CMG Home Ownership Accelerator WebEx Training Special Session Popular Agent Questions and Concerns

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CMG Home Ownership AcceleratorWebEx Training
Special SessionPopular Agent Questions and
Concerns
Kern Lewis CMG Marketing [phone] klewis_at_cmg
mortgage.com V1.0 live11.10.06
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Agenda Top Topics

• Handling objections about
• Making investments with cheap mortgage money
  (never pay down the mortgage)
• Can get a cheap HELOC second and do the same
  thing
• Quick summary of Reverse Mortgage selling
  strategy
• Quick review of how interest is calculated and
  applied
• Miscellaneous questions

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HOA vs. Investments

• First point to make
• HOA is complementary to all investment
  strategies
• It focuses on maximizing value of personal cash
  flow, not long-term investments.
• It automates the process to make it more
  efficient.
• Long-term investments strategies should remain
  the same.

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HOA supports investments

• HOA accelerates home equity build-up
• Frees more equity for investment
• Uses personal cash flow to continue building
  equity even after equity is extracted for
  investments (real estate, stocks, whatever)
• Clients do not have to (and should not) change
  long-term investment strategies when adopting the
  HOA solution.

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HOA supports investments

• HOA maximizes the value of investment turnover
• Cashed-out investment funds can be parked against
  the home loan until a new investment opportunity
  arises
• Saved interest probably trumps what they could
  earn in a brokerage sweep account today.
• Equity can be converted to cash within 24 hours
  to fund another investment
• No refinancing required to access the equity

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HOA supports investments

• If a customer wants to maximize their investment
  returns using cheap mortgage money, they should
  support that with HOA
• Still puts their monthly cash flow to aggressive
  use saving interest and building investable
  equity
• Can offer interest as low as LIBOR.75. Thats
  pretty cheap long-term money.

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HOA supports investments

• What is the client doing with their uninvested
  cash right now?
• Money flowing through checking account(s)
• Short-term liquid deposits in CDs/savings
• rainy-day or emergency funds that they dont
  want to lock up long-term
• Even financial planners recommend some level of
  liquid investments

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HOA supports investments

• As people age, they begin to convert investment
  strategies
• Transition out of equities to bonds/money market
  accounts
• HOA may offer a better place to park that money
  if they still have a home loan balance

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HOA supports investments

• Cheap money advocates recommend cashing out the
  long-term investments upon retirement.
• Same goal as HOA Retire free-and-clear
• HOA remains open at zero balance, ready to act as
  a source for retirement funds without
  refinancing.
• Traditional mortgage does not offer that
  long-term benefit.

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HOA vs. Alternative Solutions

• Here are some competitive solutions that you will
  confront
• Get a HELOC second. Keep that cheap first
  mortgage.
• Less costly, same benefits
• Buy a software solution that will allow you to
  mimic the HOA without refinancing
• A variation on the above HELOC approach

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HOA vs. HELOC Second

• Traditional HELOC seconds offer
• Lower fees (often fee-free)
• Retention of low-interest first mortgage
• Disadvantages
• Higher interest rates (tied to prime) overall
• Higher rate caps (18 vs. 5 over start rate)
• Clunky and limited deposits and withdrawals
• No automation of cash flow benefit
• Cash flow benefit is not maximized

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HOA vs. HELOC Second

• DO THE MATH
• If the client has the cash flow and liquid
  savings to reduce their balance aggressively, the
  benefits of the HOA vs. a standard HELOC should
  be clear.
• As the first is paid down, the rate on the HELOC
  becomes more important. LIBOR .75 should beat
  Prime -1 (if the client can get it) over time.

