Prospect Mortgage was the WORST experience of my life

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It has taken me several months to compose this post and I apologize for the long story.  I needed to make sure I was writing with a clear head because every time I came back to this event I could feel myself getting angry all over again as I relived the entire disaster, but I feel so strongly that this needs to be told.  Yes, I will name names because this is a true story of actual events.

While working with a buyer recently, I had the misfortune of also working with Prospect Mortgage in Campbell.  It turned out to be the worst experience I have ever had for any transaction.

Screen shot 2011-08-03 at 9.08.21 AM My buyer had already met with and been pre-approved for his financing by Carey Atwood (NMLS#312243) of Prospect Mortgage before meeting with me for our buyer consultation.  I felt that my client had built a relationship with Carey and it wasn’t my place to jump in front of that to recommend someone new.  I should have suspected that something was not right when Carey misspelled our client’s name several times on various email and correspondence.

Once we made an accepted offer on a property, I kicked off the process for removing contingencies — ordering inspections and telling Carey to get his financing lined up and the appraisal ordered.  In most cases, I am usually called within a couple days by an appraiser telling me he/she will be doing an appraisal, and they like to ask questions if there is anything in particular they should be aware of (that effects the property value).  Almost a week goes by without hearing anything so I called Carey to check on the appraisal — I was given an excuse about how it must have gotten lost in the system!

The lack of communication from Prospect Mortgage amazed me.  Carey rarely if ever called me, I always had to call him.  He didn’t like to return phone calls, instead preferring to write an email.  So now I realized that I needed to constantly monitor his side of the transaction — was the appraisal ordered, when is it scheduled to take place, where are we with the loan application review and verification of income or assets, etc.  His job is basically to get the loan approval so we can remove our finance contingencies and move forward with drawing up the loan documents.

Most appraisals come in exactly at the offered price (don’t get me started on that “miracle”).  I have had some appraisals that come in 3%-4% lower than the offered price, so I need to kickoff an appraisal dispute process in order to make sure my clients are protected.  In this case, we get word from Carey that the appraisal came in $15,000 lower than the offered price (less than 1.5%).  I flipped out!  Who does this kind of thing?!  This never happens.  That’s such a small number on a $1M+ property.  After I pushed Carey to get to the bottom of it, he tells me the appraiser made a typo — it was supposed to be at our offered price!  Don’t you think he should have fixed that before sending it out to me and our client?

Ok, now we’re back on track, or so I thought.  The overall financing for this transaction was a $729,000 first loan, a piggyback equity line second loan for about $80k, and the rest made from the buyers cash down payment.  At this point we’re approaching the time to remove our finance contingency.  Essentially, once this contingency is removed, if my buyer cannot complete the sale then the seller has the right to keep the deposit money and sell to another buyer.  You can see where this is going, can’t you?

Making sure we are good to move forward, Carey tells us we are “Good To Go” on financing, the loans are in place and we are free to remove contingencies.  Sure enough, 2 days later Carey tells us his $80k piggyback second loan has disappeared.  The lender won’t approve this loan.  I was irate!  This has NEVER happened when I have used my referred loan agents.  Never!

Reviewing the situation — we are 2 weeks away from closing, $80k short of the purchase price, and $30k of my clients money at risk if we cannot close.  Carey is useless finding another solution.  After about 10 days go by where we poured over second sources and multiple solutions, my client reluctantly asks a family friend for a personal loan to replace the $80k and we’re back in business.

Now we go back to Carey at Prospect for the original $729k first loan and again Carey tells us we are “Good To Go”.  So we begin to put all the pieces in place, get agreement from the seller to close a little later than originally scheduled and then Carey sends an email — their loan rate-lock on this loan has expired and the cost of extending it was something like $5,000.

I flipped out, again.  At this point my buyer is exhausted, wants to give up, walk away, and sue everyone involved so I had to pull out the big gun to take care of this.  I went to my broker, who has high-level connections within Prospect, and told him how Prospect is a bunch of incompetent liars who have screwed this entire transaction from the start and now expect my client to pay $5,000 for their mistake.

Suddenly, I began seeing more email communication from Carey than ever before and names I’ve never seen included on the CC list which I assumed were stakeholder executives within Prospect.  Then a miracle happens, we get a 20-day rate-lock extension at no cost.

I’m confident we’re on track and everything is lined up to close in 2 daysCarey calls again — the Prospect underwriter is looking for the section 1 termite certification.  There is no termite report, my buyer waived that inspection and the purchase agreement specifically made no mention of termite inspection or report — I yelled at Carey again to fix yet another Prospect screwup.  He gets it fixed and we are finally able to close.

