Speaker 1 0:00

The following program. The ENT , mortgage and Realty Show is paid for in full by ENT mortgage, L L C and equal housing lender consumer access.org number 2 5 5 3 6 8. The advice and opinions expressed during the Academic Mortgage and Realty Show are solely that at the hosts and guests of ENT mortgage, L L C, and not W T M J or Good Karma Brands.

Speaker 2 0:21

Welcome to the Anette Mortgage and Realty Show,

Speaker 3 0:23

Getting you inside information on buying, selling, and financing your home

Speaker 2 0:28

With

Speaker 3 0:29

Expert advice from

Speaker 2 0:30

Anette Mortgage and Realty.

Speaker 3 0:33

And now, here's Brian Wicker and

Speaker 1 0:35

Tim Holdman. Welcome to the Anette Mortgage and Realty Show. I'm Brian Wicker, the licensed real estate broker with Accu Net Realty Advisors and the majority owner of Accu Net Mortgage, along with my son-in-law, Tim Holden , who's one of our top senior loan consultants at the mortgage company. Good morning, Tim. Good

Speaker 2 0:50

Morning, Brian. Hey,

Speaker 1 0:51

If you've got a question or a comment, remember you can call or text us on the Old National Bank Talk or text line , which is 8 5 5 6 1 6 1 6 20 Old National Bank. Get old, and you can also grab a podcast of today's show or any of our past shows wherever you normally get your podcast. So Tim , uh, mortgage rates continue to inch upward.

Speaker 2 1:10

Yes , yes, indeed. With , uh,

Speaker 1 1:12

Our favorite mortgage rate , uh, publishing site is Mortgage News Daily. They reported a benchmark rate of, are you ready? Eight

Speaker 2 1:21

Oh

Speaker 1 1:23

0.03% on a third year fixed . That's we've

Speaker 2 1:25

Crossed into the land of 8%. Okay . O

Speaker 1 1:27

OCHO or Snowman, whatever you wanna call it. It's the score you don't want to get when you're a golfer, <laugh> , uh, correct . Loan of seven. That was bad enough. But anyway , uh, and that's with 40% down excellent credit and all the other Right. Stuff , uh, that's higher, by the way, than the 7.63% that Freddie Mac published last Thursday for the 30 year. And that's because Freddie Mac, you know, who used to be the kind of go-to weekly rate number, well, they switched things up

Speaker 2 1:55

About

Speaker 1 1:55

A year ago. Uh , they no longer report how many points or how much interest you pay in advance. Yes . Plus they're reporting a three week lagging average, which is

Speaker 2 2:05

Horrible when markets are this volatile. That's like not anywhere close to accurate. I believe three weeks ago you could get a 7.6.

Speaker 1 2:11

Exactly. So, so , uh, it's mortgage News Daily, who guess what updates their rate that they post Daily . Daily,

Speaker 2 2:17

Yeah .

Speaker 1 2:18

Uh , is the more accurate in this case , uh, if you were coming to low overhead accurate mortgage at the end of the week , uh, we're gonna talk about a customer that you've got cooking . Uh , Tim , uh, this is on a $525,000 purchase with just 25% down. Um, we could deliver 7.875 , uh, with 7.89 a p r .

Speaker 2 2:39

Not too ,

Speaker 1 2:40

Too heavy because there'd be no points. So that's , uh, that's, you know, as usual, we're a little better than the average bear and this's with Westtown. So I was talking to a customer and I'm sure we , you were talking before we started the show, you've got a , a good antidote. Oh,

Speaker 2 2:54

Yeah. We'll , we'll get into that

Speaker 1 2:55

For sure in this environment. But I was talking to a past client who is looking to buy another property in Hilton Head . Oh, nice. So he's a Wisconsin resident. He owns one vacation home in Hilton Head , and he's looking to buy another one.

Speaker 2 3:11

Hmm .

Speaker 1 3:11

Interesting. And he's down there looking and a , there's nothing for sale <laugh> .

Speaker 2 3:15

Okay.

Speaker 1 3:16

But

Speaker 2 3:17

His

Speaker 1 3:17

Question is, so like, Brian, is the Fed gonna raise rates? Oh, by the way, the Fed meets again on November 1st. Mm-hmm.

Speaker 2 3:23

<affirmative>,

Speaker 1 3:24

And there's like a 99.6% chance that they're gonna do nothing. Nothing.

Speaker 2 3:28

Right .

Speaker 1 3:28

Again. Right . And the reason is the market's doing the heavy lifting for them. Yeah.

Speaker 2 3:33

They

Speaker 1 3:33

Are going up.

Speaker 2 3:34

They don't need to raise the rate anymore. At least not in the short term .

Speaker 1 3:37

Exactly. And so his question was, when are they gonna come back down? And we had a company meeting this week where I showed the forecast from Fannie Mae.

Speaker 2 3:46

Yeah, that was funny. The forecast from the beginning of this year, from the beginning of

Speaker 1 3:49

2023, was that rates would be down to near six. Yeah.

Speaker 2 3:53

Like

Speaker 1 3:53

6.1

Speaker 2 3:54

Or something.

Speaker 1 3:54

By this time, you know, in the fourth quarter coming up soon.

Speaker 2 3:58

I would , I would what I would do for a 6.1 rate right now. Exactly .

Speaker 1 4:02

And so what's changed is that all of the fed's rate raising campaign has not yet had the desired effect. Right.

Speaker 2 4:09

The

Speaker 1 4:09

Desired effect. Well, and remember folks, the real enemy here is inflation. Mm-hmm.

Speaker 2 4:14

<affirmative> Right .

