If you've read this prior post, then you may think that my husband and I are suckers--or that we were a few years ago. Merely the fact that we bought two of the worst apartments investments known to man may cause you contemplate our intelligence levels. Well, after the events of the last couple of days, I can assure you that we no longer turn into lollipops when scam artists walk by.
As I've explained, we started a souvenir apparel business in the spring. We sell, primarily, to retailers, and have had a steady base of customers in town. On Tuesday, my husband received an unusual phone call. It was initiated by a relay service for the deaf. If you've never experienced one of these calls, the best way I can describe it is like speaking to someone on the phone from another country. There is a delay while your words are translated on a machine by the relay operator to the deaf person. Then you wait while the operator reads you the statements typed in by the other person.
Well, this customer asked for an order of 3,000 (yes, that's three zeros) blank white Fruit of the Loom 50/50 T-shirts to be shipped to Georgia. After the dollar signs cleared from my husband's eyes, it was time to get down to business. He asked the gentleman to e-mail him so that they may have direct communication. The man wanted these shirts to be sent to Georgia by this Friday. He indicated that he was Mike Jones with the "Latter Day Saints." Then he gave my husband two MasterCard numbers and asked him to charge half of the order to one and half to the other. He even gave the security code numbers off the back of the cards.
We both did research and found the least expensive shirt (by the way, it's not by buying directly from FOL) and shipping costs and sent the man an estimate. We would be buying the tees and reselling them to the customer for a profit. Yesterday evening, while waiting for the man to accept the terms, my husband called our automated credit card processor directly to check out the cards. Lo and behold, he received an "invalid transaction type" message. Hmmm. My husband did say that he thought the e-mail communications from the customer were "odd." He jokingly added that he doesn't trust anyone who writes with a lowercase " I ". He thought it was strange that someone would contact our souvenir business to buy plain t-shirts, when there are many other companies who specialize in blank apparel and sell them for less. When he asked "Mike Jones" how he found our company, he replied that it was through an industry association that we had joined.
Yesterday morning, working on a hunch, I googled "relay for the deaf scam." Guess what? It's a variation of the old "Nigerian Con." Here is how "The Reshipping Scam" works. After filling my husband in on the details that I found, he received an e-mail from "Mr. Jones" asking if we can ship the shirts to . . . .Ghana! He must have been unsuccessful in finding a reshipper. Instead of responding to him, my husband called the bank who issued the credit cards and found that the numbers were active cards, but the expiration dates and name (What? "Jones" isn't his real name?!) were fraudulent. At least the bank has been alerted and they can contact the people who have had their card numbers stolen.
If this con artist had been on the ball, he would have had all the valid information from the cards to complete the order. Then we would not have become suspicious and he would have been successful in receiving the goods while we were left hanging with a disputed payment, if any at all. I'm so thankful that my husband checked out the cards before ordering the shirts. Later, the huge supplier from where we intended to order the shirts called. When the rep was told about the Nigerian scam, he said that his company had been a victim several times.
We have found that it's sometimes hard to conduct business when there are people trying to take advantage of you at every corner. One guy said he would place our products in hotels in other areas for a percentage of the sales. He immediately wanted to place a special order for one of his existing customers. When my husband told him that he would be responsible for half of the costs up front, he never heard from the guy again. And so on, and so on, and so on.
Now we stay on alert for the next scam artist and hope that he is as easy to spot as the last one.
Thursday, December 6, 2007
Wednesday, December 5, 2007
My Stated Income
I've had an attack of conscious lately. Not that I've said or done anything wrong or inaccurate, but I feel that I need to clarify something that I've mentioned on many posts of this blog--stated income loans.
Since this isn't Real Estate Investing 101, I'm not going to patronize you by explaining what a stated income loan is. Sometimes, though, the assumption about qualifying for these types of loans is that the borrower needs to lie about their income. As long as their credit rating is good, then the broker and lender pretend to believe that the borrower is telling the truth. "O---k--a--y," wink, wink, "we'll just go ahead and approve you on this income that you have written here because your credit history tells us that you are such a good risk." Wink, wink.
