QUESTIONS AND ANSWERS:
QUESTION: Hi Adam, I am in escrow and my broker sent us a TIL and GFE. Both amounts for our monthly payment vary. Then the lender sent us their GFE and TIL and no ones numbers are matching up. Is this normal? How will I know they get it right in the end? (Aug. 12, Patty in El Segundo, Calif.)
ADAM AVERY'S RESPONSE: Unfortunately it is all too common. Initial broker disclosures and initial lender disclosures rarely if ever match exactly. In fact, they can be remarkably disparate. This pandemic inattention to detail has manifested into an over abundance of poorly devised financial disclosures currently required to settle mortgage loans. The Good Faith Estimate (GFE) and Truth-in-Lending (TIL) are two such examples.
Brokers develop a rudimentary “mock up” loan based on general and loosely defined information at the point of application: Your proposed interest rate, loan term, loan product, and closing costs may be based on an approximate market value of your home, a guesstimate of monthly income and yearly taxes and homeowner’s insurance, and a credit profile lacking current mortgage payment history. In essence, your broker’s original pre-approval may be off considerably.
Once a broker has submitted your loan to an investor (lender) for initial approval, the lender is bound by law to send you its version of state and Federally mandated loan disclosures. Accuracy usually takes a backseat to expedience and the great divide between the two party’s disclosures commences.
You need to know BEFORE settlement exactly what your final numbers will be on both the GFE and the TIL. Don’t be afraid to ask for these documents well in advance of closing. And don’t hesitate to walk if they change.
QUESTION: I really enjoy reading this column! David from Hagerstown asked if he could pay more towards his mortgage each month. But aren't there prepayment penalties? (Aug. 1, John in Woodbine)
ADAM AVERY'S RESPONSE: Prepayment penalties have all but vanished due to their perceived predatory nature. Lenders used prepayment penalties as a means of negative reinforcement to discourage their borrowers from refinancing out of their existing mortgages. The penalties were severe: As high as a 5% of the principal balance for five years in some cases, even if the borrower was prepaying the loan due to selling their home. These "hard" prepayment penalties have slowly disappeared from nearly all new loan products. Some states have simply outlawed them altogether.
Most lenders flat out refuse to put borrowers in prepay penalties anymore. You will find some with "soft" penalties: These allow borrowers to avoid any penalty if they sell the property, but are still susceptible to a penalty if they refinance with another lender. Some lenders even go as far as to make their borrowers pay a penalty EVEN IF they refinance with the same lender, hence the moniker predatory.
Lenders usually employed the prepay rider in order to force a recoup of their initial teaser rate offers. It works like this: The lender offers a start rate of 5%, but that rate becomes variable after one year. The rate is tied to an index (i.e. the LIBOR or Prime Rate). The loan is designed to increase in rate over years two through five. In return for the low start rate, the lender is literally banking on the fact that the borrower will pay considerably more in interest after the rate adjusts to more than make up for the lender concessions on the rate in the short term. With a prepayment penalty, borrowers were hesitant to jettison their mortgage loans as soon as the rates adjusted upwards. The lender effectively had borrowers between a rock and a hard place. Most borrowers complained, but rode out the prepay term before refinancing in lieu of paying a substantive penalty to get out early.
If you find yourself refinancing your existing home or purchasing a new one, make sure you know what if any prepay penalty is associated with the product. Don't be afraid to ask for the cost to opt out of the penalty either.
CHRIS SIPE'S RESPONSE: A follow-up question? You are my new favorite participant of this forum:)
Pre-payment penalties are very rare now, and in most cases, they are illegal in Maryland. I say most cases because banks with a federal charter are able to institute pre-payment penalties, but Maryland law has most lenders saying it isn't worth the hassle and they opt not to have them. They came into prominance while associated with "sub-prime" and option ARM type mortgages. Funny that these types of mortgages were the ones most closely associated with predatory lending. Since these mortgage options no longer exist, pre-payment penalties are all but gone as well. Government loans like FHA and VA, as well as mortgages purchased by Fannie and Freddie, have no pre-payment penalties. At this time, that covers nearly all of the mortgage that are being originated nationwide. However, some jumbo mortgages (over $417K) still have pre-payment penalties associated with them from time to time.
Great question. Keep them coming and we'll all be mortgage experts soon!!
QUESTION: Hi. I have a 10-year intrest only loan and a 30-year fixed 2nd mortgage. will this help me if all of my paycheck goes to these bills? Also I know I owe more then the house is worth. (Aug. 1, Richard in Frederick)
ADAM AVERY'S RESPONSE: It is more likely that you have a 10/20 interest only first mortgage and a 30 year fixed second mortgage. Interest only loans became attractive to homebuyers, real estate agents, and lenders alike during the run up on home values during the early to mid 2000s. It allowed homeowners to effectively lower their monthly mortgage payment and overall debt to income ratio in order to afford more home. Lenders sold more mortgages. Realtors moved inventory. Homeowners got more bang for their monthly buck.
Your ten year interest only means that none of the monthly minimum payment required is applied towards the principal balance owed. The principal balance will be exactly what you initially borrowed ten years from the date you opened the loan. Your 30 year second mortgage is most likely a 15/30 meaning that it will balloon in 15 years and a lump sum payment of the principal balance owed at the end of 15 years will be due in full. Most homeowners don't stay in their houses for fifteen years and if they do, they will have refinanced out of the balloon loan well before it is due.
You mentioned that you owe more than the house is currently worth. Welcome to the club. Many across this county are in the same predicament. The devaluation of real estate has wiped away trillions of dollars of wealth. Only time will correct those that find themselves "upside down" in value verses mortgage balance owed (a.k.a. Loan-to-Value or LTV). You haven't given me enough information to definitively advise one way or another on whether applying all of your paycheck to your mortgages will help you or not. On the surface, I would advise that you hold onto your cash during this market collapse rather than throw good money after bad in the event that your home's value continues to deteriorate.
CHRIS SIPE'S RESPONSE: Richard,
If you are referring to the new legislation, the answer is maybe. Every situation is completely different and there are so many individual aspects involved, it would be impossible to accurately assess your circumstances with the information provide. Additionally, every borrower has their own lender that has to be convinced. Some are easier to work with than others. Essentially, everything will be done on a case by case scenario. You should consult with a highly qualified, local mortgage professional to see what your options are at this time. Make sure you are speaking with someone who knows FHA inside and out. The program outlined in this legislation is a whole different animal and you don't want someone stumbling their way through things cating on your behalf. I hope this helps.