Speaker 1 4:14

Price creep year over year because the enemy of interest rates is inflation. It eats away at your fixed rate of return.

Speaker 2 4:21

Right. You

Speaker 1 4:22

Know, if inflation is running at 5% and you're lending money at six Yeah . You're really only making 1% by the time you get your money back. Right . And so that's why the Fed is hell bent for leather on lowering inflation. Mm-hmm.

Speaker 2 4:34

<affirmative>

Speaker 1 4:34

And the reports on that front are pretty good,

Speaker 2 4:37

Fairly decent , uh, as of lately. Yeah.

Speaker 1 4:40

But what's not happening is job market is still robust. Mm-hmm .

Speaker 2 4:43

<affirmative>

Speaker 1 4:44

And consumers are spending, people

Speaker 2 4:46

Are still spending like gangbusters, like

Speaker 1 4:48

Gangbusters. And so it's like, wait a minute, isn't that going to reignite inflation? Well ,

Speaker 2 4:53

That's the fear. And that's why I think, you know , uh, the, it's a 99 point whatever percent consensus that they're not gonna raise rates November 1st, but the percent of likelihood that they might raise rates in a future meeting that actually has gone up , uh, lately. I've, I've read. Correct . Yeah . Because it's like you said, it's that fear of what is it? What's gonna happen in the future? You know, are we doing enough long term to keep that place down?

Speaker 1 5:16

Fed Chair Powell also , uh, gave a talk this last week and kind of said, it's uncertain. Right.

Speaker 2 5:21

We

Speaker 1 5:21

Don't know what's gonna happen. Right . Alright, so, so the takeaway is that , uh, rates are creeping up on the fear that inflation may reignite. So what I told this customer is rates won't come back down until we get some signs that a, the job market's cooling off. Right.

Speaker 2 5:39

And

Speaker 1 5:39

Consumer spending is cooling off. Alright . So if that were to happen, that would be like, oh, okay. Maybe it's it's is cooling off. Yeah. And we have to continue to get inflation readings. And there are two per month the P c e personal consumptions expenditures, which we think is the better measurement. And the other one, which we just got recently was the consumer price index. Mm-hmm.

Speaker 2 6:00

<affirmative> .

Speaker 1 6:00

We gotta continue to have a book of those, a string of those that show that inflation is continuing to go down,

Speaker 2 6:06

Going in the right direction,

Speaker 1 6:07

Not going up.

Speaker 2 6:08

Right. And

Speaker 1 6:08

We need those other economic indicators, right. In the meantime, in , uh, a in era where rates are in the high sevens at best. And, and for some cases in the eights , what can we do to help home shoppers?

Speaker 2 6:21

We still got ideas, folks. We've

Speaker 1 6:22

Got ideas. Tim is telling me he's had several conversations about our best antidote for home shoppers in this current environment. We're gonna cover that when we come back. You are listening to the Academic Mortgage and Realty Show on AM six 20 W T M J

Speaker 3 6:39

Home buying advice from the guys who know it best. This is the ACU Net Mortgage and Realty Show with Brian Wicker on W T M J .

Speaker 1 6:48

Welcome back and thanks for tuning in today. So , uh, in the first segment we noted that , uh, gosh , gosh darn it , uh, rates are going in the wrong direction. And luckily though, we do have a tool that can help. And normally you , you would think that an adjustable rate mortgage would be the go-to , uh, uh, antidote for high fixed rate . Tim, why are adjustable rates , uh, uh, absent from the toolbox?

Speaker 2 7:15

Well, there's probably a couple reasons, but the reason that I hear most from my customers is like, honestly, people are still relatively risk averse. Oh. And would just prefer the security of a fixed rate mortgage.

Speaker 1 7:29

Okay. But let me jump in with the why they're not even an

Speaker 2 7:33

Option that we're offering. Yeah. Also, the pricing of them is bad, is terrible . Which , which is I think what you're gonna jump into <laugh> . So adjustable rate

Speaker 1 7:39

Mortgages , uh, are shorter term. And if you're the investor, right? Hey, I only have to lock in the rate for five, seven, or 10 years Right . Before I can adjust it. Well, the problem folks right now is that the short end of the interest rate spectrum, if you look at the interest rate, and I wish I would've pulled it up here before this segment, but I'm gonna say like a three month , uh, treasury bill, you can probably get at about 5.3 or 5.4 10 . Right ? A 10 year is like 4.98. So short-term rates are higher than long-term rates. And that's why banks don't want to put adjustable rate mortgages in their portfolio. Yeah.

Speaker 2 8:18

At least not at a significantly lower interest rate. Yeah . 'cause they're not gonna make any money. They're gonna

Speaker 1 8:22

Put 'em at the same rate, basically as a 30 year fixed. Yeah . And then why take the risk as a consumer, alright .

Speaker 2 8:28

Yeah . What , what I say is the juice is not worth the squeeze. That's right. Yeah . Sorry.

Speaker 1 8:31

So what is our solution, Tim?

Speaker 2 8:34

Well, our solution, and I think you have an ad running , uh, or , or had had an ad running. We called our inflation buster program. It was

Speaker 1 8:41

About a year ago. Yeah. Oh ,

Speaker 2 8:42

Okay. <laugh>. I had someone just say that those words to me. So maybe it's on our website or something like that. In any case, it's a 30 year fixed rate loan, so not an arm. But what we can do is we create a , um, I would call it a subsidy account off to the side. We throw some money in there to manually lower the customer's monthly payment on the mortgage for the first year or two , uh, depending on what flavor of program they pick. Uh, which is the equivalent of either a one or maybe even a 2% lower rate than the note rate of the mortgage , um, for the beginning of the loan. So the, the logic there is that rates are probably not guaranteed, but probably gonna come down

Speaker 1 9:21

Highly likely, highly . I'm gonna go highly , highly likely are gonna come down in the next year or two, by the way , year or two . Fannie Mee and Freddie Mac are No ,

Speaker 2 9:29

They agree . The Mortgage Bankers Association, they agree as well .