Let me clarify. First and foremost, the loan on our PR was full doc, 20% down. I don't know what PHH is doing now, but we had almost 10 loans with them at one time and none were stated income (to the best of my memory). As a matter of fact, we would call asking for a non-owner occupied rate, and they would underwrite it as a second home. This happened repeatedly, even though I would tell them over and over again (it's recorded, you know) that we would never, never be living in the house. They'd say, "Sure, fine, got it." Then the notary would come on the day of the close, we would start signing, and, lo and behold, there was the Second Home Rider. We'd stop everything, call the rep at PHH and tell them that we weren't signing the rider. They'd say just to put a line through it and send it in with the packet. Whatever. We didn't sign that it was true, so we had no problem with that.
Let me explain why the stated income loans worked for us. After we acquired our tenth rental, PHH wouldn't allow us to borrow from them anymore. So we had to find another lender. With all of those tax deductions, our 1040 was beautiful to us, but not so to someone thinking of lending us money. For example, let's look at that one year when we sold our rental in San Diego. We cleared almost $300,000, which we considered as income that year. However, we had lived in the home for at least two out of the last five years that we owned it before we sold it, so we didn't have to claim a capital gain. Therefore, this "income" was never even reflected on our tax return. With all of the rentals we had at the time, I think our carry over showed a negative $50,000 on our return. Most of this was in the form of depreciation, so we didn't even feel that part of it yet.
So we tell a lender that we are self-employed real estate investors ("real estate professionals, by IRS definition) and we want to borrow money for another rental. They ask how much we made the year before, and we tell them "$250,000" (if you subtract our taxes from our gain). They say that, since we are self-employed, we have to submit two years worth of taxes for a full doc loan. You see where I'm going with this. Our only proof of income for that year was our closing statement. To use a closing statement, we'd need to take a stated income loan. We didn't lie.
Just had to get that off my chest. Now I feel better.
Since this isn't Real Estate Investing 101, I'm not going to patronize you by explaining what a stated income loan is. Sometimes, though, the assumption about qualifying for these types of loans is that the borrower needs to lie about their income. As long as their credit rating is good, then the broker and lender pretend to believe that the borrower is telling the truth. "O---k--a--y," wink, wink, "we'll just go ahead and approve you on this income that you have written here because your credit history tells us that you are such a good risk." Wink, wink.
Let me clarify. First and foremost, the loan on our PR was full doc, 20% down. I don't know what PHH is doing now, but we had almost 10 loans with them at one time and none were stated income (to the best of my memory). As a matter of fact, we would call asking for a non-owner occupied rate, and they would underwrite it as a second home. This happened repeatedly, even though I would tell them over and over again (it's recorded, you know) that we would never, never be living in the house. They'd say, "Sure, fine, got it." Then the notary would come on the day of the close, we would start signing, and, lo and behold, there was the Second Home Rider. We'd stop everything, call the rep at PHH and tell them that we weren't signing the rider. They'd say just to put a line through it and send it in with the packet. Whatever. We didn't sign that it was true, so we had no problem with that.
Let me explain why the stated income loans worked for us. After we acquired our tenth rental, PHH wouldn't allow us to borrow from them anymore. So we had to find another lender. With all of those tax deductions, our 1040 was beautiful to us, but not so to someone thinking of lending us money. For example, let's look at that one year when we sold our rental in San Diego. We cleared almost $300,000, which we considered as income that year. However, we had lived in the home for at least two out of the last five years that we owned it before we sold it, so we didn't have to claim a capital gain. Therefore, this "income" was never even reflected on our tax return. With all of the rentals we had at the time, I think our carry over showed a negative $50,000 on our return. Most of this was in the form of depreciation, so we didn't even feel that part of it yet.
