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A question that many student entrepreneurs face is “Should I drop out of school to launch my business?” Let’s face it, school does take up a lot of time that could be spent developing and growing a business? So what are the pros and cons of dropping out to focus full time on entrepreneurship? I found a great post that discussed this topic and highlighted some famous young entrepreneurs who made the leap.

The Pros:

• You can do what you want.
  Everything that got you detention in school will get you funding in Silicon Valley. If you’re a non-conformist, you may have the right profile.
• You’ll get an alternative education.
  Young people should seize the fleeting opportunity to get a different kind of education.
• You’ll use somebody else’s money.
  You are building a resume and a company as well as creating valuable experiences on the dime of venture capitalists.
• You’re free to mark your own path.
  The journey is the reward, especially for “outcasts”, “geeks” and “nerds” who were ostracized in school and for free thinkers who can’t be strapped down by structure and a conventional career path.
• You may get your just rewards.
  Silicon Valley is a complete meritocracy - are you bright and do you work hard? Do you have innovative ideas? Then you may have a shot.
• You have more energy to work.
  Your youthful energy is an advantage.

The Cons

• You won’t be well rounded.
  You’ll miss out on teenage life that helps round you out as a person as your peers will be on a different wavelength than you. Plus, you’ll need to work harder without a diploma and a formal education.
• You’ll be lonely.
  You can always go back to school, but your social life won’t be the same as your old friends move on. Could loneliness be a part of this experience? Some successful dropouts say so.
• You can fail.
  The risks are as high as the potential rewards. Experiences of Valley dropouts vary significantly. So just because you decided to spend your time pursuing a dream doesn’t mean you’re guaranteed to do well. Not everyone can win the startup lotto.
• You may not be well adjusted.
  Young people thrust in a high pressure situation are bound to be shell shocked at a tender age. Even success can be too much to handle. I would liken this situation to young celebrities who face sudden fame, fortune and responsibility. Still, it could be a good problem to have.
• There’s a glass ceiling.
  In the Valley, young people are frequently lured by high starting salaries and low barriers to entry, but as they climb the corporate ladder, there’s a ceiling often hit by those who don’t hold degrees. There’s also that matter of proving yourself to skeptics when you don’t have that diploma.
• It takes a lot of sacrifice.
  There’s much sacrifice and determination involved in nurturing an entrepreneurial vision: the cramped rooms, long hours hunched over a monitor, all nighters and fast food. Sure you’ll probably have some of that in an educational setting, but not to the same degree nor at the same pace. At this time in a student’s life, is it worth choosing over high school or college? What, no frat houses, sorority clubs, partying?

What do you think? Is it worth dropping out of school to launch your business full time?

Evan Carmichael

http://www.youngentrepreneur.com/blog/

The Keys to Self-Acceptance
By: Brian Tracy

Psychologists today generally agree that your level of self-esteem, or how much you like yourself and consider yourself to be a valuable and worthwhile person, lies at the core of your personality. Your level of self-esteem determines:

Your level of energy and the quality of your personality how much you like other people and, in turn, how much they like you your willingness to try new things and to venture boldly where perhaps you have never gone before the quality of your relationships with others-your family, your friends and your coworkers and how successful you are in your business, especially if you are in sales.

But before you begin enjoying the wonderful effects of high self-esteem in your life, you have to learn to accept yourself unconditionally. And even before you achieve self-acceptance, there are other steps you have to take.

Self-acceptance begins in infancy, with the influence of your parents and siblings and other important people. As a child, you have an overwhelming need for love and approval and acceptance from the important people in your life. A developing child requires this emotional support the way roses need rain. Healthy personality growth is absolutely dependent upon it. A person grows up straight and strong and happy to the degree to which he receives an abundance of nurturing in his formative years, prior to the age of five.

Someone once said that everything we do in life is either to get love or to compensate for the lack of love. Almost all of our problems, as both children and adults, can be traced back to “love withheld.” There is nothing more destructive to the evolving and emerging personality than being unloved or unaccepted for any reason by someone whom we consider important.