QUESTION: I have a 6% 30 year mortgage that I need to refinance within a year due to a divorce agreement - how can I get the best rate possible? (Aug. 1, Debby in Frederick)
ADAM AVERY'S RESPONSE: I will assume that by "best rate" you mean lowest rate. In general, the lowest rates are typically associated with loan products characterized by variable "introductory rates" and/or extremely short loan amortizations (terms). Shorter terms and variable rate loans will be at lower rates of interest than longer term fixed rates as a rule. You also have the option of buying down the rate by paying discount points to the lender.
One of the biggest mistakes borrowers make is over emphasizing the importance of an interest rate and under emphasizing the relevance of the loan product itself. It is similar to worrying more about what rate of return you will receive in your 401K plan rather than considering the more important factor which is how your assets are allocated within the plan. Additionally, the cost of the refinance and the length of time you plan on keeping the loan must be considered when determining whether the "best rate" is a good financial decision.
The difference between 6% and 5% on a $100,000 is approximately $63/month. If the 6% rate is fixed with $2,000 in closing costs and the 5% rate is fixed and closing costs are $5,000, I promise you that the "better loan product" would be the 6% if you planned on staying with that loan for less than the next 48 months. Contrarily, if the 6% loan with $2,000 in closing costs is fixed and the 5% loan with $5,000 in closing costs is variable for two years, but then adjusts to 6% in year three and 7% in year four, you would be far better off with the higher fixed rate loan as long as you kept the loan for at least two years.
Don't fall into the rate trap that most homeowners fail to avoid. It is only one of several components that must be weighed before making a decision. A professional mortgage broker or lender will be happy to show you the pros and cons of varying loan products and help guide you to the program best suited for your individual needs.
QUESTION: I am pleased to hear Bill H.R. 3221 was signed by the President today. What exactly does it mean to those people who owe more than the house is worth, but CAN afford the payments? (Aug. 1, Shelly in Southern Brunswick)
CHRIS SIPE'S RESPONSE: Shelly,
Good question, because a lot of people believe this will open the flood gates for homeowners to unload some mortgage debt because their current situation is not favorable. In reality, this will provide no benefit to people who can "afford" their payment. The most important piece to the puzzle is providing a compelling reason from the current lender to accept a short payoff. A short payoff is when someone who owes $300K in mortgage debt convinces their lender it is in everyone's best interest to accept $250K That is typically accomplished by providing evidence of a hardship. This would be a major health issue, the adjustment of an adjustable rate mortgage, a divorce/separation, job loss, etc. Hard, factual evidence needs to be presented to the current lender that outlines why it is in their best interest to accept a short payoff. Even if someone has been late on their payments multiple times, if they can produce no evidence of hardship, or has cash assets, stocks, bonds, 401K, or equity in a second home or investment property, it is highly unlikely the lender will see things their way.
For those that would truly need the help and qualify, there is a cost. Once they convinced their current lender it was in everyone's best interest, they would refinance using the FHA Secure program. If they sell the property within the first year, all the proceeds go to the government, plus fees (3% of sales price). After the first year, when the property is sold, they would owe the government 50% of proceeds, plus fees (3% of sales price, plus 1.5% mortgage insurance premium or MIP annually). It sounds excessive, but it surely beats the alternative of losing your home, displacing your family, having your credit destroyed, and not being able to buy again for 2+ years. I am interested in seeing what lender will do when approached with short payoff options. Some high level mortgage professionals believe lenders may be willing to simply modify the existing loan, continue to service it and maintain revenue from it. That may be the silver lining of what I feel is poor legislation.
QUESTION:Where can i find soneone in my area that specialize in double closings? (Aug. 1, Henry in Southern California)
ADAM AVERY'S RESPONSE: Double closings are dubious in nature and fewer professional title companies are providing the service. That doesn't mean you can't find attorneys, title companies, settlement agents and the like to do them. You just have to look a little harder than you would have had to in the past. A simple internet search for settlement agents, real estate attorneys, and title and escrow companies will earn you countless leads to call and request their services.
Double closings are usually associated with flipping properties. It allows for an investor to purchase an option to buy a property and then exercise that option by selling it to a wanting homeowner without actually having to take ownership in the property to begin with. I commented on this type of non-traditional real estate investing technique in an earlier post which I encourage you to read.
Many lenders and title insurance underwriters are skeptical to the legality and/or morality of such transactions. Because of this, it is becoming more difficult to find willing participants in the settlement. Again, this does not mean you can't find those amenable to such affairs nor am I inferring that they are illegal or immoral. Let's just call it a gray area where some see black and white??
QUESTION: I have recently purchased a home. Should I be paying more toward my mortgage every month to bring down the balance? (July 24, David in Hagerstown)
ADAM AVERY'S RESPONSE: I get asked this question often and I answer it the same each time: It all depends on what your current interest rate is and whether or not you believe that you can yield a higher rate of return investing the difference. If your current interest rate is 6% and you feel that you could yield a higher rate of return by investing what additional money you were going to apply towards the principal of the loan, that I would advise you to pay the minimum and invest the difference. On the other hand, if you feel that you can not yield a rate of return higher than the rate of interest you are paying on the loan, I would advise you to pay extra towards the principal owed.
When calculating whether or not you can yield a higher rate of return than the interest you are paying, you must make sure that you take into account your true interest rate on the loan AFTER factoring in your after tax rate. Mortgage interest paid is tax deductible. Your hypothetical 6% rate may be a true rate of 5% after figuring for the reduction of your adjusted gross income and subsequent reduced tax liability. By the same token, you must consider the rate of return you would receive if you invested the difference on an AFTER capital gain tax. That is, your investment may bring you a 7% return, but after accounting for capital gains (and commissions) it may only net you 5.75%.
Another point to consider is what is happening in the housing market today. Any additional payments to principal could arguably be wiped out by the recent devaluation of property. If you pour all of your discretionary income into a principal pay down and the market continues to plummet, you could quite literally lose it all.
CHRIS SIPE'S RESPONSE: That is a great question and the opinions would differ greatly depending on a client's circumstances, goals and the mortgage professional with whom you speak. I base my opinion on what I call the "Priority System of Money." Sounds complicated, but it has only 4 simple steps.