So we tell a lender that we are self-employed real estate investors ("real estate professionals, by IRS definition) and we want to borrow money for another rental. They ask how much we made the year before, and we tell them "$250,000" (if you subtract our taxes from our gain). They say that, since we are self-employed, we have to submit two years worth of taxes for a full doc loan. You see where I'm going with this. Our only proof of income for that year was our closing statement. To use a closing statement, we'd need to take a stated income loan. We didn't lie.
Just had to get that off my chest. Now I feel better.
(As an aside, we almost became victims of a scam yesterday involving our new business. I'll post the details tomorrow.)
Tuesday, December 4, 2007
It's Over, Folks
I'll cut to the chase first, so you can skip the details, if you wish. My experiment involving the request for a freeze on my 5-year ARM is officially over. I'm not getting it.
I have to say that I am not supportive of people doing this. I also think that a government bail out for borrowers is one of the worst ideas in the world. Many loans (not mine) have been broken apart and sold to investors as securities, who have projected high returns on their investments. If you mess around with one sector to try to "save" it, then you can pull the rug out from under another. Losing both may send us head long into a recession for sure. Also, delaying the inevitable for homeowners doesn't help a whole lot. Most of the borrowers who are behind owe thousands and will never be able to repay it. I say let the cards fall where they may. You don't clean up damage from an earthquake in the middle of the shaking. You wait until it's over and then start to rebuild (with little aftershocks in between).
With my lecture officially over, let me give you the few details of my short-lived adventure. I called the extension that I was given yesterday at 7:30 in the morning and had to leave a message on the voicemail of the Adjustable ARM Department. At 10:15, a very nice man named Brian called me back. I told him that my husband and I lost several hundred thousands of dollars this year and I wanted to start the process to request a freeze on my interest rate. He said that many people are in the same boat and there is nothing he could do. I pressed. He was super nice, but didn't budge.
He said that changing terms on a note was not an option at PHH, but, if things changed, they definitely would notify us, the borrower. I had to laugh, but OK. He said that, although they do not want any foreclosures on their books, at this time, they are not working with any homeowners to freeze any rates--not even if they are behind on their payments (which you all know that I'm not, never have been, and don't intend to be in the future).
Then I reviewed the terms on my note with him. It may work out better than I thought, if the one year T-bill weekly average doesn't do loops. My rate will adjust annually and there is a cap of 5% over my current rate, which is 4.75%. When it adjusts, it climbs by 2.75%. As of today's rate, my first adjustment would be to 6%. This interest rate is applied to my current principal amount at the time and will be amortized by the number of months left on the loan, which will be 300 months. So, by today's numbers, my PI will rise by $278, not the $580 that I had predicted. Not bad for all the benefits that we received by opting for a 5-year ARM.
Other than what I've just recited, I really don't know what the interest rate and payment will be this coming summer. But I do know one thing--calling your lender to ask for a break will not be as easy as the media portrays.
I have to say that I am not supportive of people doing this. I also think that a government bail out for borrowers is one of the worst ideas in the world. Many loans (not mine) have been broken apart and sold to investors as securities, who have projected high returns on their investments. If you mess around with one sector to try to "save" it, then you can pull the rug out from under another. Losing both may send us head long into a recession for sure. Also, delaying the inevitable for homeowners doesn't help a whole lot. Most of the borrowers who are behind owe thousands and will never be able to repay it. I say let the cards fall where they may. You don't clean up damage from an earthquake in the middle of the shaking. You wait until it's over and then start to rebuild (with little aftershocks in between).
With my lecture officially over, let me give you the few details of my short-lived adventure. I called the extension that I was given yesterday at 7:30 in the morning and had to leave a message on the voicemail of the Adjustable ARM Department. At 10:15, a very nice man named Brian called me back. I told him that my husband and I lost several hundred thousands of dollars this year and I wanted to start the process to request a freeze on my interest rate. He said that many people are in the same boat and there is nothing he could do. I pressed. He was super nice, but didn't budge.