Speaker 1 9:32

All their economists still say, yeah, we know we were wrong. <laugh> , we

Speaker 2 9:35

Said rates were gonna

Speaker 1 9:36

Be low here by the last three months. They were

Speaker 2 9:39

Really wrong

Speaker 1 9:40

Of 2023. Yeah. We got the timing wrong. Yeah. But rates are still gonna come down. Uh, Fannie Masley's forecast is come down to, I think it was it 6.4. Yeah ,

Speaker 2 9:51

I'll

Speaker 1 9:51

Look that up during

Speaker 2 9:52

The next week by the end of 2024. Right .

Speaker 1 9:53

By the end of 2024. All right . So we're wrong

Speaker 2 9:55

By a year , which is literally a year away. That's right. You know ,

Speaker 1 9:58

So, so the idea is rather than spend somebody's money to lower the rate for the entire 30 years, which is expensive. Yeah.

Speaker 2 10:07

That's the traditional, you know, paying points to lower your rate , uh, whatever, an eighth a quarter. You know,

Speaker 1 10:12

People still do that. Yeah,

Speaker 2 10:13

For sure.

Speaker 1 10:14

But this alternative is let's use that money, somebody's money, and we're gonna talk about who can pay for it in a second. Let's use somebody's money to lower the effective payment rate

Speaker 2 10:26

Yes. For

Speaker 1 10:27

A shorter period of time. Yeah .

Speaker 2 10:28

'cause you get more bane for your buck. You can lower the rate more for a shorter period of time than if you spent the same amount of money to lower the rate less, but for the entire life of loan. Exactly. Like , yes, it is a 30 year fixed loan folks. But even before rates were outrageous, this, this was a very common conversation. All of our loan consultants have with our customers is balancing what we call the break even . Period. Do you want to invest more at closing to get a lower rate for the life of the loan? Or do you want to invest less cost at closing for a , a higher rate for the life of the loan? Because it's all about how long you're gonna keep the , this particular mortgage for. Right. So we still have that conversation with this new product. It's just that you're, you're pouring more gas on the fire to lower your rate

Speaker 1 11:08

In the early years. In

Speaker 2 11:09

The early years, which is what matters most.

Speaker 1 11:11

And just to be clear, technically we're not really lowering the rate. Correct. We're lowering the effective payment rate . Payment rate because we're putting a pool of money that in the right name for it is a subsidy account. Yeah . That will , um, you're

Speaker 2 11:24

Subsidizing the monthly payment for the first

Speaker 1 11:26

Few or two . Right . The loan loan servicer literally sits on this money mm-hmm .

Speaker 2 11:29

<affirmative>

Speaker 1 11:29

And every month they go, oh, hey, if you owe , um, you were supposed to owe , um, I'm looking at a

Speaker 2 11:34

28 54 Yeah . Per month.

Speaker 1 11:36

We're gonna lower that by $500. Yeah .

Speaker 2 11:39

Um,

Speaker 1 11:40

Because of this money in this subsidy account. Yeah . Uh , and so the other really cool thing though is that if you, if and when we do refinance mm-hmm .

Speaker 2 11:50

<affirmative> ,

Speaker 1 11:50

That borrower, the money that's left over in that subsidy account, you get it back, gets taken off their principle balance. Yeah.

Speaker 2 11:57

That's

Speaker 1 11:57

Huge when we go to refinance.

Speaker 2 11:58

So it's not wasted money, but the nice thing is it's , it provides that immediate payment relief that is people are looking for. That's the pain point when rates are at 8%. Right. And so

Speaker 1 12:08

We're looking at three possibilities for people who can pay for that temporary , uh, buy down subsidy account. Mm-hmm . And the nominees are <laugh> the buyer. Well, that would be kind of dumb.

Speaker 2 12:20

Yeah.

Speaker 1 12:21

The lender can help or wait the seller. And when we come back, Tim, we're gonna look at a a a mm-hmm . <affirmative> actual customer of yours and see just how much money they might be able to crunch their payment down by using this technique. You're listening to the Anette Mortgage and Realty Show on Wisconsin's radio station. AM six 20 W T M J getting you into the home of your dreams. Here's more of the Anette Mortgage and Realty Show with Brian Wicker on wtmj. We're back and thanks for tuning in again. Uh , this Sunday , uh, we're talking about antidotes to the current creepy Crowley , uh, higher mortgage rates. And we're talking about a tool in our academic mortgage toolkit called a temporary buydown. Uh, and , and so this is a 30 year fixed rate with a, hmm , what should we call it? A hood ornament on the front <laugh> that allows for a lower effective payment rate during the first year or two of the loan. Right . And we're

Speaker 2 13:18

Talking about ,

Speaker 1 13:20

Uh , asking the seller to pay for this. Tim, you're working with a client that's looking to buy something in the 5 25, 520 $5,000 range and they're getting a little Mm , what do you wanna call it, nerds ?

Speaker 2 13:32

Yeah. I mean they, about

Speaker 1 13:33

The rising rates ,

Speaker 2 13:34

They're Yeah. They're getting discouraged, which is , uh, totally normal. I think reaction, I think a lot of folks are in that same boat where it's like, oh , rates are getting so high that they're kind of pushing me out of the price range that I wanna be shopping in to get the actual house that I want. Right?