Emergency Fund: Build a safety net first
- Water heater
- Brakes for car
- Major engine repair
- 6 months salary
No debt aside from mortgage: Mortgage debt is tax deductible, so prioritize your payoffs and let Uncle Sam help
- Credit cards
- Student loans
- Car loans
Liquidity:
- Choice to capitalize on good things
- Ability to compensate for bad things
- 12 months salary
No mortgage:
- Free and clear
- Or balance sheet (having more assets than mortgage debt)
If you don't have steps 1 through 3 completed, it makes very little financial sense to pay down your mortgage. You could get a million times more in depth than this depending on circumstances, but this is a great starting point for 90% of all homeowners. Getting in touch with a good Certified Financial Planner and Mortgage Planner would be helpful to make sure you are maximizing your investment dollars. Hope that helps.
QUESTION: I have an adjustable first mortgage and the mortgage company is doing a modification to stay at the rate for 5 years; my 2nd mortgage won't do anything, I owe more than my house is worth, when I purchased the loan the company took all of the equity out, and I have been paying the 2nd mortgage with that money, I have been to the hope helpline and other financial institutions and nobody is willing to combine the two loans to where I can afford them. Can you offer any suggestions? My husband and I both work 2 jobs, we are trying to sell our classic car and our time share to pay off our credit card debt but no luck. Please advise. Thanks. (July 23, Cindy in Frederick County)
CHRIS SIPE'S RESPONSE: These types of situations are becoming more prevalent which is why the government is pushing so hard to implement their "Foreclosure Bailout" legislation.
If approved this week, it could go into affect by October 1st. It is still a little unclear as to how this would help someone in your position, which is one of the reasons it scares me. Aside from the potential benefits of this legislation, there are no options available for someone in your situation. Lenders have been reducing risk by reducing maximum Loan-to-Value (LTV), and the fact that you owe more than the house is worth makes it nearly impossible. I would suggest you continue to keep very open lines of communication with your lenders. No lender wants a loan they hold to go into foreclosure. As such, and as things get even tougher for some homeowners, they will continue to do things they never would have considered previously. I will try to keep everyone up to date, as things develop with the government legislation. Good luck and remember, "This too shall pass."
QUESTION: My Mother is 65 years old, retired and has limited funds as she did not plan for her retirement. I have heard about reverse mortgages, but I don't quite understand how it works...what is the catch? Would this product be something you would recommend? Thanks! (July 22, Looking for options for Mom in Floriday)
ADAM AVERY'S RESPONSE: Reverse mortgages have been around since the early 1960s, but until recently they have rarely been considered as a vehicle for augmenting a senior citizen's income. A reverse mortgage converts your equity into available cash and can be accessed several different ways, from a monthly payment to a line of equity to a lump sum one time payout. There are three types of reverse mortgages: Federally insured which are also known as Home Equity Conversion Mortgages (HECMs), proprietary reveres mortgages which are loans developed and backed by private lenders (this type of reverse and the HECMs are considerable more expensive that the single-purpose mortgage, but the money can be used for any purpose and the programs are more widely available), and single-purpose reverse mortgages which are typically offered by nonprofits and state and local governments (these loans are low cost compared to the other two, but not as available, and the funds can only be used for a specific purpose such as home improvements).
A forward mortgage requires the homeowner/borrower to repay a portion of the loan each month. Reverse mortgages require no pay back for as long as you live in the house, but the loan is repaid when either you die, sell the home, or no longer occupy the home as your principal residence. Everyone on the title of the property that is being encumbered with the reverse mortgage must be at least 62 years old. The property can have an existing forward mortgage that can be paid off with the proceeds of the reverse mortgage. Only primary residences qualify. You can not take out a reverse mortgage on a vacation or rental property.
A few facts that are easily misinterpreted: The money received from a reverse mortgage is tax free and don"t usually affect your Medicare or Social Security benefits. However, depending on the state it can affect your Medicaid benefits. Please consult with an expert before proceeding. Although you retain title to the property while you live in it, a reverse mortgage can use up all of the equity, leaving nothing for your heirs. And since you retain title to the home, you are responsible for taxes, insurance, and upkeep. And the interest you "pay" on the reverse loan (at the time of death or leaving the property) is not tax deductible until the loan is paid off in full, potentially leaving your heirs with an accounting nightmare to sort through.
I am personally a big fan of reverse mortgage products. I walked my mother through the process nearly two years ago. It has been comforting and enjoyable watching her spend her golden years with no financial worries. I would encourage anyone that considers a reverse mortgage to make sure they are getting one for the right reason. Do your homework. Comparison shop. Ask lots of questions. Do not be in a hurry to sign any paperwork.
CHRIS SIPE'S RESPONSE: Reverse mortgages are awesome, great, fantastic, great (yes I know I said that twice) options for seniors depending upon their personal circumstances. I am not sure where you are located, but I would contact a reverse mortgage specialist in the area. I endorse reverse mortgages completely despite the fact that I don't offer them. I wish I did because they are fantastic options for people who qualify, and there are more and more seniors who would benefit from such a program. Here are some simple facts:
1. An applicant needs to be at least 62 years young, and should possess a reasonable amount of equity in their primary residence.
2. The amount one can qualify to receive is predicated on the applicants age, the equity in the home, and the current interest rates.
3. You will never make a payment on the mortgage and you can never owe more than the home is worth, but the loan is repaid when the home is sold.
4. You have five options in structuring how receive your payments:
a. Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
b. Term - equal monthly payments for a fixed period of months selected.
c. Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
d. Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
e. Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
5. No debt can be passed on to heirs, but remaining equity after the sale will be passed on. Huge double positive.
6. Everything received in the way of "payments" is tax free.
7. Does not affect Social Security benefits because it is not viewed as income.
When first introduced, people saw them as predatory options targeting seniors. Nothing could be further from the truth, and it was an unfortunate beginning as it kept many people from benefiting. However, the growth of these programs recently has been incredible because they are great options. Like any mortgage options, asking a lot of questions and getting answers from a quality source is a must. So do your due diligence and consider that a great option for your mom, as it could dramatically enhance the quality of life in her senior years.