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HOA vs. Alternative Solutions

• People selling software have significant
  disadvantages
• It is the pre-HOA solution
• When HOA was not available, the software program
  solution was best available.
• HOA automates their manual solution
• Dont have to buy the software
• Dont have to worry about bouncing checks because
  you forgot to make the transfer from HELOC to
  checking account

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HOA vs. Option ARM

• HOA beats Option ARM for good credit clients
• More flexibility
• Better payment options
• As little as zero monthly
• As much as your monthly income
• Cannot negatively amortize past the credit limit
• Allows redraws, so all funds can go against
  balance, saving more interest
• No deferred interest

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HOA vs. Reverse Mortgage

• Advantages over Reverse Mortgage
• Much lower fees to set up
• Higher credit line
• No counseling requirement
• Automatic deposit of retirement income lowers
  interest cost
• Not forced to sell if you must move
• No minimum age
• No mandatory inspections

• Disadvantages versus Reverse Mortgage
• Must have income to qualify (or apply before
  retirement)
• Credit history does matter
• 30 annual fee starting in second year
• Cannot exceed credit line
• Maximum available credit begins to decrease after
  year 10

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HOA vs. Reverse Mortgage

• HOA requires 100,000 minimum draw
• Our fees are calculated on that draw.
• Customer would have to take the draw and
  redeposit the unneeded balance back into the
  account after closing.
• This still generates lower fees than the reverse
  mortgage.

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How HOA Interest Works

• Interest charges are calculated daily on that
  days balance
• NO average balance calculations
• Daily interest charges are NOT applied to the
  balance until they all come due the following
  month.
• No interest-on-interest payments during the month.

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How HOA Interest Works

• More good news
• There is a grace period on interest due.
• It does not actually hit the balance until
• You make a deposit (interest hits that day)
• OR
• The two-week grace period expires on the 24th of
  the month.
• Example 1000 in interest comes due on the
  10th.
• You make a deposit on the 15th. Interest is
  applied to the balance that day.
• You make no deposit between the 10th and the
  24th. Interest is applied on the 25th.

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Other comments on Interest

• Remember
• Interest and payments are separate.
• Payments (deposits) go to reduce the balance
• Interest and all other bills go to increase
  balance
• Interest payments are considered paid even when
  no deposits come in (if line not maxed)
• Interest charges appear clearly labeled on the
  monthly statements.
• All interest is reported as paid on a yearly
  1098.

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Credit Reporting

• GMAC reports to the credit bureaus that this is a
  Line of Credit.
• It is not reported as revolving credit or
  installment loan.
• It does NOT, therefore, negatively affect credit
  scores if the LTV is greater than 50.
• All payments are reported as paid on time unless
  you max your line and miss a payment, even if you
  make no deposits.

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Appraisal Issues after Renovations?

• Appraisal of property value is no different for
  this loan than other loans. If a client is
  completing a renovation, they should wait until
  they have finished before applying. That way the
  appraisal can fully measure the change in value
  the renovation may generate.
• This is only important for those who wish to
  maximize their approved credit lines.

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How do you sell the margin options?

• CMG recommends that you always lay out the full
  range of margin options.
• HOA clients who were not presented all margin
  options have often been upset when they find out
  later (and they will). This minimizes your
  potential referrals.
• A clear majority of clients take the lowest
  margin to gain cheap long-term money.

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How do you sell the margin options?

• Selling the margins is straightforward
• Do a par scenario (2.5 margin) with the client
  paying basic fees, including yours.
• Do a 3.25 scenario where the lender rebate covers
  all costs.
• Do a .75 scenario where the client pays all the
  fees in the par scenario plus buy-down points.
• Let the customer decide which scenario best fits
  their long-term needs.

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Can a client increase their credit line?

• Currently, a client will have to refinance the
  HOA to increase the original credit line.
• This is going to be an issue as the years go by,
  even though house appreciation has cooled for
  now.
• Plans do exist to offer a line increase option
  with a new appraisal and a modest fee, but that
  is months away.
• I WOULD NOT MENTION IT TO CLIENTS AS WE CANNOT
  PROMISE THAT IT WILL HAPPEN!

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Can a broker gain any exclusivity with HOA?

• No formal exclusivity is available on this loan.
• Informal exclusivity exists in your marketplace
  because few agents are selling HOA.
• That will change over time, so the time to sell
  HOA without price competition is NOW.

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Does GMAC sell HOA directly?

• CMG is the inventor and sole lender of the HOA
  product.
• Our partner is GMAC Bank, who provides the
  checking account services.
• GMAC Mortgage is prohibited from selling HOA.

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Other questions?

• Other questions already submitted will be covered
  in future sessions.
• We look forward to receiving any and all
  questions, suggestions and concerns that may
  arise when selling HOA. Submit them to me via
  e-mail
• klewis_at_cmgmortgage.com

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Thank you!