Speaker 1 13:48

Yep .

Speaker 2 13:48

And I don't, I still would love to not make a concession on payment and still keep that payment, at least maybe within spinning distance of the goal that I want to be in. Right. So this temporary rate buydown program is a potential solution. And as you mentioned , uh, before the break, you know, the magic doesn't, or the , the money doesn't magically appear. Right. Someone has to pay for the money that goes into the subsidy account that lowers the effective payment rate . So the question is, who's gonna pay for it to quote , uh, our , our beloved colleague Jerry cic , I think we all agree that the buyer ideally would not like to pay for this correct program. Right . Right . So the idea that I've been coming up with as a way to maybe take advantage of a silver lining change in the market,

Speaker 1 14:30

Softening, softening

Speaker 2 14:31

The softening of the market. The market .

Speaker 1 14:32

'cause you gotta figure folks that as rates have gone up, you know , over the last

Speaker 2 14:37

Competition out there

Speaker 1 14:38

Four , four weeks Yeah . Some buyers are dropping out.

Speaker 2 14:40

Yep .

Speaker 1 14:41

And so, you know, listings, even though we had more listings in September , uh, which is a good thing. Yeah . Those are sitting on the market a little bit longer. Yeah .

Speaker 2 14:49

Sellers might be starting to get a little nervous about, you know, their houses sitting , uh, and might be willing to entertain what we call a seller credit. Right . Right . Right . So the way I describe it to my customers that, hey, if you were gonna pay say five 20, offer five 20, offer 5 25, but then ask for a $5,000 seller credit in return,

Speaker 1 15:10

What could you do with that too?

Speaker 2 15:11

Yeah. The seller nets the same amount of proceeds, but you can use that five grand towards funding this temporary rate buydown program, which on the loan size that I was talking about with my customer, that would save them $268 a month, Brian, for the first year of mortgage payments, which is, that's real money in the bank.

Speaker 1 15:30

Yeah. And that makes them comfortable. It kind of gives them a year. Exactly. So that's where we suppress the effective payment rate by 1%. So let's give you some actual numbers. Let's say , uh, on the particular day we could have given 'em 7.875 on a third year fixed rate , uh, you know, normal, nothing fancy to it, right?

Speaker 2 15:50

Yep .

Speaker 1 15:50

Okay. Door number two is we say, Hey, you know, or I'm sorry, yeah. Door number two, the first alternative is, you know what, we'll make it an effective payment rate of 6.875 for the first year. Nice . So you got 12 months at that and then in, in years two through 30 . Yeah . If we don't refinance you by then, you're at 7, 8, 7 5.

Speaker 2 16:11

Right. And that's the other nice thing about this compared to an arm is that you're , you know, what the quote unquote worst case rate is going to be, you know, it's never gonna go up from 7.875. That's

Speaker 1 16:20

Right. In

Speaker 2 16:21

The unlikely event that you keep the mortgage on enough. 'cause as we mentioned, the Mortgage Bankers Association, Fannie Mae, they , they think rates are gonna be below 6.8 by this time next year anyway . So at which point I'll be calling my customer to refinance this

Speaker 1 16:33

Mortgage. Yeah . They'll be calling us one way or the other. Yeah.

Speaker 2 16:34

And

Speaker 1 16:34

Then the other alternative we have, that costs about $10,000. In this example, this is a 500, by the way , I should say the a p r, the annual percentage rate , uh, on a regular 30 year fixed rate, as I mentioned earlier in the show, is 7.89 for this one where we can temporarily suppress the effective payment rate for the first year. The annual percentage rate is 8.003. Right.

Speaker 2 16:56

It's, it's more cost. But the , the trick is the seller is really the one paying for

Speaker 1 17:01

That extra , extra cost and then Yeah . The seller is paying for it and we're not, you know , we're not accounting for that in our A P R calculation, we're giving you the worst case. Mm-hmm. <affirmative>. And then another alternative is we could give the buyer, this is for at a cost of $10,000. So you'd be asking the seller to chip in 10 grand , uh, towards , uh, closing cost on the loan. Right.

Speaker 2 17:20

Which

Speaker 1 17:20

Is gonna go to fund that temporary bite on subsidy account , uh, that would be 5.99 for the first year. That's

Speaker 2 17:26

Pretty great.

Speaker 1 17:27

Then 6.99 for the second year. Still

Speaker 2 17:30

Not bad <laugh> .

Speaker 1 17:30

And it doesn't go into 7.99 until until year

Speaker 2 17:33

Three , until that

Speaker 1 17:33

Third year. So this is a conversation we need to have mm-hmm . <affirmative> with , uh, your loan consultant document

Speaker 2 17:41

Yeah .

Speaker 1 17:41

Along with your real estate agent.

Speaker 2 17:42

Yeah. And ,

Speaker 1 17:43

And Yeah, go ahead.

Speaker 2 17:44

Well, the only other detail I mentioned is that because the, the real estate market has been so strong this last year, the , the home values are there to support maybe offering a little bit above what you were going to offer mm-hmm. <affirmative> , you know , so I don't think there's a lot of risk for a low appraisal. Take advantage of this robust housing market we've been in in the last year. The comps are gonna support you likely offering a little bit above. And

Speaker 1 18:06

You may not have

Speaker 2 18:07

To do that and getting seller credit . No . Because remember , have

Speaker 1 18:09

The listing price is a made up number. Right.

Speaker 2 18:11

And

Speaker 1 18:11

So that's where you need your good buyer's agent to , um, help you understand, hey, can I offer right at their asking price and ask for a

Speaker 2 18:21

$5,000 seller

Speaker 1 18:22

Credit

Speaker 2 18:23

Or a $10,000

Speaker 1 18:24

Seller credit, you know, can I get away with that? Yeah.