QUESTION: I am angered whenever I sit down at the settlement table only to discover a multitude of "junk" fees on the HUD-1 which were never disclosed on the Good Faith Estimate. Do you know if anything is currently being done by our lawmakers to stop this unethical practice? (July 22, Colleen in Frederick)
CHRIS SIPE'S RESPONSE: Hello Colleen,
As is the case in most instances where someone is breaking the law (and yes, what you described in against the law), we have perfectly good legislation in place to deter and punish those individuals and companies, but people (being the person who was affected) rarely follow through. The Real Estate Settlement Procedures Act (RESPA) and the Truth-in-Lending Act (TILA) have disclosure provisions that would pertain to exactly the circumstances you outline. Using the Good Faith Estimate (GFE) and the Truth-in-Lending (TIL) disclosures, a lender is required to disclose all estimated charges, interest rate, APR, program terms, etc., typical for a transaction of the type. Keep in mind that a GFE is exactly that, an estimate in good faith. Although exact charge types and amounts may differ on the final settlement sheet (or HUD-1), they should be reasonably close to the same bottom line. Also, changes during the process may be required for a variety of reasons. However, TILA has re-disclosure provisions that require a lender to provide a new GFE and TIL disclosure when the fees, rate or terms have changed. So all the laws are already there.
Here is the hard part. All of this is designed to protect you, but enforcement relies on you taking a hard stand or coming forward to lodge a complaint. It is hard not to just sign the papers and move on, or to follow through on lodging a complaint after the fact. There are many lenders (most of whom have met their demise already) who would count on just that. However, let's move forward with these practices in mind to try and avoid circumstances like this whenever possible.
1. Some lenders guarantee their closing cost estimates, so ask if the lender you are using does. These lenders typically get preliminary estimates from the settlement company to ensure better accuracy. They may say, "your settlement costs will be "X" or we will make up the difference".
2. Demand a HUD-1 to review at least 1 day in advance of closing. I recommend 3 days for purchase transactions. Then you have time to address issues.
3. Tell the lender you will refuse to settle if there are any significant changes that were not previously disclosed. It is hard to follow through, but adds appropriate pressure for the lender to ensure they do the job.
4. Lastly, and always my number one piece of advice to avoid bad experiences, work with a high quality, professional lender you know, or have been referred to for service. Mortgage professionals who work with the "Client for Life" mindset will never damage their business or reputation by acting in this manner.
Sorry for the poor past experiences, but I hope this advice is helpful in assuring great future ones. Take care and thanks for the question.
ADAM AVERY'S RESPONSE: The Real Estate Settlement Procedures Act (RESPA) was established in 1974 as a means to help consumers become better shoppers of mortgage loan products and to eliminate kick backs and referral fees that intentionally inflate the costs of real estate transactions. Today, lawmakers are talking about updating the Act with new provisions and standards aimed at making the settlement process more transparent and more suitable for cost comparisons by potential borrowers.
Generally, the proposed rules to simplify and improve the process of obtaining mortgages and reduce consumer settlement costs include amendments designed to standardize the Good Faith Estimate (GFE) so that it will be uniform for all lenders, force the GFE to include loan terms and total settlement charges in a format that will make it easier for consumers to comparison shop, force lenders to provide a more accurate estimate of closing costs with clearly defined protocols for making the consumer aware of any changes from time of application to time of settlement, improvement of yield spread disclosures to help consumers understand that brokers may receive a financial incentive for offering an interest rate higher than what the borrower qualifies for, and an actual "script" that must be followed by the settlement agent, which would include dissemination of the terms of the loan with a comparison of other loan products the borrower may want to consider before signing any paperwork.
Talk of such reforms usually does little to change the climate. However, I have noticed that many lenders are positioning themselves ahead of the curve on potential revisions to the Act. It is not uncommon for lenders to have borrowers sign explicit disclosures that are not currently mandated by state or federal jurisdictions. The days of hiding behind the "Estimate" in Good Faith Estimate are most likely over for legitimate real estate professionals. As a general rule, if you go to settlement expecting one cost and you find yourself being pressured to sign paperwork that discloses a cost higher than expected, get up from the table. All lenders are open to fully explaining their costs and will be more than happy to reduce your "junk fees" in order to gain your business.
QUESTION: My wife and I are looking to buy a home early next year when she finishes school. What should we be doing right now to prepare? (July 18, Tim in Myersville)
CHRIS SIPE'S RESPONSE: Tim,
You get a Gold Star!!! A home purchase is the largest financial decision 98 percent of us will ever make. However, it has always surprised me how many people will look at houses on-line for months prior to buying, but will contact the lender the day they are ready to write a contract. Many of them find out too late they may not qualify, or could have saved themselves a lot of money and trouble if they had just prepared a little. So big kudos to you and your wife.
The first thing I would do in your position is get a file and label it "Home Financing Information." Then begin the process of collecting documentation a lender would need to review (W-2's for the last 2 years, pay stubs for the past month, checking, savings and any other asset statements for the past 2 months) and put it in the file. You should also put every subsequent one of the documents and statements you receive in that file so you always know what you have and where it is. Next, get in contact with a quality mortgage professional that you trust and set an appointment for a face to face meeting. If you don't know one off hand, ask someone you know and trust for a referral. I highly recommend face to face, especially if it is your first house. It dramatically reduces the potential for errors and misunderstandings.
Your mortgage professional should then evaluate your credit, income, assets, level of comfort with a monthly payment, future plans, and overall debt. They can use this information to help identify aspects of your qualifications that you could improve to save money, maximize buying power, improve cash flow, etc. I always recommend looking well past the purchase and identify life changes that could present or take away options. Job or income changes, growing your family, and major purchases required beyond the home are some of the things a good lender will consider when advising you. Additionally, you may have the plan to wait a year, but it doesn't mean the best opportunity won't present itself sooner. Being prepared in advance will help you capitalize on that opportunity if it arises. Either way, work with your mortgage professional to create a plan with your desired outcome and execute it.
If you and your wife take this approach, there is no area of weakness that can't be improved, and it will ultimately lead to you being happier and more financially comfortable with your purchase. Good luck!!
QUESTION: I tried to refinance my home, but the lender said my credit score was too low. What do lenders look at when borrowers apply for a loan? (July 18, Jennifer in Myersville)
ADAM AVERY'S RESPONSE: Until the mid 2000s most lenders considered the Four C's when determining the terms of a mortgage loan that a homeowner qualified to borrow: Credit was grade driven and all an investor really cared about was the applicant's payment history for the previous two years. Capacity to repay the loan was a debt ratio formula. Collateral referred to the value of the home being refinanced. The applicant's Character was the intangible weight to tip the scale for a loan approval or denial.
