We are a financially illiterate nation. No one book can be all things to all people; however, this book will go a long way in ensuring readers of this literary gem tackle the challenge of understanding credit and mortgages. I thoroughly enjoyed this book. It was an easy read that only took a few hours to complete and yet it gave a comprehensive overview of credit and the mortgage process. The author articulated in an honest and straightforward manner the right and the wrong way to do business based on what she has seen from both perspectives in her time in the industry working for both the big boys in the industry and smaller players.
As someone who has spent many hours studying and teaching about credit and mortgages, I feel the reader will walk away better for having invested the time in reading this book and I will not hesitate in recommending it to others. I can confidently say that this book will clearly pay for itself as any of the multiple solid strategies mentioned for improving one's credit, finding the right professional and negotiating away junk mortgage fees will far exceed the cost of this book. Credit and mortgages are not easy topics to tackle; particularly concisely within the confines of a book. However, the author does an effective job in really hitting most of the key issues.
I think the format of the book facilitates moving through a lot of material in a coherent manner. There are 30 brief chapters grouped in a logical sequence and the "What's Coming Next" chapter endings are a nice touch and smooth out the transitions.
About the first quarter of the book is devoted to credit. This includes a discussion of how it is measured and how to improve one's credit score. This section includes a nice discussion of credit myths and practical action steps and examples of how to fix one's credit. This is all solid information that everyone (including those not even shopping for a mortgage) needs to know.
I also like that later in the book (chapter 20) she takes the time to mention the importance of hiring a buyer's broker. This is the one thing about the real estate industry that always makes me wonder. Here we have people engaged in what for most will be their major lifetime purchase and it is the one area of business where we have the same agent often representing both sides of the transaction simultaneously. This is insanity. Heed the author's advice and always hire a buyer's broker!
I like the insider's perspective on working for banks vs. the independent mortgage broker. This is the behind the scenes stuff that most consumers don't understand or take the time to appreciate. The challenge with this is the banks and their strong lobbyists can pressure Congress to regulate the independent folks out of business and this means less competition and higher prices.
Each chapter has nuggets of great information; however, my favorite chapters are in the middle of the book and are truly the heart of the book and the wealth of information:
Carolyn's Ten Step Loan Process Checklist (Chapter 10) offers a complete and chronological list of what you should do and when you should do it.
An overview of the dreaded Yield Spread Premium (YSP) (Chapters 15 and 16) is covered . If you do not know what this is (as my guess is the case with most people getting a mortgage) then you really need to read this book.
The Good Faith Estimate (GFE) Tricks and Traps (Chapter 17) lets you know what to look for in the GFE and where the junk fees pop up. The author does a great job dissecting this form and showing both the old and the newer HUD version of what to expect with fees and what is normal and what is junk. In the process, letting you know what questions to ask.
What Does it Take to Get Approved (Chapter 19) is self explanatory and important for people to understand before they get started in the process.
If the author reads these reviews, I do have five suggestions to improve an already stellar work. Look, I might be nitpicking and asking too much as this book already packs a ton of information into a small package. However, if I had a dream list, I think addressing these five areas would be it:
First, the author is clearly a proponent of paying off one's mortgage early and owning a home free and clear and makes the case for a 15-year mortgage and goes as far to mention it is one of her favorite products. While I agree this is appropriate for some, this may be the only thing I read that I tend to disagree with. The 30-year mortgage has a variety of benefits for a variety of reasons. I understand the arguments for each; however, I feel a brief section outlining the pros and cons of a 15-year vs. 30-year mortgage would be appropriate and fit well with the concepts developed throughout the book.
Look, with rates historically low and currently in the mid fours for someone with stellar credit and the required down payment, this makes even more sense. I simply like the 30-year product better; particularly for someone who knows they will be in their home for life. This just comes down to the time value of money and running scenarios with a financial calculator. There is an opportunity cost to paying off one's mortgage early. That is funds that can be invested elsewhere. Based on our budget deficits and debt, we will have inflation in the future and having a fixed rate in the mid fours a couple of decades from now is appealing and will seem like nothing and there will likely be many low risk investment products offering a higher yield. Plus, I don't like giving up the tax deductibility of mortgage interest by paying off a loan 15 years early. The author jokes that one can make a donation to their favorite charity to take advantage of tax deductions; (a nice suggestion by the way for other reasons as there are plenty of noble causes) however, mutually exclusive of the issue at hand. Finally, while I acknowledge there are interest savings with the 15-year product over the 30 year (both with the lower rate and faster amortization), one can always get a 30-year mortgage and change their mind and pay off the loan early with no additional costs based on their life situation. Conversely, the cost of changing one's mind and wanting to go from a 15-year mortgage to a 30-year mortgage can be considerable; particularly if refinancing is not an option because of being upside down (25% of the country is underwater right now...75% in the states of AZ and NV) or suffering a job loss. There are other reasons as well; however, you get the idea. I just think that many people who qualify for a 15-year mortgage and who look at an amortization schedule opt for the 15-year loan and the apparent interest savings without evaluating all of the other moving parts based on their particular life situation.
Second, the author mentions equity acceleration programs both in a section towards the end and in an anecdote at the beginning of the book. While she does a good job warning the reader about the many charlatans selling these products, this section can be expanded simply because many of the people selling these really engage in egregious marketing ploys by only mentioning the positive attributes of these plans. These go by many names including Australian and Green mortgages and have really been marketed aggressively (particularly in the mid-Atlantic states) the past few years. As the author states, these sound too good to be true for a reason; however, this can be elaborated on with some key disadvantages that need to be highlighted. First, these mortgages are often considered revolving debt (not the installment debt that the vast majority of traditional mortgage products are) and that small nuance will literally destroy someone's credit score. In addition, there is an issue with many of these products technically not being origination debt and thus ultimately not being fully eligible for the mortgage interest rate deduction if the IRS puts its foot down with a strict interpretation of the law.
Third, the author talks about discount points in a few areas of the book; however, novice readers might be left not understanding when it makes sense to pay these. While it is tough to know the exact break-even point without the mastery of a financial calculator and an accurate forecast of how long one will be in the home, it could be emphasized that paying discount points, or prepaid interest, does not make sense if one does not plan to remain in the home for many years.
Fourth, I think more time can be spent explaining the difference between a conventional / conforming loan and a jumbo loan. I know this is complex since the old $417,000 limit is now a sliding scale based on location. The author even references a website to illustrate this point. Plus, the premium in the spread for jumbo loans has varied so much from 2007 to 2011; however, the reader would benefit from a little more overview of this topic.
Finally, I think the reader would benefit from a detailed discussion of PMI.
I am really nitpicking with the above five recommendations as the author did a phenomenal job of summarizing the complex topics of credit and mortgages and it is impossible to hit on everything.
My main fear is response to what played out in the early 2000s will be an overshoot by the government and we will see much bad regulation to go along with the good that should have been in place to begin with. To illustrate this, the author makes mention of the Home Value Code of Conduct and the asinine result it has had on the appraisal process. It is just unsettling what we might see come from new regulation / regulators and the likes of the Consumer Financial Protection Bureau.
Read more ›