As adults, we always strive to achieve what we felt we were deprived of in childhood. If you grew up feeling, for any reason, that you were not totally accepted by your parents, you will be internally motivated throughout your life to compensate for that lack of acceptance by seeking it in your relationships with other people. To the growing child, perception is reality; reality is not what the parents feel toward the child, but what the child feels that the parents feel. The child’s evolving personality is shaped largely by his perception of how he is seen and thought about by his parents, not by the actual fact of the matter. If your parents were unable to express a high degree of unconditional acceptance to you, you can grow up feeling unacceptable-even inferior and inadequate.

It’s quite common for a youngster to grow up in a household where he or she feels a lack of acceptance by one or both parents, especially the father. When the young person becomes an adult, the psychological phenomenon of “transference” takes place. The individual goes into the workplace and transfers the need for acceptance from the parents to the boss. The boss then becomes the focal point of the individual’s thoughts and feelings. What the boss says, how the boss looks, his comments and everything that he does that implies a feeling or an opinion about the individual is recorded and either raises or lowers the individual’s level of self-acceptance.

Your own level of self-acceptance is determined largely by how well you feel you are accepted by the important people in your life. Just as the Law of Correspondence says that your outer life tends to be a reflection of your inner life, your attitude toward yourself is determined largely by the attitudes that you think other people have toward you. When you believe that other people think highly of you, your level of self-acceptance and self-esteem goes straight up. However, if you believe, rightly or wrongly, that other people think poorly of you, your level of self-acceptance will plummet.

The best way to begin building a healthy personality involves understanding yourself and your motivation. Toward this end, I’d like to introduce what is called the “Johari window” and explain its effect on your personality.

The Johari window provides a view into your psyche. According to this theory, your personality can be divided into four quadrants, like a square divided into four smaller squares.

The first part of this window is the box in the upper left-hand corner. It represents the part of your personality that both you and others can see. This is the open part of your personality. The lower left-hand box of this window into your psyche represents the part of your personality that you can see but that others cannot see. It is a part of your inner life.

The upper right-hand box of this window represents the parts of your personality that others can see but of which you are unaware. You have somehow blocked these parts from your consciousness.

Finally, the lower right-hand box represents that part of your personality that is hidden from both you and other people. It’s the deeper, subconscious part of your personality that represents urges, instincts, fears, doubts and emotions that are stored away below a conscious level, but that can exert an inordinate impact on the way you behave, often causing you to feel and react in certain ways that sometimes even you don’t understand.

One of your goals is to develop a fully rounded personality, to become a fully functioning human being with a sense of inner peace and outer happiness.

A measure of your maturity is often manifested in the way you treat different people. When you are at your very best and your self-esteem is at its highest, you’ll find that you are genuinely positive and friendly toward everyone, from the taxi driver to the corporation president. When your personality is completely together, you treat everyone with equal respect.

The way to move toward a higher level of personality integration and, therefore, a higher level of peace and personal effectiveness, is to expand the area of your personality that is clear to both you and others. And you do this through the simple exercise of self-disclosure. For you to truly understand yourself, or to stop being troubled by things that may have happened in your past, you must be able to disclose yourself to at least one person. You have to be able to get those things off your chest. You must rid yourself of those thoughts and feelings by revealing them to someone who won’t make you feel guilty or ashamed for what has happened.

The second part of personality development follows from self-disclosure, and it’s called self-awareness. Only when you can disclose what you’re truly thinking and feeling to someone else can you become aware of those thoughts and emotions If the other person simply listens to you without commenting or criticizing, you have the opportunity to become more aware of the person you are and why you do the things you do. You begin to develop perspective, or what the Buddhists call “detachment.” You can stand back from yourself and your past and look at it honestly. You can “disidentify” from the intense emotions involved and view what has happened to you with greater calmness and clarity.

Now we come to the good part. After you’ve gone through self-disclosure to self-awareness, you arrive at self-acceptance. You accept yourself for the person you are, with good points and bad points, with strengths and weaknesses, and with the normal frailties of a human being. When you develop the ability to stand back and look at yourself honestly, and to candidly admit to others that you may not be perfect but you’re all you’ve got, you start to enjoy a heightened sense of self-acceptance.

