  • Ensuring adequate health insurance coverage (beyond Medicare)
  • How to handle life insurance policies
  • Medical directive, power of attorney, guardianship and conservatorship
  • After life plans