Although my travel schedule has been busier than it has been in a while, the questions keep coming in and everybody seems to be talking about the same thing...mortgages. While I am more of an equities and real estate investor than a mortgage loan officer, I do have some experienced opinions. I figured we'd better tackle this at three distinctive levels which are the people who are barely making it, the people who are making it and the new Gilded Age who make what they want when they want it. I assure you that all of them have their own unique set of problems.
The People Trying to Make It
Let's start with the people who are having a real struggle. Those who go to work each day and try to do the right thing but have found themselves in a sticky situation in spite of the best of intentions. Many have asked me questions about refinancing their properties with help from the Obama Administration's initiative. Make no mistake about it, I honestly don't understand exactly where Obama's new direction starts and the mortgage company's decision ends. What I do know is the mortgage companies are out for themselves! Don't think for a minute that you are their first priority. The stories of people in these so-called refinances are getting uglier and uglier with the end result being their mortgage company ended up selling the property after they thought they were freshly refinanced. I've heard the bad advice that people are getting from the account reps. Remember these are people who are probably undereducated to your situation and packed in a room with other reps giving you advice on your most precious asset. You call in trying to refinance because your financial situation has diminished and they tell you to you're fine and to keep making payments. Or they tell you that they can't help you until you're three months behind so stop paying. Well isn't that just bassackwards? My advice in this situation is to not take a customer service representative's advice. Get someone else with a real phone number and call them a few times at random so you know you can contact them. That way if something goes sour you have a belly button to push. Otherwise, you risk your property and your credit among other things.
The People Who Are Making It
With six new homes in twelve years, I've worked much more closely with the new homes sales community than I have existing properties. I've met a number of people who wanted to buy a new home in a mad rush because they have just paid off their old home that they've had for years. They tend to be in the early to mid 50's with the kids grown and gone. I'm sure the Clark Howards of the world would cringe at the thought of buying a new home for hundreds of thousands when your just released yourself from probably your largest single obligation. I understand both sides and regardless of which side I chose, I can tell you that the people who re-enter the buying market do it because of one main reason and that's taxes. When the kids left so went the deductions and as the mortgage shrunk to almost nothing, Uncle Sam requests seemingly inflated much more. The mortgage interest that they could no longer claim created a hefty bill around tax time and they're tired of paying it and getting what they feel is nothing in return. Think about the tax situation that puts them in. It's not common for the property taxes on a house to run $5-6,000 a year. When you have a mortgage that money is divided into your monthly payment but when you have eliminated the monthly payment they want the money all at once. If you're not careful, that hefty bill can wreak havoc. At the very least, it's enough to make people who were done with mortgages go and buy a new house. Out of the many money managers I chat with, I've only met one who told me he only had one client that was mortgage free and that guy was worth ten million. I even spoke one on one with the Fannie Mae CEO who made 16 million a year at the time and even he kept a mortgage.
The New Gilded Age
We'll let the last guy lead us into the world of the nonworking leisure class. Recently, I went to see one heck of an abode. At 25,000 square feet with 40,000 bricks used to make the heated drive way, 16 feet ceilings on the main level, marble floors and these elevator doors, 16 staircases and all can be yours for the $12,500,000 asking price. It was a magnificent place but I had to pass. Let me assure you, when you build at that level you are not just building for yourself. You marvel at people marveling over you because you maybe giving them an opportunity they've never had before and will never get again. So a major problem for apparently not only me was the fact that the house was built in a protected tree area and the entire front and back yard were covered in huge trees. The only person who can see all those over the top details is you and what fun is that? Add in the fact that as new trees grow, it will show less and less. Still even those who can afford the $56,000 a month mortgage are having some issues. Don't be surprised. Do you know how much money is saved when the interest rate on a mortgage that size drops by half a point? It's not unsubstantial. I've seen people at that level take out home equity loans for hundreds of thousands of dollars just to go Christmas shopping. Even at this level, banks aren't as quick to finance these houses as they once were. For a project I'm working on now, two banks threw up the deuces and told me they don't even get involved at the high levels anymore.
Regardless of your level keep digging because we're all Three Feet from Gold folks. My suggestion is to sit down, figure out precisely what you want out of life and strategically make it happen. Success comes from good judgment, good judgment comes from experience and experience comes from bad judgment. From the mobile home to where moguls roam, I'll be back soon so keep the questions coming.
p.s. You're all too lively to retire. I'm standing on a dock filled with yachts and the only other person in view is the grounds keeper. Find what you love to do and do it till you're satisfied...whatever it is.