One of the keys to happiness is to “live in truth” with yourself and others. And one of the ways to live in truth is to stop trying to be perfect and to see yourself honestly, as you really are. Attempts to achieve needless perfectionism, and an intense, often unconscious desire to impress people with how good you are, are real time wasters and energy killers.

There is a joke that cuts to the heart of this issue: “When you are in your 20s, you are very concerned about what people think about you. When you are in your 30s, you don’t really care that much about what people think about you. And when you get into your 40s, you discover the real truth: Nobody was even thinking about you at all.” A valuable exercise for developing higher levels of self-acceptance involves doing an inventory of yourself. In doing this inventory, your job is to accentuate the positive and minimize the negative. The real difference between optimistic people and pessimistic people is that optimists are always looking for the good in every situation, the opportunity in every problem, while pessimists are always looking for the down side and the problem in every opportunity. When you honestly analyze yourself during this inventory, you will be amazed at how extraordinary you really are and how incredible your potential is for accomplishing the thing s that you really desire.

Begin your inventory by recalling your accomplishments. Think about all the things that you have achieved over the course of your lifetime. Make a list of them. Think of the subjects you passed and the grades you received. Think of the awards and prizes you won. Think of the people you have helped and the kind things that you have done for others. Think of the adversities that you have triumphed over. Think of the goals that you have set and achieved. Look at the material parts of your life; think about all the things that you have managed to acquire as the result of hard work and disciplined effort.

Now, to increase your level of self-acceptance, think of your unique talents and abilities. Think of your core skills, the things that you do exceptionally well that account for your success in your profession and in your personal life right now. Think of the results that you have achieved by applying yourself to the challenges of your world. Think of your earning ability and your ability to accomplish your goals. Think of your ability to make a contribution to your company and to your family and to the world around you. Think about all the things that you have to offer to your world.

Finally, to boost your level of self-acceptance, think about your future possibilities and the fact that your potential is virtually unlimited. You can do what you want to do and go where you want to go. You can be the person you want to be. You can set large and small goals and make plans and move step-by-step, progressively toward their realization. There are no obstacles to what you can accomplish except the obstacles that you create in your mind.

Here’s an important fact to keep in mind when it comes to self-acceptance. What we work for more than anything else is respect. The British author E. M. Forster once explained, “I write to earn the respect of those I respect.” Almost everything that we do, or refrain from doing, is somehow associated with gaining, or at least not losing, the respect of the people whom we respect the most. And only when we feel that we are respected by those we respect do we accept and like ourselves to a great degree.

One way to raise your level of self-acceptance, then, is to pick a role model, someone you admire and look up to and want to be like, and then pattern your life and your work after that person’s. Many businesspeople have become top executives by selecting a role model who had already reached the top and then patterning their lives along the same lines. Everything you do that you feel is consistent with what someone you admire would do increases your level of self-acceptance.

A second way to assure a higher level of self-acceptance is to develop good work habits and to work efficiently and effectively toward the accomplishment of high-value results. The most respected people in any organization are those who can get the job done. Your level of self-efficacy, in other words, your belief in your ability to do what is expected of you, has an incredible effect on how much you accept yourself as a good and valuable person.

A third way to increase your level of self-acceptance is to be very aware of your image and the way you appear to people. If you want to be respected and admired by others, you need to act like a person who is worthy of respect. And remember, everything counts. Everything you do or don’t do can either contribute to or take away from your image and the impression you are making on others. When you know that you look absolutely excellent on the outside, your level of self-acceptance shoots up.

A fourth way to raise your level of self-acceptance is to take complete responsibility for the various parts of your life. Refuse to make excuses or to blame other people. Never complain; never explain. Volunteer for assignments and responsibilities, and then carry them out without comment.