Speaker 2 18:27

Alright .

Speaker 1 18:27

You know what, when we come back, let's talk about , uh, some big potential changes Yeah.

Speaker 2 18:33

Around

Speaker 1 18:33

The economics and specifically affecting your buyer's agent, the real estate agent that's working with the

Speaker 2 18:39

Realtors. Tune in, this is important. And right

Speaker 1 18:41

Now it's time to turn it over to the 24 hour newsroom room .

Speaker 3 18:46

Don't break the bank to get into a house. Back to the ACU Mortgage and Realty Show

Speaker 1 18:50

With

Speaker 3 18:51

Brian Wicker on W T M J.

Speaker 1 18:53

Welcome back and thanks again for tuning into today's show. So at the end of , uh, right before the news, we were talking about , uh, this thing called a temporary buydown , uh, that can help. And you know, what we forgot to say, Tim, is that , uh, in that , uh, example where the borrower and home buyer can enjoy a 5.99 rate for the first year, that payment on a $393,000 loan would be $494 less. That's pretty good than what the rate would be at 7.875. Yeah . And then , um, you know, in that second year of that loan, they would have an effective payment rate that would be $268 less , uh, than the 7.875. And then in year three, the whole idea being that, hey, sometime during that first two years,

Speaker 2 19:38

Probably not gonna, we're

Speaker 1 19:39

Gonna have an opportunity to refinance you if all the bright minds in the world of economics are correct. But then your worst case is that , um,

Speaker 3 19:48

You

Speaker 1 19:48

Know, it's at 7.99 Right. For the last 28 years alone mm-hmm.

Speaker 2 19:52

<affirmative>

Speaker 1 19:52

So effective, not the best thing to describe on the , uh, radio. You know, we have a nice spreadsheet where we show people this.

Speaker 2 19:58

Yeah. This is a , a visual thing for sure. Visual

Speaker 1 20:01

Screen share . So

Speaker 2 20:02

If you're curious, call us. We'll share our screens with you and we can give you some examples. But

Speaker 1 20:06

What I, what I mentioned is that we're trying to get the seller to pay for this Right . In a softening real estate market. Yeah . And , and I said, well, you need a really good buyer's agent , uh, to help you understand, is this particular property that I'm about to write an offer on, you know, how is it priced for the listing price? Because remember that's a made up number.

Speaker 2 20:23

Yep .

Speaker 1 20:23

And so I used the word buyer's agent, and in Wisconsin in particular, we have a legal thing called buyer's agency. Right.

Speaker 2 20:31

Where ,

Speaker 1 20:32

Uh, you can sign as a home buyer, a buyer's agency agreement that binds that real estate agent to put your interest above all others, including their own. Okay. They have to, their job then is to get you the house at the lowest price mm-hmm.

Speaker 2 20:47

<affirmative> on the

Speaker 1 20:48

Best terms , best possible terms . Yep . That's right. And to always put their interests and the seller's interest above yours as the buyer. That's a cool thing. Uh, and that's different. Whereas the listing agent always, they're has

Speaker 2 21:00

The seller the best deal. They

Speaker 1 21:00

Have a fiduciary responsibility to the seller. Right. To get the seller the best terms and highest price. Alright. So in Wisconsin and throughout the country, interestingly, you, when you're a buyer, you don't have to directly stroke a check.

Speaker 2 21:15

No, you do

Speaker 1 21:16

Not to a buyer's agency. And that's because the National Association of Realtors for a long, long time, I don't know if it's 30 years or 50 years. Yeah . They've had a requirement that, okay, if you're a member of the National Association of Realtors and you are a listing broker, you have to offer compensation

Speaker 2 21:34

To the buyer's

Speaker 1 21:35

Agents from the seller to Yes. To any cooperating broker who brings in a buyer. So we've been, you know , the whole time that I , it's been alive and before that, that is the economic , um, environment in which real estate is ,

Speaker 2 21:48

It's been the modus operandi Correct .

Speaker 1 21:50

For a

Speaker 2 21:51

Long time.

Speaker 1 21:51

So now in , now along comes 2022 and 2023, and there are two federal class action lawsuits Hmm . Filed by, in one case a bunch of home sellers in Missouri that said, you know what, we should not have had to have paid the buyer's agent fee. And so, in a lot of , let's say you as a, as a home seller, list your home and you agree to pay a 5% commission in most parts of the country, then that would get divided in half. Right. The listing broker would get 2.5 and whatever broker finds the buyer, that's , it's the other 2.5, that's

Speaker 2 22:31

Two point half percent of the

Speaker 1 22:32

Sale price of the sales price. So like

Speaker 2 22:33

That's a big chunk of change. It's

Speaker 1 22:35

A big number. Yeah.

Speaker 2 22:36

And

Speaker 1 22:36

So a bunch of attorneys got together and said, you know what? We think that's a violation of this old law called the Sherman Act, the Antitrust Act.

Speaker 2 22:43

Hmm . Okay .

Speaker 1 22:44

And what's happened so far is that they've succeeded even before they went to trial with having some very large real estate companies. One of 'em , re max heard

Speaker 2 22:55

Of 'em . Yeah .

Speaker 1 22:55

Settled for $55 million. Whoa. Another one , um, anywhere real estate used to be called ology . And I , I gotta see who their brands are. Mm-hmm . I'll look that up on the next break. They settled for $85 million. Okay. Keller Williams is still defending it, so is still

Speaker 2 23:13

Fighting it. Yeah . Home

Speaker 1 23:14

Services of America.