In conclusion, Prospect Mortgage and Carey Atwood in particular rarely delivered on anything they promised, they missed many deadlines and stretched the timelines way beyond anything I have ever seen, and worst of all, they always had an excuse for how someone else was to blame for the situation.

My lessons learned:

1) NEVER again work with Prospect Mortgage on any transaction, period.

2) I need to be more forceful and direct with my clients when they tell me they are already working with a loan agent they know.  Not to say I don’t trust whoever they are working with, but if I have never worked with him/her before then I still want my clients to meet one of my recommended loan agents so I have a quick backup plan if anything goes sideways.


Loan Changes Coming to FHA

There are a few changes coming early this year that will
impact specific real estate markets or price points across the Bay Area.  Yesterday’s WSJ reported that the FHA
(a type of government-backed loan program) is running short of their reserves
so they intend to increase their loan placement fee to 2.25% (from the current

What does this mean? 
If you get an FHA loan, you will need to pay a higher fee to “buy” the
loan.  For a typical $500k house
with only 10% down, your loan fee just went up to $10,125 from $7,875.  It is probably not enough to crash the
housing market, but it will price some buyers out who will have to delay their

Recommendation: If you are likely to use an FHA loan —
meaning you have less than 20% for a down payment or you have credit issues
that make a conventional loan rate very high, then I would say you should move
quickly to find the right house and get an offer accepted before FHA fees go


New Rates and Loan Limits — It Will Impact You

We are coming into some big changes in the mortgage market that will bring a huge impact for 2009. The Feds are buying $500M in housing loans through the bond market from now through June of 2009.  This translates into lower mortgage rate for borrowers and we are already seeing interest rates around 5%.  Will they head lower?  Probably.

If rates continue down, maybe toward 4.5%, it brings bigger buying power — it gives you the ability to buy more house for the same payment.  Of course this will help more buyers get into the market and put a bottom into the housing slump.

However, the “jumbo” loan limit has moved.  Last year it was temporarily raised to $729k for our area but the jumbo line for 2009 is set at $625k.  This means that buyers with 20% down can get a reasonable rate on a $625k loan and afford a home up to $780k.  I’m saying “reasonable loan” because the interest rate difference between the $417k loan and the $625k loan is minimal, unlike the true jumbo loans over $625k, where you will find that you still need to pay a rate premium — sometimes as much as 1 point.

Where is this taking us?  Well, we should also start getting lots of good news from the Obama Bounce during his first 90 days.  In my opinion, I think we’re going to see a lot of sales activity through the first half of the year assuming no more big bad news, and if you have been thinking about buying a home, don’t wait too long since I believe the best deals are going to come in the next 6 months.


Buying Power

When you start thinking about buying a home, most likely you begin with how much house can you afford to buy.  I know that’s how I started.  But the way to really look at how much you can afford is to think of your Buying Power in terms of your monthly payment.

There are many factors that go into calculating the actual price range of homes you can afford, but for simplicity we will make some assumptions.  You have a 20% down payment toward a 30-year fixed rate loan, good credit with FICO scores in the mid-high 700s, and you have a stable job where you can show pay stubs each month — basically, a solid buyer.

In our example, let’s say you have decided you don’t want to spend more than $3,000/month on your mortgage (of course there are other expenses like property taxes, insurance, HOA, etc).  If interest rates are 6.25% today, then this means you can have a loan amount of $487,000; add your 20% down payment and this gives a purchase price of $609,000.

I know there are quite a few buyers “on the fence” right now who would like to take a “wait and see” position because they think prices are going to drop further due to all the bad news in the media.  I completely understand, and waiting for prices to drop may make sense depending on your underlying reason for buying a home.

However, waiting also comes with a risk.  For the same example above, lets say you are determined to wait until home prices drop further before you jump in to buy a home.  If during the time you are waiting, interest rates go up 1/2 of a percent (from 6.25% to 6.75%) this will impact on your Buying Power.  Now, at 6.75% your same $3000/month mortgage budget can only get you a loan of $462k, and with your 20% down payment, your Buying Power came down to $578k — basically the 1/2 percent of interest increase has cut down your Buying Power by 5%.

In the end, your Buying Power is the most important component of buying your home.  It may not make sense to wait for home prices to come down 5% (from $609,000 to $578,000 in our example) because if interest rates go up 1/2 of a percent during the time you are waiting, the same home will still cost you $3,000/month mortgage. 

So while you are waiting the home prices to come down more, you also need to pay attention which direction the interest rate would go in the future.  Put together your Buying Power profile and when you feel it is as strong as you can get, you should focus on finding the right home that fits your profile no matter what is happening in the overall market.