The key to achieving a feeling of mental well-being is having a sense of control, a sense of self-determination and internal mastery. This sense of self-control is tied directly to your willingness and ability to accept full responsibility for every part of your life. When you criticize others, or you make excuses for things that you did not do well or complete on time, you actually feel more negative about yourself, and your sense of self-acceptance declines. When you take charge of every part of your life, you feel terrific about yourself, and your level of self-acceptance and self-esteem goes up. A fifth way you can build up your level of self-acceptance is by interpreting events in a positive way. Dr. Martin Seligman of the University of Pennsylvania calls this your “explanatory style.” He concludes that high-performing men and women have a tendency to talk to themselves in a positive way and to explain things that are happening to them and around them in a way t hat allows them to stay optimistic.

Look for the silver lining in whatever cloud may be hanging over your head right now. Look for the lesson or opportunity in each obstacle or setback. Look for reasons to excuse others and let them off the hook, rather than becoming angry or upset. Play mental games with yourself to keep your thoughts on the things you want and off the things that you fear or that make you unhappy.

A sixth way to raise your level of self-acceptance is to become a habitual goal setter. Write down clear goals and a plan for what you want to accomplish and then work your plan every day. Develop of clear sense of direction for your life. Work on track and on purpose. Know exactly who you are and where you are going. Each step that you take toward the accomplishment of a predetermined objective raises your self-esteem and improves your level of self-acceptance at the same time.

Finally, a seventh way to raise your level of self-acceptance is to practice the Law of Indirect Effort, or reverse effort, and realize that everything you do or say to another person rebounds and causes the same effect on you. Whenever you are warm and friendly and courteous to another, you improve your own level of self-respect and self-acceptance. Whenever you do something nice for another person, you tend to feel better about yourself. Whenever you do or say anything that causes another person to like himself more, you find yourself liking yourself more as well.

One of the great riches of life is the self-acceptance that leads to self-esteem and maximum performance. By being aware of and practicing these recommendations, you can increase your self-acceptance to the point where you can confidently move forward toward the realization of your full potential.

About Brian Tracy
Brian Tracy is the most listened to audio author on personal and business success in the world today. His fast-moving talks and seminars on leadership, sales, managerial effectiveness and business strategy are loaded with powerful, proven ideas and strategies that people can immediately apply to get better results in every area. For more information, please go to www.briantracy.com.

Now, here’s the question:

“How many people in your life have you helped to become more healthy, wealthy, and love themselves?”

If the answer is - less than you wanted to - go to http://www.TopDeploy.com and see, visualize, imagine how you can use it to achieve what you want.

“The Dow Jones Industrial Average (DJII) fell 415.22 points on February 28, 2007, or 3.29%, erasing the bluechip index’s year-to-date gains. This was the biggest one-day decline in the index since July of 2002. The broad based S&P 500 dropped 50.33 points, or 3.47%.

Selling began overnight in Asian markets before spreading to Europe and ultimately the United States. Although yesterday’s weakness began in the Chinese market following reports that their government may crack down on securities fraud and illegal margin lending, we believe historically high Chinese equity valuations may have also played a role.

There, Price/Earnings ratios have crept near 42x for the overall market, a level last seen in March 2004, the start of a previous sell-off. We note that the approximate 9% drop in China left the index at a level seen less than just 10 days ago. While the Chinese stock markets may remain volatile in the coming months, we note that policy measures are likely to promote a healthy capital market by improving the quality and structure of listed companies and markets rather than pricking bubbles, in our view.

Until February 28, the U.S. market has seemingly shrugged off a number of concerns, including problems in the sub-prime lending area, a slowing of industrial activity, and a seemingly complacent credit market. These issues may have compounded some longer-term issues such as high energy prices, slowing year-over-year earnings growth, and geopolitical tensions. Yesterday’s market correction does not come as a major surprise to us although the magnitude of the one-day drop was significant.”

That’s the letter from my IRA manager with Smith Barney.

Last week’s news was a shocker. The stock market plunged 416 points. In one day! Many investors were caught off guard. And the whispers from the back rooms of Wall Street say it’s going to happen again. The worst is not over.

It’s great to be a network marketer!

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Lock in to YOUR legacy position.