Speaker 2 23:16

Okay .

Speaker 1 23:16

Which locally owns , uh, first Weber. Uh , so they're still fighting it. The National Association of Realtors is still fighting it. Sure . But what this means is that well, if , if they succeed, oh, by the way, the Justice Department is also issued interested in this

Speaker 2 23:33

Concept

Speaker 1 23:34

Of Yeah, maybe, maybe the seller shouldn't be paying for the Buyer's Agent commission. Well, if they don't Yeah .

Speaker 2 23:42

Who's going to,

Speaker 1 23:42

Who's going to, yeah.

Speaker 2 23:43

That's the big

Speaker 1 23:44

Issue . Our , our buyers, and this is the National Association of Realtors , uh, and also the mortgage bankers. They're like, Hey, buyers can't afford in this market to be paying two and a half percent cash out of their pockets, especially

Speaker 2 23:57

In this market. We're they're already getting squeezed on rates and closing costs and things of that down payment requirements. You know,

Speaker 1 24:04

And , and so it, it may evolve into one of two things. The buyer, remember how we just said, Hey, seller, pay for $10,000 of my closing costs in order to fund my temporary buy down account. Yep .

Speaker 2 24:16

Maybe

Speaker 1 24:16

They're just gonna have to write offers that say, oh, and by the way , seller , we would like you to pay our buyer's agent fee. Sure.

Speaker 2 24:22

You have to make , so it would no longer be assumed. You actually have to, you have to write contract

Speaker 1 24:27

In . But remember, when you're getting a mortgage, there are limits To the amount of money that the seller can assist with. Yeah . And right now, well, you know what, we're out of time. Let's talk about that when we come back. Plus I've got a divorce , uh, uh, call to reeducate people on when we come back. You're listening to the Academic Mortgage and Realty Show on AM six 20 W T M J . Important home buying questions and answers you can count on. This is the Acuate Mortgage and Realty Show with Brian Wicker on W T M J . Thanks again for tuning in to today's show. I'm Brian Wicker, the elder older. The older elder. And that is , uh, Tim Holdman over there. Senior , our senior old consultant. Uh , my son-in-law, father of my grandchildren, husband of my daughter, all those things. <laugh> , how do you like that? And , uh, we were just talking about how , uh, there are some lawsuits going on right now that could significantly change the landscape of how , uh, real estate broker compensation works. Yeah.

Speaker 2 25:27

And

Speaker 1 25:27

The problem that it's gonna create, which is, you know, everything's kind of smooth right now, right ?

Speaker 2 25:32

Mm-hmm. <affirmative>. Yeah. The buyer for the most part. Yeah. Buyer , buyer

Speaker 1 25:34

Gets representation from their buyer's agent as long as they sign a buyer's agency agreement that gets, it's actually built into the price of the house.

Speaker 2 25:42

Y Yes. If

Speaker 1 25:43

You wanna think about it .

Speaker 2 25:43

Well, and, and you know, when I do my , uh, consulting with first time home buyers especially, and this is something we've said, you know, like you said, ever since a , it started, there's no downside for you as a buyer to get your own buyer's agent . Right . Get your own representation. 'cause you don't have to pay them. It comes out of the seller's proceeds. The seller pays 'em . That's always been the talk track of you should get your own person advocating for you. Yep .

Speaker 1 26:05

That's

Speaker 2 26:05

Separate from the other realtor that's advocating solely for the benefit of the seller.

Speaker 1 26:09

And by the way, that's different in different states'. Right.

Speaker 2 26:11

In

Speaker 1 26:11

Other states, everybody's good's supposed to be neutral. Really? In Minnesota, really, you're just, everybody's getting

Speaker 2 26:15

Along

Speaker 1 26:16

As was nice. Minnesotans,

Speaker 2 26:17

I don't believe that

Speaker 1 26:18

<laugh> . But at , at any rate , uh, the , the problem is , uh, that a bunch of home sellers have gotten together, filed a class actual class action lawsuit and said, we've been ripped off. We should not have had to pay those buyers' agency fees. We would like a billion dollars. And they're getting settlements from major real estate brokerages. Yeah . One thing that happened, I think it was on October 13th , uh, the National Association of Realtors changed their long, long, long standing rule and said, oh, you know what, you can list the home for sale and you do not Mr. Listing agent have to offer

Speaker 2 26:50

Hmm .

Speaker 1 26:51

Any compensation to a broker who brings you a

Speaker 2 26:54

Buyer.

Speaker 1 26:54

But then that brings up the question of who's gonna pay 'em . The

Speaker 2 26:57

Natural

Speaker 1 26:57

Party would be the buyer. And I think what the Justice Department is interested in is maybe this is gonna create some price competition.

Speaker 2 27:04

Oh, okay.

Speaker 1 27:06

'cause apparently in the modern world, America's system is the only one that works like this

Speaker 2 27:11

<laugh>. Okay.

Speaker 1 27:12

In , in other countries, you know, I'm not sure if it's, you know, say Western European countries. It doesn't work like this. Okay.

Speaker 2 27:18

If you want to sell a house in Norway, it's a different , uh, arrangement.

Speaker 1 27:21

Yeah. Yeah .

Speaker 2 27:22

Okay . Alright . What , what do you think the longterm Im implications of this lawsuit could possibly be? Or , or I know it's just speculation at this point, but I ,

Speaker 1 27:29

I think it's going to be a difficult transition for buyers.

Speaker 2 27:33

Okay.