Times have changed. Applicants have become more than ever, merely a name and social security number. Whether you apply at your local bank, a lender, or mortgage broker, all lenders look at the same three variables: Your Credit, your Debt Ratio, and your Loan-to-Value. Character has been replaced by documentable proof of event(s) that may have led to recent credit/income issues. Your credit is a score driven algorithm taking into account far more than payment history. Your debt to income ratio is simply your monthly financial obligation divided by your gross monthly income. Your loan-to-value or LTV is calculated by dividing your loan amount by the value of the property you are refinancing.
Fair Isaac and Company (FICO) is responsible for the algorithms that each of the three credit bureaus use to determine your credit worthiness (score) as it pertains to extending mortgage credit. Payment history comprises approximately one third of your score. The more recent the negative history, the more it will affect your score. Outstanding debt or how close you are to the high credit limit makes up another third of your score. Your score will benefit if you can keep your balances at 50% or below the credit limit. The closer you get to the high credit limit, the more of a risk you are to a lender. The remaining third of your score considers length of time accounts have been open, type of accounts, and recent application for an extension of credit. Generally speaking, the longer you have accounts open the better your score, the less finance company type accounts you have the better, and fewer recent inquiries for credit extension will result in a higher score than otherwise.
Debt ratio calculations are used to ascertain whether or not an applicant has the ability to meet his or her monthly financial obligations. If you have $2,000 in monthly bills (only bills that show up on credit are taken into account) and $4,000 in gross monthly income, your debt ratio would be 50%. The higher your debt ratio, the more of a risk you are to an investor.
Loan-to-value has become more of a lately. The higher your loan-to-value, the greater of a risk you are to an investor. One hundred percent financing is still available through creative grant and seller held second financing options, but for refinances it has all but vanished. With home values continuing to languish, investors are scrutinizing appraisals and turning loans down based on inadequate collateral.
The aforementioned three variables all lenders contemplate when determining "how" and "why" a borrower qualifies for purchase and/or refinance funding are components that can be finagled in your favor. Credit scoring is not a perfect science. There are methods of improving your score with little effort or expense. Debt ratios can be lowered by allocating resources to accounts on a priority basis. Consult a local mortgage broker or lender for advice on how to improve your profile.
CHRIS SIPE'S RESPONSE: Hi Jennifer,
That seems like a simple question, but the answer is not quite that simple. All lenders want to minimize the risk of default on loans. They do this by evaluating a number of different criteria for a borrower. As you found, the credit score is a very important piece to that puzzle, but it was only a piece. Someone can qualify with a lower credit score if other qualification criteria are very strong. Those might include:
1. Very low debt to income ratios (DTI - how much you owe against how much you make)
2. Significant asset reserves (large balances in 401K, investment accounts or simply checking and savings)
3. Very low loan to value (LTV - your outstanding mortgage against the value of your home).
4. Or any one of lesser criteria that may make a case for reduced risk in spite of a low score
It may have been a combination of these criteria that ultimately lead to them saying you can't qualify right now. However, credit score is and always has been the best gauge of how an individual uses available credit, manages that debt, and pays their bills. The common belief is one will continue to do, what they have always done. It is enormously beneficial to build and maintain a 720 credit score or higher.
However, don't give up on what you want to accomplish because things are not possible right now. A good mortgage professional knows what it takes to get you qualified and could work with you to help you maximize your credit score, cash flow, and overall qualifications. I hope this helps and don't hesitate to ask a follow-up if you need more information.
QUESTION: My husband and I are looking to buy a house with no down payment. Our credit is not the greatest (500-600). We only want to borrow $100,000 or less (I know i have to go to Washington County to find a home for that kind of price). My question is, do you know of anyone that could help us with the lending part? (July 10, Amy in Frederick)
CHRIS SIPE'S RESPONSE: I would have to say, maybe. However, the only way to truly determine whether or not you and your husband would qualify is to speak with a quality mortgage professional that you trust. The credit issues you reference would be my biggest concern in the short term. Credit has always been important in the lending industry, but now it has become the single most influential factor in qualifying for a mortgage and/or how much you might pay for obtaining a mortgage. It is quite possible that you may not qualify, but don't be discouraged. Most quality mortgage professionals have the knowledge and means to help you improve your credit score, and in some cases, it can happen very quickly. A recent client had a legitimate 30 day late from March 2008 which kept him from qualifying. After reviewing the account history, we encouraged him to contact that creditor and ask if they would remove it as a one time courtesy. They agreed, provided him a letter documenting it and we were able to have him rescored at the bureau level in 48 hours and he is house hunting as we speak. Start with speaking to a mortgage professional you trust, who has experience with rectifying credit issues, and they should be able to put you on the right path.
QUESTION: Gentlemen, it recently came to my attention that a prominent lender may be bailed out by our government. Unfortunately this same lender may have falsified our loan documents as well as ignored their underwriting guidelines by encouraging us to refinance two homes despite our lack of qualifying income. As a result we now have to surrender both homes back to them. Can you please shed some light as to why our elected officials might believe that rescuing this mortgage lender is in the public's best interest? Thanks for your reply. (July 7, anonymous in Md.)
ADAM AVERY'S RESPONSE: Before answering your question, let me first say that I am a bit discombobulated by your claims that a lender falsified documents, resulting in your having to "surrender" two homes to them. Surrendering your homes suggests that you have been foreclosed on. This measure would only be exacted if you became severely past due on your mortgage payments. If you can prove that a lender falsified your documents, I would urge you to consult a local attorney immediately. Given today's political climate as it pertains to mortgage misdeeds, I would expect that you have several favorable options available to remedy your situation.
It sounds like you may have been a victim of the "stated loan" frenzy that was a buzz over the past five years. In a cookie cutter lending environment, all prospective borrowers would be able to verify their income by providing a couple of recent pay stubs and W-2s for the past two years. Borrower's income profiles have never been that clear cut. Many prospective borrowers are self employed, don't get paid on a regular basis, receive a commission, or otherwise can not provide suitable documentation of stable and predictable income. The industry responded with a shortsighted and loosely regulated product known as the stated income loan. Lenders could literally make up whatever level of income was needed for a prospect's debt ratio to qualify them for the loan of their choice WITHOUT much, if any objective documentation substantiated with a paper trail . You can imagine the propensity for abuse by prospective borrowers and lenders alike, both of whom had much to gain by garnering the loan approval. Governor O'Malley has received both accolades and criticism for making stated income loans illegal in the state of Maryland. Only Federally chartered banks can sidestep this state law and offer these types of loans to Maryland homeowners.