CURRENT EVENTS MARCH 1, 2007

This month, the significant news items regarding mortgage rates have been even shorter than the month itself. The highly anticipated Jobs Report came out on Feb. 2. It showed 111,000 new jobs were formed in January, below the expected 150,000 forecast. Thus, it was no surprise when the Fed decided to keep the Fed Funds Rate unchanged at 5.25%, but indicated that they are continuing to keep a vigilant eye on inflation, and will raise rates further if inflation picks up steam. Despite this, I foresee no change in the Prime Rate when the Fed meets next on March 21st.

THIS MONTH’S TOPIC: THE MINDSETS OF BUYERS, BORROWERS AND BROKERS

I’ve chosen to deviate from the topic that I had promised in last month’s newsletter and defer it to next month. Usually, I write expositorily on a subject. But this is not one of those times. Recently, three instances, one involving a former client, the relative of another client, and a realtor referral have caused me to re-examine the agendas and interactions of borrowers, buyers and brokers. The actual case histories illustrate, perhaps, better than any academic discussion could the misunderstandings that have become routinely ingrained in the mortgage industry. Because of the length of this month’s newsletter and the similarity between the actual case histories and the real world questions of “MORTY’S MAILBAG” I am going to dispense with the latter for this issue.

“The unexamined life is not worth living.”

–Socrates

From time to time, everyone experiences miscues in their personal or professional lives and their underlying value lies in examining their causation and the coping mechanisms we adopt. I write this newsletter for a variety of reasons: for purposes of marketing, to benefit my readership, and to clarify my own understanding of the mortgage business. The reason for which I least write a newsletter is that it’s therapeutic. But occasionally, it provides me a forum for venting some of my frustration with the egregious misapprehensions of borrowers, buyers and sellers in real estate.

With the advent of the Internet and the myriad of telecommunications that exist, real estate borrowers and buyers alike have become rate shoppers as never before. Ironically, despite most borrowers’ fixation on rate, the average person overpays for their mortgage and is woefully undereducated when it comes to financing real estate.

We’ve all heard the bromide, “that a little knowledge can be dangerous.” It is no less true here. On my website, under the Talking Points header is a gateway page with the following admonition: Being an informed borrower is in your best interest! (You may not know what you think you know…). To the left are 15 to 20 mortgage related topics that cover everything (within reason) that the layperson might ever need to know about loans and the loan process. I encourage borrowers to become informed because they make better clients. Still, there are not insignificant numbers that resist one’s efforts at clarification or who are unwilling to correct their misunderstandings because it’s easy and they’re comfortable with their ignorance. I’ve, also, heard some brokers and bankers claim “that borrowers are simply getting what they deserve.”

WHEN A CUSTOMER IS UNABLE TO DETERMINE HOW A PRODUCT OR SERVICE IS BETTER, WORSE OR DIFFERENT FROM A COMPETITOR’S, A CONFIDENCE GAP OCCURS AND THE CUSTOMER WILL NECESSARILY DEFAULT TO PRICE.

The majority of borrowers, focus on about one-fourth of what comprises a mortgage transaction. They understand that a 5% is better than 7% when it comes to rate. What the average borrower and many loan officers fail to take into account are the other components of financing real estate, namely term, tax shelter, and leverage. I come from a financial planning background and I find that these elements, more often than not, have a far greater impact on a homeowner’s finances than rate.

If this is so, it begs two questions: why do borrowers continue to shop for rates and why do most brokers try to sell rates rather than expertise and service? I’m convinced, the reason, in both cases, is because IT’S EASIER—for the ill-informed to remain ignorant and for the seller of said services to quote a rate (however misleading) rather than trying to educate his/her borrower or buyer. The other reason that mortgage bankers and brokers sell rate is because it’s easier to charge more for a process that is little understood. Despite these caveats about how some practitioners operate, not everyone is out to fleece you.