Speaker 1 27:33

And that, you know, ultimately buyers don't have any spare changes . It's hard enough to No , get the money together for a down payment. Now you want me to pay 2.5% of the purchase price for my buyer's agent? Not

Speaker 2 27:45

Gonna

Speaker 1 27:46

Happen . It'll probably create price competition and that's what the Justice Department probably wants to see.

Speaker 2 27:51

Yeah. For sure.

Speaker 1 27:52

Okay. Alright. So now I , I got a call from a a , a referral from a financial advisor. And , uh, the only kind of refinances that are going on right now, Tim , are divorces pretty

Speaker 2 28:03

Much.

Speaker 1 28:04

Do you have any other kind of refinances?

Speaker 2 28:05

Uh, the only other less rare, but still, you know , uh, possible occurrences if you have a very small first mortgage balance or free and clear property , uh, cash out refinances in those senses do still make sense. Right. Especially if it's a large cash out amount. 'cause generally doing that on a fixed rate is still more stable than doing that all on a he out

Speaker 1 28:23

On a home equity

Speaker 2 28:24

With , with a variable rate

Speaker 1 28:25

Actually . Yeah . So in this particular situation, our , um, not yet filed for divorce. Okay .

Speaker 2 28:31

Okay .

Speaker 1 28:32

Plan . And that's the , that's kind of the important , uh, factor . 'cause that gives us more options. Yeah.

Speaker 2 28:38

More flexibility.

Speaker 1 28:39

Right. More flexibility. And so he's got, let's say a mortgage of $200,000 on a property that's worth 500. Okay.

Speaker 2 28:47

So

Speaker 1 28:47

There's $300,000 of equity there. And what does he have to do? He's got compensate his future ex-wife Right . If he wants to hold onto the house. Right . Whoever wants to hold on the house. Yeah.

Speaker 2 28:57

Usually to the tune of half of the in equity , unless

Speaker 1 29:00

You have a prenup of some other description. Right.

Speaker 2 29:02

So

Speaker 1 29:02

He's gotta give her 150 grand and then it's all about investment in retirement accounts. You gotta split those up as well . Right. So , um, the question was, can I afford to do this? Can I afford to stay

Speaker 2 29:16

In

Speaker 1 29:16

My house

Speaker 2 29:17

With a larger mortgage that you're about to have as

Speaker 1 29:19

Well ? And guess what his rate is on his 15 year fix ? Oh,

Speaker 2 29:22

On a 15 year , uh, probably something with a two in front of him . Yep .

Speaker 1 29:24

2.6250. And so of course he called his mortgage servicer and said, Hey, is there any way I can keep

Speaker 2 29:31

That Right <laugh> ,

Speaker 1 29:31

You know , modify that or assume the loan. They said Nope . Now. Yeah. And so that's nine times outta 10 the answer. Yeah . Right. No, you can't. Right.

Speaker 2 29:41

Because

Speaker 1 29:41

That loan has been pooled with hundreds of others and is part of a mortgage backed security that somebody's getting the interest on where they probably wouldn't mind getting paid off so they could reinvest that money at a

Speaker 2 29:50

Higher rate. Higher rate . Exactly.

Speaker 1 29:52

Uh, so, so the hard part is does he, does he just refinance the balance that he has, in which case he would have to give his future ex-wife even more , uh, of his assets. Right.

Speaker 2 30:06

Does

Speaker 1 30:06

He pull cash out or does he sell the home to get the um , the

Speaker 2 30:12

Full equity out? Yeah . The

Speaker 1 30:13

Equity out. And then does he have to worry about that? One other complicating factor is there is a 16 year old child. Mm .

Speaker 2 30:19

Okay. So

Speaker 1 30:20

There's gonna

Speaker 2 30:21

Be some child support that . Right.

Speaker 1 30:22

So that automatically means that there's gonna be child support. Let's pick up on this and uh , tell you, tell you what I ended up telling them . Uh , right after this, you are listening to the Academic Mortgage and Realty Show on Wisconsin's radio station AM six 20 W T M J . Find a place to call home without the headache. This is the ACU Net Mortgage and Realty Show with Brian Wicker on W T M J. Welcome back and thanks again for tuning into this week's show. So talking about a divorce situation, and there are three periods of time , uh, when you could do a refinance related to a divorce period. Number one is before the divorce , uh, papers are filed. Right.

Speaker 2 31:02

At which point it's, it's

Speaker 1 31:04

Just a ,

Speaker 2 31:04

Maybe it's just a refinance,

Speaker 1 31:05

It's just a maybe

Speaker 2 31:06

Divorce,

Speaker 1 31:06

Right ?

Speaker 2 31:07

Yeah .

Speaker 1 31:07

The second period is I filed for divorce, but I don't have my money agreement called a marital settlement agreement or M s a done yet.

Speaker 2 31:16

Right.

Speaker 1 31:16

That is the period of time which we call the you're in the penalty box and you can't do anything. Why is that? Why can't we do something in the middle of a divorce?

Speaker 2 31:24

Well, from, if you look at it from the underwriter's perspective, it makes sense. The M s A , the marital settlement agreement, that is the document that decides what debts you're obligated on, what debts you're not obligated on. Are you gonna pay any sort of monthly maintenance or child support or alimony. And also, you know , uh, how much money do you have to give your soon-to-be ex-spouse until that M S A is finalized and

Speaker 1 31:46

Approved by the court and

Speaker 2 31:46

Approved by the court, we can't approve the mortgage 'cause we don't really know the full picture of that person's finances.

Speaker 1 31:52

That's right . Post-divorce, we don't know what your monthly obligations are gonna be. Yeah . And we gotta make sure you can afford the mortgage.