Elected officials can help lenders, homeowners, both, or neither. They can use bailouts, legislation to delay foreclosure, change guidelines for Fannie Mae insuring, and manipulate the tax code to encourage or discourage certain behaviors, to name only a few approaches to correct and strengthen the mortgage market. The great debate now is whether to bail out lenders who made insane profits over the years or homeowners who should have known better than to sign up for loans with interest rates set to adjust a few years later. Proponents of bailing out lenders exclaim that if more lenders fail, so too will the economy as a whole. Opponents to lender bailouts would argue that risky behavior shouldn't be rewarded, especially when purveyors of that risk have booked record profits prior to the crash. Some maintain that the borrowers should be given a break, while others feel that those borrowers should be responsible for their own mistakes. In the end, you will see a combination of bail out for all players, whether just or not.
CHRIS SIPE'S RESPONSE: For the record, I am not an advocate for Federal bailouts for any lenders at this point. We exist in a free market. This is a free market issue created by specific circumstances, and it will have a free market resolution (aka, it will work it's way out). Over 264 lenders and mortgages banks have failed since the beginning of the "Mortgage Market Meltdown" as I like to call it. Many were primarily sub-prime lenders that really pushed the limits (if not completely ran over them) and others were well run companies that employed great people and just found themselves too exposed and under capitalized when things went wrong. However, I believe the majority of damage has been done and the markets have done a reasonably good job of absorbing it. Most of the companies and professionals today are high in quality, as this market is too tough for those who aren't committed and highly capable. Specific to your question, I really don't know why public officials are would be willing to provide the bailouts to struggling lenders, but I don't agree with it.
Also, as a service to those who will read this question and post, I would like to provide this insight to your circumstances. When you refer to "surrender", it means that the homes are going to foreclosure and not that the bank has somehow seized a home. Mortgage lenders and banks make money by originating and/or servicing mortgage loans. Lenders lose money, and lots of it, when properties go to foreclosure, and they will try to avoid it like the plague. Without knowing all of the information it is hard to see what if anything could have been done differently to avoid such an outcome. However, I myself have "convinced" clients to refinance who have later ended up in foreclosure. That sounds shocking on the surface, and I could be lumped in with all of the other "predatory" lenders as a result. However, when you consider that I executed a rate and term refinance (no cash out) on both of them, reduced their monthly payments by about $250 and $400 per month respectively, and moved them from adjustable rate mortgages (ARM's) to a fixed rate program, it looks more like I was doing them a service as opposed to an injustice. Truth is, they were both struggling and I gave them a chance to save their homes. A good mortgage professional provides options, covers the pros and cons of those options, answers any questions you might have about those options, and allows you to make the decision with which you are most comfortable. However, it is up to the client to review all of the information and ensure its accuracy. It is every bit as illegal for a client to sign an application with fraudulent information as it is for a lender to knowingly put it on there in the first place. Fraud is absolutely inexcusable. If you have been the victim of fraud, use the contact information below to lodge a formal complaint.
FBI Field Office, Mortgage Fraud
Baltimore
White Collar Crime Supervisor
2600 Lord Baltimore
Baltimore, MD 21244
410-265-8080 Phone
I have zero patience or tolerance of unethical lenders and mortgage professionals, and this resource can help pick up the pieces after the fact. However, try to avoid finding yourself in trouble by using a reputable, local lender that you know and trust. I feel local is important because the fact that you might see them on Market Street after the fact creates a high level of accountability, and no quality mortgage professional wants bad press in their backyard. If you can't walk in their office to address an issue, you run the risk of more issues. If you don't know a lender like that, ask someone you know for a referral to someone they trust. All of this creates a level of accountability that will ensure as much as possible you are not put into a compromised position.
QUESTION: I have been reading Real Estate Investor forums and books, and wanted to know if you can do an assignment of contract on REO's and if so could you briefly explain how? (July 3, John in Lompoc, Calif.)
ADAM AVERY'S RESPONSE: Your question alludes to non-traditional techniques of flipping real estate. These methods are ever-evolving to keep pace with changes in the market. Lenders constantly morph their internal transaction protocols. Title companies charged with settling such transactions change their rules after taking cues from their underwriter. So, with great trepidation, I offer the following with the caveat that if not already, the "rules" may change by this afternoon:
An REO is property that has already been through foreclosure auction, and having received no suitable bids, the property became bank owned. These are considered potentially more lucrative properties for investors since banks are not in the business of owning real estate and are willing to sell it for considerably less than market value. Buyers are also out from under the pressure of deadline for having to make a bid as they would have had to if purchased at auction. And since the property has passed auction status, potential buyers have the benefit of being able to thoroughly inspect the property before making an offer.
Your question implies that you are investing in a contract to purchase an REO and then immediately assigning it to another buyer. This is referred to as "wholesaling" properties. And it doesn't pose any hurdles if you are buying from a private party, especially if your end buyer is paying in cash. But when you are buying from HUD or banks, you are usually straddled with non-assignability clauses in the purchase contract. One routine to avert this roadblock is to have an LLC purchase the REO and then assign your share of the LLC to your buyer, ostensibly for your "assignment fee."
This would only get you halfway across the lake. Now you have to find a title company to settle the transaction. A "double closing" is employed to legally transfer title from you to your buyer. It works like this: At settlement, the title company first closes the deal between you and the bank. Then the title company closes the deal between you and your buyer. Some title companies will do this, MOST will not. And if the bank selling the REO knows that you are simply passing it on to another buyer at a considerable profit, they won't sell it to you. Faced with these obstacles, the only way to get a deal similar to this done is to make sure that it is a cash deal (as in, your buyer is paying cash) or do it more traditionally: You first purchase the property from the bank. Hold onto it until the transaction has been properly recorded. Then find a buyer who either pays cash or can secure financing on the new transaction (as in, a lender that won't require seasoning).
It should be noted that I attempted to contact Steve Cook for his insight. He was unable to respond prior to my posting. I have followed Mr. Cook since he entered the real estate arena in 2001. He is considered one of our area's experts on topics relating to flipping. I encourage you to do research through his website at www.stevecook.com.