The major thing that borrowers seem to be unclear about is that there are two elements (among a host of others) that determine a rate quote: one is the INTEREST RATE, the other is PRICE. The INTEREST RATE IS THE PERCENTAGE RATE THAT THE MONEY IS BEING LENT AT. The PRICE IS THE AMOUNT THAT ONE HAS TO PAY TO OBTAIN A SPECIFIC LOAN AMOUNT AT THE SPECIFIED INTEREST RATE. Example: The interest rate for a loan of $500,000 is 6%, but the price to obtain this rate may be .5% (or $2500). Discount points (money paid by the borrower to the lender) are used to buy the INTEREST RATE down. Rebate points (money paid by the lender to the broker) are used buy the PRICE down. PAR PRICING is where there is NO MONEY PAID OR REBATED to obtain THE SPECIFIED RATE. Thus, to obtain par pricing (or at no cost) for the same loan amount of $500,000 as in the previous example, the interest rate would likely be increased to 6.25%.

if your knowledge is less than “professional”, it’s best to know with whom you’re dealing. Despite this caveat many borrowers attempt to outwit professionals by employing a variety of tactics. Some borrowers are loathe to admit their lack of knowledge or understanding for “fear of being taken”. Others will “fudge the truth” and fish for a rates by saying that “so and so quoted me X % (a rate a .25% below what they were actually given)….can you do better?” No one can compete with liars and incompetents because what they’re offering are loans that don’t exist! And, still others, employ bravado: I can’t begin to tell you how many people I talk to, who because they’ve bought a home or two, or refinanced once or twice, think that they’re pretty much an authority on real estate finance. AS SHARP AS ONE MIGHT BE, IT IS UNLIKELY THAT YOU’LL SAVE THE KIND OF MONEY YOU WOULD, IF YOU HAVE AN ETHICAL PROFESSIONAL LOOKING AFTER YOUR BEST INTERESTS. I do what I do 40-50 hours a week and I find there are constantly new programs being introduced or programs which may benefit a borrower.

Mortgage Factoid: the average Californian moves every six years and 4 months and refinances, on average, every 3 years and 7 months. What this means to me, as a mortgage broker, is that a homeowner is legitimately interested in talking to me two times in ten years or, on average, once every 5 years. Consequently, I do everything within my power to give them what they want–or something even better.

Now that I’ve gotten all the prologue out of the way let’s get down to actual case histories.

In January, a client whom I had refinanced 3 years earlier called me early one Friday to say that she had lost my number and had to “Google” me in order to locate me (evidently, she had not been receiving or reading the newsletter). I was flattered, not just by her faith in me, but also by her resoluteness and industry.

She told me that she and her husband, a dentist, were looking to lower their payments and refinance out of their $700,000 15-year fixed-rate loan @ 5.875% into a $900,000 30-year fixed rate, with $200,000 cash out for purposes of debt consolidation and improvements. I pulled their credit and called her the following Monday and told her that I could do a zero point loan @ 6.375% plus the added tax shelter benefits afforded them by paying off their high interest rate credit cards. She was less than overjoyed because she didn’t want to part with the 5.875% rate I’d gotten her earlier. She was fixated on rate.

I explained to her that this was a case of “that was then and this is now”. I reminded her that the Fed Funds rate, a pre-cursor to the Prime Rate, had been at 1% back then, but it was now at 5.25%. The fact that I could get her a rate that was only a ½ percent higher for twice the length of her original term I deemed fairly remarkable.

She countered, “But our credit was in the low 600’s then, now we’re above 680” (A paper territory). She speculated that maybe a Home Equity Line of Credit (HELOC) for $200,000 would be a sensible substitute. I pointed out to her that even with a HELOC below the current Prime Rate (8.25%) they’d be paying somewhere between 7.5% & 7.75%. She said maybe they’d hold off on doing anything until rates dropped in a few months. I told her that I didn’t foresee rates dropping, before the end of the third quarter of 2007, if at all. She said she’d talk it over with her husband and they’d let me know what they decided to do.

Four days later, I still hadn’t heard back from her (never a good sign), even though I’d sent her a couple of emails and forwarded via snail mail a number of pieces of loan, investment, and credit literature. So, I called her back. I suggested another option: a zero point loan of $900,000 @ the same 5.875% they currently had, thereby saving them about $3818 per month.

She complimented me on “really going after a sale” and emailed me back that after I’d given them my original quote on a 30-year term, “in the 6’s” her husband had called Greenlight Financial and been quoted a rate of 5.875% on a 30-year fixed with no points and closing costs of just $295. She added that they weren’t sure what they were doing but yet but promised to let me know.