Meeting the market challenge in 2008 by Wells Fargo

I recently attended a special event at the Oakridge movie theater.  I was invited to join a 1-hour session hosted by Wells Fargo Bank in which they assembled a live panel of 4 high-profile people within the real estate business in front of an audience of thousands of real estate professionals.

A moderator asked some leading questions and the panel responded from their perspective as this event was broadcast live to dozens of theaters.  The speakers were Cara Heiden, Co-President of Wells Fargo Home Mortgage; David Bach, author of the bestsellers like The Automatic Millionaire and Start Late, Finish Rich; Terry Watson founder of Watson World and notoriously famous real estate family brokerage; and Brian Buffini, enormously successful former real estate broker and now founder of his training and business coaching company for Realtors — all very well respected in their fields.

The title and underlying theme was about Meeting the Market Challenge for 2008.  Essentially, it was a great time to hear how these very influential people believe the market correction we are experiencing today has created a great buying opportunity.  They are encouraging us as real estate professionals to bring this message to our clients since opportunities like this in the housing market happen about once every 15 years (historically).

What I found to be the most interesting take away was that Wells Fargo sponsored the whole event.  This was broadcast to 50 movie theaters across the country where 12,000 agents gathered to hear the insights of these speakers.  To me, it was nice to see a company like Wells Fargo committed to bringing a positive message to the industry.  With so much negative media around housing and financials, it was refreshing to hear a new perspective.

I don’t think anyone will be able to point to “the bottom” of the recent housing shift until we are well into a recognized recovery, but in my opinion, when big home loan institutions like Wells Fargo bring a message — we have money and we are here to lend to your clients and take advantage of market opportunities — it must be a step in the right direction.


FHA loan is back. . . and very welcome!

The mortgage markets are tightening daily – this is nothing new because it has been front page news since August, 2007.  For homebuyers, this has had the effect of 1) generally higher interest rates, 2) higher FICO credit scores needed to qualify for a loan, and 3) a need for higher down-payments — this has especially impacted first time home buyers.

However, there is a sign of hope known as the FHA (Federal Housing Administration) bringing great news to both buyers and sellers.  The FHA is a government-backed loan program that has not been used much in California in the last 10 years since normal retail banks were offering the best mortgage programs to the public.  But now these same retail banks are stepping away from risk, FHA programs are making their way back as a great option for homebuyers.  Let me show you how.

Using FHA may help get around many of the problems buyers are having with typical retail loans today.  FHA does not have a high credit requirement so low credit scores may be accepted.  FHA loans can go up to 97% loan to value ratio, so buyers can get into a home with a low down payment.  FHA loans also go up to $729,750 on a single loan and the interest rates are very competitive, around 6.25% today.

These new FHA loans do have some restrictions, but nothing that should scare anyone from using them to buy the home you want.  You need to have 2 years continuous employment, any late payments on your credit report will need to be explained in a written letter, and you need to wait 3 years after a foreclosure to try to use an FHA loan for a new purchase.  On the down side, FHA loans do require a 0.5% per year mortgage insurance payment and 1.5% origination cost at the time of purchase.  You also need to consider that since this is a government-backed program, allow for a 60 day close instead of 30 days because there is more “process” involved.

Out of what we are seeing in the housing market today, the FHA program is a very important piece and we believe this will begin to repair the market.  If you believe you are out of the housing market because you only have 5% or 10% saved as a down payment, you now have other options.  If you are a seller of a home that is not moving after being on the market for a long time, it may be wise to consider concessions that will let buyers qualify for a loan on your home instead of reducing the price.


Use Your Home Equity Line or Lose it

If you have an unused home equity line but have plans to use that money for something in the near future, right now may be the time to take some action.

Home equity lines of credit (HELOC or ELOC) are a great way of tapping into the equity in your home to make improvements like remodeling or landscaping.  Unfortunately, it has become more common over the past 10 years to buy consumables or even pay off credit cards with ELOCs since the interest rates are much lower than credit cards.  Time Magazine reported that Americans tapped into the equity in their homes at an astounding rate from 2004-2006:

As the credit market gets tighter, equity lines are the first to feel the crunch.  These credit lines are the banks most risky notes because if the home they are connected to goes down in value, it is possible that the homeowner will not want (or be able) to pay.

We are now seeing banks taking some surprising actions on existing equity lines.  One client of ours who was not using her $100,000 ELOC received a letter telling her that the equity line has been closed for no reason.  I have also heard that other lenders have suddenly reduced the equity line limit to the existing balance, which means you cannot draw any more money.  These moves will reduce the bank’s risk.