CHRIS SIPE'S RESPONSE: I certainly am not an expert on everything, which is why I have lots of friends that are experts in lots of things. So a portion of this response is compliments of Tod Salisbury from the law firm Salisbury & McClister, one the most respected real estate law firms in Frederick, and one of our most trusted title partners.
Tod explains: Whether a contract on REO property(meaning real estate owned by a lender on which they have foreclosed or taken a deed in lieu of foreclosure) or any other property can be assigned depends on whether the contract permits assignments. If a buyer thinks he or she may want to assign a contract the best practice is to add :"and/or assigns" after the buyer's name when the original contract is signed. Contracts are assigned for many reasons--the most common are the buyer sets up an entity such as a limited liability company to hold title, wants to add a spouse or partner, or the buyer finds someone to pay him or her a fee in order to take over the contract. The latter is often called "flipping". The assignment itself can be as simple as the buyer writing on the contract "I assign the within contract to Suzy Jones" and then signing it. I recommend you get someone familiar with real estate law to advise you if you find yourself doing an assignment.
Additionally, the bank/lender decides whether to allow reassignment of contract at the time of ratification. Make that part of the initial contract and have it ratified on those terms. Also, if it is your intention to ratify a contract on an REO and reassign it at a premium to another party (essentially gaining a fee for negotiating the contract) it is important for you or anyone else in that position to know, you are expected to close on that home should you not be able to find a suitable buyer to whom you wish to assign the contract. Not doing so could open you up to enormous liability. Good luck, and should you wish to consult further with Tod regarding this subject, his e-mail is tod@fredericktitle.com
QUESTION: Can you really buy a house with no money down? And if so, is it really a smart thing to do? What are the pros and cons? (July 1, Amy in Frederick)
ADAM AVERY'S RESPONSE: Yes, you really can buy a home with no money down. And not just by employing the strategies of "get rich quick" real estate gurus seen on the continuous loop infomercials. Through Federal and local government housing subsidies and private sector grants, many first time homebuyers are purchasing homes with no money out-of-pocket.
We went through a period whereby lenders had classified particular zip codes as "declining markets" and refused to lend more than 95% of the purchase price (or appraised value for refinances).
Lenders effectively labeled everywhere a declining market, and with good reason: Values continue to drop precipitously as homes are dumped or walked away from in all socio economic neighborhoods. Many lenders have recently rescinded the declining market label, and it is 100% financing as usual. Now the usual lending caveat: Not all applicants qualify for existing products. The zero down products are typically, but not always reserved for those with good credit and low debt ratios, and when applicants fall to or below the area's median income levels.
For those that don't, home sellers are coming to the rescue: In today's market, homeowners are more responsive to lending a financial hand to prospective buyers. Seller paid closing costs, seller held second mortgages, owner financing, lease to own, and similar sales enhancement tactics are becoming the norm. But buyers beware. These offers are not necessarily in your best interest.
A most recent case in point: A buyer purchased a home in Frederick for $329,000 from a seller that financed the entire amount at 8.75%. The buyer took the seemingly good deal because she was told by a local mortgage broker that she did not qualify for 100% financing and that even if she did, her rate would be at least 9%. The local broker happened to be an "acquaintance" of the seller. It turns out that the buyer would have qualified for 100% financing through several different grant programs, and her qualifying rate could have been as low as 6.75%. Privately, the buyer admitted that she was overwhelmed by the lending process and since she could afford the payment at 8.75%, she opted to take the "deal." No deal is too important. Any deal can wait for a second opinion. It is near impossible to broad brush pros and cons for 100% financing.
For example, those that purchased pre market crash and used a 20% down payment have seen their hard-earned twenty go down the drain. A home purchaser under the same circumstances that put down zero money lost no real money in the crash. They may be upside down in value, but they haven't lost any money. However, they are now under "house arrest" as they can not sell without bringing a substantial amount of money to settlement. They could choose to go through a short-sale process with their lender or they can simply walk away from the home.
Your moral mileage may vary. One has to consider several factors when determining the pros and cons of 100% financing: Type of loan product and whether rate is fixed or variable, tax implications, current investment habits and strategies, intended length of stay in home, risk level, and nature or reason for purchase are only a few of the issues that must be thought through. I urge you to contact several lenders for assistance in determining which down payment strategy is best for you.
CHRIS SIPE'S RESPONSE: Great question. 100% financing options were prolific up until about 12 months ago, and although several of them were very questionable, there were more than a couple that were quality programs for quality borrowers.
Although most no money down programs have gone away, a few great options still exist for the time being (I want to stress that point because the mortgage industry continues to change on a daily basis). As to whether or not a "no money down" program is a good idea, that has to be determined by giving careful consideration to a borrowers overall financial health and plan.
Simply put, if you can financially own a home, you should buy as opposed to rent as soon as possible. Owning a home is not just the "American Dream", it is the best way for the average person to accumulate wealth in this country. Owning real estate is a bit like a 401K. Contributions to both increase the equity in them (a 401K by increasing the balance, and real estate by decreasing the amount owed). And just like the 401K employer contribution, there is an outside contribution that increases the value of of your investment, and that is market appreciation. In a healthy balanced market, and historically over the last 60 years, real estate has appreciated between 5-6% annually.
Therefore, a $250,000 home could be worth $375,000 in 10 years!!! Here's even better news. We have just gone through a significant downturn in real estate (I say "gone" because we have for all intent and purpose, reached a bottom), and much like the stock market, there is no better time to buy than after a market correction lower. It is a great time to buy real estate whether you are a first time buyer, a move-up buyer, or a real estate investor.
In closing, and more to your point, buying a home with no money down can be a great option whether you have enough for a down payment or not. The key, as it is with any financing option, is being careful to not over extend. For this reason, a mortgage professional should never recommend a financing option to anyone prior to reviewing their financial status and having a detailed conversation about what they were hoping to accomplish in the short and long term financialy speaking. An approach like this will ensure whatever financing option you choose in buying a home, you will remain happy and financially healthy in your new real estate 401K.