The way in which points are sometimes quoted is all-important. Some lenders include discount and origination points in their quoted points. Other lenders may only quote discount points. Corporate real estate licensees and mortgage bankers (Greenlight Financial, E-Loan, Chas. Schwab & Co., et als) unlike mortgage brokers, ARE NOT REQUIRED TO DISCLOSE THEIR REBATE on the Good Faith Estimates (GFEs). It may sound cynical but it would seem that mortgage bankers and corporate licensees have better lobbyists than the National Association of Mortgage Brokers (NAMB). While rate is important, you have to consider the overall cost of your loan. One needs to pay close attention to the APR, loan fees, discount and origination points.

I replied that I had researched this with 20 different lenders and that rate didn’t exist for a jumbo (loan amount above $417,000) for a 30-year fixed and that anyone doing it would have to pay a point to buy the rate down on 30-year fixed rate loan.

I suggested that most likely one of two things was happening either the rep had inadvertently OR deliberately misquoted her husband OR that her husband had misunderstood some part of the quote. I told her that if she’d send me a copy of the Good Faith Estimate I’d welcome the opportunity to show her why it was not valid OR how I could improve it. In the meantime, I analyzed their entire consumer debt picture and sent out my proposal showing how I could save them about $3800 a month over what they were currently paying as well as another $15,000 in tax deductions.

In my desire to leave no stone unturned I contacted Greenlight Financial and asked them for a quote using the same loan parameters and was told that they could do a zero point loan, 30-year fixed rate loan @ 6.75% with closing costs of $295. I told Greenlight that one of my “friends” had been quoted a rate @ 5.875% to which the agent said they could do that but it would cost of 3.25 points (or $29,250 in this case) to buy the rate down. I asked about a 15 year term and was told that it could be bought down to 5.25%, again, if one were willing to pay 3.25 points.

I communicated this to the borrower and she said she’d mention it to her husband and they’d let me know. In the meantime I refined the 15 year deal further and found two lenders that were willing to give me a rebate such that I could do a zero point loan @ 5.75%. But, I received no further communiqué from my borrower.

After two more weeks, I called her—to see what they had decided. She said they’d gotten the loan from Greenlight. “And it was just as represented–they got a zero point, 15-year fixed rate loan and only paid $5900 plus closing costs of just $295.”

“Well,” I asked, “how could it be a zero point loan if you paid $6000 for it?”

“Because,” as she put it, “we did some other things.”
What Greenlight had done was charge them $5900 in discount points (to buy the rate down) but represented it as a “zero point” loan because there was no origination fee AT THAT RATE. The loan that I had found for them was an 1/8th cheaper in rate and $6,000 less in fees but the closing costs on my loan were about $3500 higher. Net result: they paid $2695 (5900 + 295 – 3500) more for a higher rate, but they thought they got a better deal because the husband and wife didn’t understand the difference between a discount point and a rebate point and what a zero point loan is! For those of us who are ethical, not to mention all the work you put into a deal for a client, these are the ones that break your heart.

Another client referred his brother to me. The brother had an asset account with E-Trade and their mortgage division, E-Loan was offering him a 30 year fixed rate loan of $417,000 @ 5.875% with zero points and he wanted to know if I could beat it. A week or two earlier when E-Loan quoted the offer, I could have easily beaten the rate, but the rebate pricing had worsened and again it was a case of “that was then and this is now” so all I could do in good faith was quote him the rates that existed as of that moment. And speaking of Good Faith, I asked him if he had one–a Good Faith Estimate (GFE) and a rate lock @ 5.875%. He said, “No, but that was what they quoted me.”

IF THE RATE IS NOT LOCKED AND IT’S NOT IN WRITING, YOU HAVE NOTHING. Rates move daily and sometimes intra-day, as well.

The lender may honor their quote (easy to do if rates have fallen), but then again, they may not (unlikely in the event they’ve risen).