Speaker 2 31:57

Exactly . We can get the ball rolling, we can get the appraisal done on the house. Yeah . We can start an application, but we are not getting loan approval and closing <laugh> until that M S A is done. And

Speaker 1 32:05

Then the third time , uh, third period of time is once the M s A is the marital settlement agreement is approved by the court, then we can close your divorce. Doesn't have to be final. Right.

Speaker 2 32:14

We

Speaker 1 32:14

Just have to have has to be done . Final marital settlement agreement. Correct.

Speaker 2 32:18

Alright .

Speaker 1 32:18

So the problem in this , uh, gentleman's case is if we wait, we know in the state of Wisconsin you're gonna pay 17% of your gross income in child support, which in his case is like $1,500.

Speaker 2 32:30

Okay.

Speaker 1 32:31

That's like a car payment. Yeah,

Speaker 2 32:33

That's

Speaker 1 32:33

Like a car payment that's like a giant car. Yeah . Really nice car payment and and therefore that is gonna hamper his ability to pull more, pull money out and pay his ex-wife's, you know, half of the equity. And , and so in the end , um, I emailed him and said, you know, first I laid off the three things. Hey, we could

Speaker 2 32:53

Do it

Speaker 1 32:53

Now ahead of time. That has some pluses and minuses. Right.

Speaker 2 32:57

Could

Speaker 1 32:57

Do it later. I think he should sell in his particular circumstance, I think they should probably sell the house 'cause it's a bigger house than they need. Sure.

Speaker 2 33:06

Anyway . Especially if it's just him who would be the only one there after the fact. Correct.

Speaker 1 33:09

And then they both get their equity out of it, then they can divide their other assets, you know, 50 50 down the middle, whatever they have to do . Yeah . It's not , uh, influenced by what they're doing with the home equity. Sure, sure . And and unfortunately then, you know, they gotta find another place for, you know, to live inside the school district so that , you know, all that stuff. But

Speaker 2 33:28

Yeah, that's

Speaker 1 33:29

Gonna , that's the best practical advice. Hey one, their quick story about a customer who just closed , um, and now wants to remodel his basement. He sold his other house. This is , uh, Russ and Julie who we helped , they were the subject of one of our radio ads and uh , they're very happy we were able to get 'em a bridge loan so they didn't have to sell their first, their existing home first. They got their accepted offer on the first try. Awesome. Oh, this is another one with a property specific , um, appraisal

Speaker 2 33:56

Waiver. Nice . Yeah.

Speaker 1 33:57

Appraisal waiver. We don't need no stinking appraisal. But then he is like, okay Brian, so now I got all this cash from the sale of my home and I wanna remodel my basement. Should I get a home at line of credit or should I use my cash?

Speaker 2 34:10

Interesting . And

Speaker 1 34:10

My first answer, 'cause I'm a little rusty, I guess I said, well why don't you open up a home equity line of credit and then use your cash. 'cause the home equity line's gonna be at eight, eight and a quarter . Yeah.

Speaker 2 34:21

Which

Speaker 1 34:21

Is expensive, right.

Speaker 2 34:22

Your

Speaker 1 34:22

Cash maybe is making you four or five in a money market that's

Speaker 2 34:25

Use your cash.

Speaker 1 34:26

But why was that not good advice ? And I changed my advice.

Speaker 2 34:29

Well, if you have a second lien of any kind on your property, even if that , whether

Speaker 1 34:33

There's a balance

Speaker 2 34:34

Or not. Yeah, exactly. Even if it's zero balance when you go to refinance your first mortgage, that refinance instantly becomes what's called a cash out refinance. If you have to pay off a second lien and that makes the rate and pricing worse. And for anyone who's buying a house right now and closing, you're probably gonna be refinancing this mortgage at some point in the next year or two. So a good revision to your advice, use your cash, don't open up the second mortgage. 'cause then it leaves you fully available for refinancing your first mortgage and getting the best rate possible in the future.

Speaker 1 35:01

E even if you wanted to leave that balance out there on the home equity line of credit, the mere presence Correct.

Speaker 2 35:07

Of

Speaker 1 35:08

A home equity line of credit, whether it has a balance or not worsens the pricing on a regular , uh, what we call in the business a rate and term term refi. Refi.

Speaker 2 35:18

Yeah.

Speaker 1 35:18

So in his case it's like, I don't know what I was thinking Russ, but just use your cash. You

Speaker 2 35:23

Got the money, what you can use it. Then

Speaker 1 35:25

When you get a bonus, do some more remodeling. Right. And then hopefully sometime in the next year I'm thinking we'll have an opportunity to refinance and uh, lower his rate.

Speaker 2 35:35

Exactly.

Speaker 1 35:36

All right . Well that's been a fun show. Thanks again for filling in today, Tim. Appreciate

Speaker 2 35:39

It . Yeah . For having me two weeks in a row.

Speaker 1 35:39

That's right. Good stuff . We got a week or two off here while the Packers have some noon games. Go . But we'll be back. Yeah. Go Packers. Go Packers today. Come on. We need that win. Oh

Speaker 2 35:49

Yeah. I mean, if you don't win against the Broncos , uh,

Speaker 1 35:52

That's a , a bad day .

Speaker 2 35:53

What are we even doing? Yeah . Alright .

Speaker 1 35:54

That's all the time we have today. Thanks again for tuning in. You've been listening to the Academic Mortgage and Realty Show on Wisconsin's radio station AM six 20 W T M J . The proceeding was a paid program. Advice and opinions expressed during the Accu Mortgage and Realty Show are solely that of the host or guests of academic mortgage and t Realty Advisors and not W T M J Radio or Good Karma Brands. Milwaukee, L L C.