FTC staff files comments on proposed amendments to RESPA regulations
Business down? Dave Hershmanreal estate industry, purchasing or refinancing, credit crisis Implement the 100 percent model: Part II Recently, I wrote an article that described the advantages of serving a greater portion of your sphere. Certainly, if you are in a profession related to the real estate industry, only one percent of the population is considering a transaction at any one time. However, if you can find a way to serve a much greater percentage of the population, you have the ability to make your business cycle-proof. In this case, we must expand our view from those purchasing or refinancing today, to those who might be starting a business tomorrow, retiring in a few years or purchasing their first home in the next five years. Certainly, because lenders have changed the rules during the current credit crisis, the largest growing segment of your sphere is comprised of those who can't qualify to purchase, or even refinance, if they already own. We estimate that somewhere between 20 and 40 percent of the population falls into this category because of a variety of reasons that are interrelated, such as credit scores that are too low, debt levels that are too high and income levels that are too low. The next question is: How do we serve these people? For one thing, we need to take a longer-term view of their situation, instead of looking at only those who are about to consummate a transaction in the next month and trying to apply "band-aids" to get them approved. What we typically do is find someone who wants to purchase and help them increase their credit score, pay off a debt or even obtain a raise. Of course, three years later when they want to purchase again or refinance, they are back in the same situation. Actually, many are in worse shape if lenders have tightened up or home values have gone down during the ensuing years. Research has shown that consumers think of purchasing a home for a year or more. This is not a decision that comes overnight. Getting their finances in shape should be a long-term endeavor. Credit scores should be optimized in the long-run. Usually, someone looks at their credit report when they are going to make a purchase, such as a home or car. By then, the damage may be too severe. Today, mortgage lenders are not the only ones charging more for low credit scores. Insurance companies, credit card companies and even doctors are starting to run reports before they accept patients! A low credit score can cost a person hundreds of thousands of dollars in extra costs over a lifetime. What the consumer needs to do is get with someone who will help him optimize his credit in the long-run. Basically, we need to make our everyday financial decisions based upon what effect the decision will have on our credit score. This might mean opening or extending credit on a credit card, or closing a line of credit which is not in use. It may mean challenging something on the report which is false or perhaps not placed on the report in compliance with applicable laws. We are not saying that if you serve the real estate industry in some way you should become a credit monitoring service. However, there are services that exist that not only repair credit, but help keep that credit optimized in the long run. Debt is also a long-term issue. Paying off a debt to get someone's finances in line to qualify for a loan is one thing. Helping a person who is drowning in debt become completely debt free is a much longer-term and more rewarding proposition. The average American is drowning in debt, as we are besieged with credit offers and have used our homes as piggy banks over the past 10 years. It took us years to get in this situation, and it will take us years to navigate our way out. Bankruptcy and debt renegotiation are viable options; however, these adversely affect one's credit situation and can move us years away from the goal of homeownership and achieving the American dream. Once again, there are services that will help consumers organize their debts and pay them off more quickly. These may involve equity acceleration if they own a home or general debt reduction if they don't own a home. Debt consolidation may be required in certain situations, but not always. The income situation is a bit more difficult to deal with; however, there are many moves a person can make now to help several years down the road. In the past, lenders let those who were self-employed go with "stated income." This option is much more limited now—especially for those with lower credit scores and a smaller downpayment. Many will have to work with an accountant to put their returns in order and others may have to find ways to increase their income, even if it means second jobs or starting a business. Need ideas for services to address these situations for your clients? Interested in serving a greater portion of your prospects and sphere in general? E-mail me at [email protected], and I will introduce you to an alternative that will help you and your prospect attack all three of these areas which make up standard deficiencies. It is time we start to help people not only purchase a home, but completely realize the American dream. Dave Hershman is a top speaker and leading author in the mortgage industry with eight books—including two best sellers for the Mortgage Bankers Association of America. His mortgage school is the only comprehensive advanced curriculum in the industry. For a schedule of classes, free marketing samples, speaking information and articles by Dave, call (800) 581-5678, e-mail [email protected] or visit www.originationpro.com.