Most homeowners have grown up with the notion that the 30-year fixed rate mortgage is the gold standard in terms of desirability. Yet only 3% of Californians will carry their 30–year fixed-rate mortgages to completion. Why? Because as I alluded to earlier, 50% will move within 6 and 2/3 years and another 50% will refinance within 3 years and 7 months (Source—California Association of Realtors). This begs the question why pay a premium of 12% to 20% for a 30-year fixed rate mortgage that 97% of homeowners will never utilize.

I went back to this borrower with what I termed two an unbeatable deals:

1) a zero point, 10/6 ARM loan (fixed for 10 years, adjusts semiannually beginning in year 11) @ 5.25%

2) A zero point, 5/6 ARM loan (fixed for 5 years, adjusts semiannually beginning in year 6) @ 5%

He said, in effect, “thanks, but no thanks,” because he was fixated on a program, even though what I was offering was between 12.5-17.5% cheaper. In fairness to him, you have to respect a borrower’s comfort zone and he admitted that he was conservative. Yet, he was content to pay a one full-percent more for a program that there was about a 3% chance that he would ever use. The last I heard, he went ahead with E-Loan and I don’t know what he ultimately ended up with. Borrowers are often “penny-wise, pound foolish”.

The last case involves a couple that were referred to me by a realtor.

They had owned a home before, back East, but were a bit surprised by the price of real estate and as a result had been renting. The referring realtor had nice things to say about me and they were wondering if I could help them. Now, they were looking to buy and they told me that they had stock and retirement accounts through Chas. Schwab & Co. Schwab had approved them for a maximum purchase of $812,500 and offered a rate of 6% for the 1^st ($650,000) with no points and I don’t recall if they ever mentioned the rate for the 2^nd. Because of what had recently transpired, I thought, “Oh here we go, again.”

The wife, an attorney, had managed the family finances very well—almost too well—because they had virtually no debt and consequently very few open credit lines. Nevertheless, they were willing to be guided by a couple of professionals and willing to listen to suggestions. The realtor found them a house that was about $50,000 more than Schwab had approved them for and I found them a lender and a loan for the higher amount. Subsequently, the wife told me that to get the 6 percent rate Schwab had quoted they were actually paying 1.875 points to get that rate. I said, “I thought you said this was a zero point loan they were offering.” She wasn’t clear on whether that 1.875 referred to discount points or something else. The net result was that I found a lender with 100% financing on an $860,000 purchase with a very advantageous niche for high FICO borrowers such that they ended up with a rate of 5.75% interest only (I/O) with zero points.

No one lending institution does all things well. Mortgage bankers, such as a Schwab & Co. or an E-Loan have a limited range of programs. Generally speaking, it’s better to have a choice when it comes to products, services, rates and ability to qualify. Mortgage brokers clearly have the edge in this regard.

Moreover, as a broker, I shop for rates and programs and price my loans among 15-20 different lenders. On the other hand, I know there are many brokers that don’t shop—they just stick the client into the first loan that satisfies the borrower’s parameters. Even I, shopping as much as I do, am amazed by the fact the lender that had great rates for a given program last month may no longer offer competitive rates or programs a few weeks later. Not only does it pay for brokers to shop around—it’s our job. Note, I said brokers, not borrowers. The major difference among the previous examples was that in the last case, the borrowers allowed a couple of real estate and mortgage professionals to do what we are paid to do–to shop for their clients and provide economic benefit and counsel throughout the transaction. As licensed professionals, we have a fiduciary responsibility to do precisely this.

Bottom Line: If you’re going to hire a professional, know whom you’re dealing with and trust them to do their job.

MORTY’S MAILBAG WILL RETURN NEXT MONTH!

MORTGAGE MIRTH

[Forgive me Lily and Kingsley] Did you hear the one about the unfortunate Chinese couple whose son had a learning disability and compounded the problem by naming him Sum Ting Wong?

NEXT ISSUE’S TOPIC: TOP TEN MISTAKES BUYERS MAKE WHEN BUYING A HOME

Rod Haase

Associated Brokers, MLI
http://mortgagestraighttalk.com/
rod@mortgagestraightTalk.com
1-866-214-3378 ext.8584