QUESTION: I'm not caught up in the subprime crisis, I have a home that I bought before the market took off, and my credit is pretty good. How can I take advantage of what many real estate agents are calling a buyers' market? (June 26, Question from Moderator)
CHRIS SIPE'S RESPONSE: This is beyond a doubt, the best buyer's market we have had in well over a decade. The preeminent appraiser in Frederick County summarizes this nicely. "You have to look at the whole picture" he says. Someone has a home that once worth $300K, and it is now worth $250K, and they are wondering how it benefits them to move up when they are selling so much lower than it was once worth. They go out and look at homes priced at $500K, not realizing that these homes were once valued at nearly $650K!! I have the documentation to prove how common that is right now. Instead of losing $50K they have saved $100K. If you waited until the house was worth $300K again, it stands to reason that the $500K house will be worth much more as well. Additionally, in a strong buyers market it is very common to ask for and receive a significant amount of seller help which will reduce your out of pocket costs to buy the home. The trick is to sell your home in a buyers market and the keys to that are staging it perfectly to stand out from competition, and pricing it aggressively to sell. If similar houses are priced at $300K and they aren't selling, consider $285or 290K. If you do that, you will be settling on the home of yours dreams shortly thereafter, and paying a lot less for it.
ADAM AVERY'S RESPONSE: Generally speaking, if you have good credit, a low debt ratio, and cash for down payment, you are in position to take advantage of other's misfortunes in a housing crash. Buying opportunities are enhanced by historically low mortgage rates, an abundance of inventory, multitudes of "distressed" sellers, and lien holders willing to accept less than what is owed from existing borrowers. You indicated that you already have a residence. If you didn't, I would urge you to get qualified for an owner-occupied FHA purchase loan with little to no out-of-pocket expense. Rental property may be a smart investment at this time. Relatively speaking, you would be buying at a low point. You should be able to choose from a rising pool of rental applicants as foreclosures continue to displace over extended yet credit worthy, conscientious homeowners. Additionally, some argue that those who can afford to buy will instead sit on the sidelines and rent rather than jump back into a market that has caused considerable damage to their economic psyche. Cash strapped and credit bruised home sellers are willing to dump vacation homes almost as quickly as their European roadsters. Exceptional buys are to be had in areas that boomed considerably before busting, especially Florida and California. Closer to home, cash and good credit will attract the attention of sellers along our Eastern Shore. To take full advantage of today's opportunities, buyers need to do their homework before making an offer. This includes identifying and strengthening their qualifying weaknesses prior to making an offer to purchase. Once accomplished, buyers should hone in on properties offering good value while remembering the most important real estate rule even in a housing crisis- location, location, location.
QUESTION: The economy is in the tank, the real estate market included. How did it come to this? Are there any particular signs to keep an eye on that may hint at a real estate market bounce back? (June 26, Question from Moderator)
CHRIS SIPE'S RESPONSE: There are so many factors that have lead the economy to this point that it would be impossible to detail them all, but some have had greater significance in the downturn. The "mortgage market meltdown", as I like to call it, has hemorrhaged trillions of dollars of wealth worldwide, and we ARE part of a global economy. Economic news and events from China and Europe move our market greatly all the time. Large banks and financial institutions all over the world have written down billions and billions each quarter due to the sub prime fallout. Recently, energy and food prices have really begun to scare and strap consumers. This is evident in the lowest consumer confidence numbers in over 30 years. If consumer confidence is low, they will spend less, which affects retail sales, which will affect corporate profitability, which will lead to a stagnant or slow economy. The Fed has done a great job at stimulating, but will have to begin raising rates soon to stave of the inflation. If not, we could end up in the worst economic environment of stagflation (rising prices in the face of no economic growth). Raising rates will also boost the dollar which has been awful recently. A stronger dollar will do as much to bring down the price of oil and gas than increased production Specific to real estate, this market is a pure example of basic economics. Supply is high, demand is low and prices are falling. 5 years ago is was the exact opposite. Right now prices are dropping at about 1% per month, with the expectation, or hope, that that will drop to .5% in the coming months. Right now inventory of homes for sale is over 2300 units. A balanced market would be around 1100 units. Inventories have leveled off and could begin dropping in the fall. Should this play out, we could be in much healthier market this time next year, and in a robust market by 2010. If you are selling your home, price it aggressively right from the start or you will make less in the long run as the market and time are working against you. However, if you are not planning on moving anytime soon, don't worry a bit about any of this. Treat it like a 401K. Put the money in, let the market be the market, and it will always be worth more in the long run.
ADAM AVERY'S RESPONSE: The goal of our economy is slow and stable growth of prices in all market sectors. Why was the market disrupted? Simply put, human nature mixed with mob mentality. Human nature is to take the best deal today with little regard for future contingencies. And when "everyone is doing it," it makes it safe and rational to do so. Our economy is dependent upon consumption. Consumption requires income streams. When income streams trickle or dry up, consumers typically turn to the equity in their homes to raise cash. This "cash" (the equity in their home) is used to consolidate credit card debt, start small businesses, pay for college, purchase furniture, and the like. Our "American Dream" has always included the want of home ownership. The baby boom generation through generation Y dismissed the Greatest Generation's save first, purchase second, and live within your means mentality in favor of MORE, ME, NOW. Our government enthusiastically supports this sentiment. They, not "greedy" lenders, have pushed for loan programs that give all a chance to own a home, regardless of capacity to pay back the loan, regardless of a borrower's credit history, and with no foresight past immediacy. They make it easy and profitable for lenders to borrow money and loan it to homeowners. Lenders are in the business of making money for their shareholders. They push a product. That product is a loan. A housing boom typically includes high demand, low supply, and consequential rising or inflated prices. When prices of homes outpace earned income, the market stalls. This happened five years or so ago. The government responded with an abundance of cheap money for lenders to loan at a profit. But in order to get homebuyers qualified for larger, more expensive housing, lenders had to get creative with loan products to make monthly payments affordable. Pay option ARMs, teaser variable rates, interest only payments, no money down programs, and stated income loans gave homeowners a justifiable means for purchasing homes that weren't really affordable. Homeowners didn't look past the three to five year horizon. All anxiety of purchasing a home that was outside their means evaporated as long as the payment was affordable "today." Well today is here. And today ARMs are adjusting to payments well beyond their income. An overwhelming inventory of foreclosed, short-sale, and otherwise "distressed" homes on the market is further fueling a collapse in market values, making the refinancing out of ARMs and negative amortization loans nearly impossible. Sometime in the next year or so, when you see current housing inventories cut in half and twenty dollars at the grocery store buys you more than a gallon of milk, a box of cereal, and a loaf of bread, you will have seen the signs of recovery. Until then, put your head between your knees, and hold onto your cash.