So, what should you do now?  If you are planning a project that will need the money from your equity line, you should immediately check the status of your ELOC.  If it is still available, it may be a good idea to write a check against the ELOC and deposit into your savings or money market account.  I know, you are paying interest on the ELOC and not even using the money.  However, if the credit market continues to tighten, it is possible that your lender will reduce or remove your ELOC before you have a chance to use it, and you are going to face the fact that you might need to find another way to pay for your remodeling project. 


Housing debt is higher than equity

Friday I saw 2 articles (Wall Street Journal front page, and San Jose Mercury Business section) that highlight how we have seen a slide in the average homeowner equity as a percent of mortgage.  Meaning, forty years ago, it was likely that a homeowner of a property valued at $50,000 had a loan of only $10,000, thus having 80% in equity. 

These articles are trying to point to a slide in housing prices as the primary reason for this phenomenon.  I think the price of housing is just one of many factors.  We should be looking to the lending standards for the true cause.  For the past decade, the traditional 20% down payment which dominated the housing industry since 1945, was replaced by 10%, 5% or even 0% down payment standards.  This led to the greatest number of real estate sales peaking in 2005 as 7.2 million homes were sold.

In addition, there has been a huge growth in “interest only” loans as an overall percentage of loans taken out on new purchases.  Naturally, this means that the homeowner is not paying anything against principle so unless the home grows in value; the homeowner has no way to effect the equity position of their home.

Combining the volume of sales using less than 20% down and the “interest only” loan practice, it should be no surprise that we are shifting toward higher loan-to-value ratios.  I don’t believe these newspaper stories are accurately reporting the cause, instead, they choose to ring the alarm bell on declining home values.  Unfortunately, this is typical for today’s news environment.

On the other hand, paying down your mortgage may not be the best use of your money, at least for some people.  Since the interest rate on your mortgage is about 6.5% and this interest is tax deductible, there is a growing set of investors who are looking to invest money they would use to pay down the principle into a higher return than 6.5%.  I’ve recently read “Missed Fortune 101” by Douglas Andrew who puts together some interesting theories around this approach.


Update on Conforming Loan Limit Increases

The Office of Federal Housing Enterprise Oversight
(OFHEO) today announced it has temporarily increased limits on
conforming loans offered by
government-sponsored enterprises, Fannie Mae and Freddie
Mac, from $417,000 to as high as $729,750 in fourteen counties
in California for loans originated between July 1, 2007 and Dec.
31, 2008. Fannie and
Freddie are reported to be working out new underwriting
standards and expect to begin offering the new loans


Also, on Wednesday, the government raised the conforming
loan limit
for mortgages guaranteed by the Federal Housing
, and has begun offering the maximum limit of
$729,750 for 14 California counties, up from $362,790, for loans
originated between now and Dec. 31, 2008.


The Fed’s economic stimulus package approved
earlier this year called for temporary increases on
conforming and FHA loan limits to allow troubled
borrowers to refinance out of sub-prime loans and make it easier
for many new buyers to qualify for mortgages in high-cost areas,
particularly in California where home prices remain
among the highest in the nation.   


To view a list
of the new FHA Mortgage Limits by county, go to

FHA Loan
Limits by County


For a list of
the proposed loan limit changes for Fannie Mae and Freddie
Mac, go to
California Association of Realtors (CAR).


When is the bottom?

Even if you didn’t ask us this question yet, we know it’s on your mind.  Everyone would like to know – “when will we see the bottom of housing prices?”  Most people are hesitant to make a guess and maybe I’m crazy to take a guess like this, but since this is an interactive discussion, I’ll let you know my opinion and how I get there.

It seems like January 23rd was the day.  Well, maybe not for an exact bottom, but it was the most significant day of the credit crisis thus far and an event occurred which I believe may not be repeated any time soon.  On that day, I’m told by lenders with whom we work, that you could have locked a 30-year fixed loan at a rate of 4.75% — for about 3 hours.  Rates soon shot up by the afternoon and they closed at 5.5% by the end of the day.  If you were lucky enough to have been refinancing or locking a rate for a home purchase you made a great move!

In the Bay Area, January was a painfully slow month as far as the number of sales recorded.  February, even though it is a shorter month as far as the number of days, recorded more sales than January this year.  That is not what happened last year and I believe it is significant move toward normalizing sales activity.

I’m also going on the number of Pending Sales vs. the number of Active Listings.  I’ll work on getting some data and charts to post, but basically it looks like areas that were seeing very little pending sales (like Alum Rock or South San Jose) are now seeing a noteworthy rise in pending sales.

Maybe my ‘bottom call’ is somewhat based on a feeling which is not necessarily the type of analytical data most people are looking for, but I’m willing to take the chance and post the data.  Stay meshed in!