He said that changing terms on a note was not an option at PHH, but, if things changed, they definitely would notify us, the borrower. I had to laugh, but OK. He said that, although they do not want any foreclosures on their books, at this time, they are not working with any homeowners to freeze any rates--not even if they are behind on their payments (which you all know that I'm not, never have been, and don't intend to be in the future).
Then I reviewed the terms on my note with him. It may work out better than I thought, if the one year T-bill weekly average doesn't do loops. My rate will adjust annually and there is a cap of 5% over my current rate, which is 4.75%. When it adjusts, it climbs by 2.75%. As of today's rate, my first adjustment would be to 6%. This interest rate is applied to my current principal amount at the time and will be amortized by the number of months left on the loan, which will be 300 months. So, by today's numbers, my PI will rise by $278, not the $580 that I had predicted. Not bad for all the benefits that we received by opting for a 5-year ARM.
Other than what I've just recited, I really don't know what the interest rate and payment will be this coming summer. But I do know one thing--calling your lender to ask for a break will not be as easy as the media portrays.
Automated Phone System Hell
I don't want to keep you in suspense, so I'll start at the end. My first phone call yesterday to my lender, PHH, didn't go anywhere. I'm supposed to call back today.
Let me tell you what happened. Just the thought of doing this again is enough to give me hives. I called the toll-free number and was given a choice of services. What, no option for those requesting a moratorium on their interest rate hike?! Then it asked me to input my loan number and last four digits of my SS number. Yes, by now I have tried to press the zero five times. It ignored my requests. I listened as it recited my last payment date, next payment due date, interest rate, and principal balance ("this is not a pay-off balance"). The zero is still not working! Rrrgh!
After the automated information was completed, it asked me to press one to "confirm" the information. It all sounded accurate to me, so, like an idiot, I pressed one. I listened to an ad that promotes PHH e-mail alerts and waited . . . only to be sent right back to the repetition of the information that I was just given. I think I broke my zero button because it was completely ineffective.
Now that I had all of my pertinent loan particulars committed to memory, I smartened up and ignored the prompt to "confirm" the information again. This segued into additional menu options, which finally allowed me to talk to a representative by pressing zero--which was now miraculously operable. By now I need a nap, but I still have to be coherent enough to make my request. Sandra greets me by asking for the last four digits of my social security number. She knows who I am. She knows the loan number that I'm calling about. She knows that I've input my last four digits already. But they just have to ask one more time, don't they?
"Ahem, yes, I would like to speak to someone about freezing the rate on my adjustable loan mortgage. So, what is the process for making this request?"
Sandra told me that I need to address this with someone in the Adjustable ARM Department. Gee, a whole department. But they close at 5:00. Oops, it's 2:15 my time, but after banking hours on the East Coast. I asked her to give me a direct line to this department as I had no intention of visiting hell two days in a row. She was kind enough to give me the extension number, which I will be able to input immediately after the phone connects. We'll see. I hope to write another post about this later today.
Let me tell you what happened. Just the thought of doing this again is enough to give me hives. I called the toll-free number and was given a choice of services. What, no option for those requesting a moratorium on their interest rate hike?! Then it asked me to input my loan number and last four digits of my SS number. Yes, by now I have tried to press the zero five times. It ignored my requests. I listened as it recited my last payment date, next payment due date, interest rate, and principal balance ("this is not a pay-off balance"). The zero is still not working! Rrrgh!
After the automated information was completed, it asked me to press one to "confirm" the information. It all sounded accurate to me, so, like an idiot, I pressed one. I listened to an ad that promotes PHH e-mail alerts and waited . . . only to be sent right back to the repetition of the information that I was just given. I think I broke my zero button because it was completely ineffective.
Now that I had all of my pertinent loan particulars committed to memory, I smartened up and ignored the prompt to "confirm" the information again. This segued into additional menu options, which finally allowed me to talk to a representative by pressing zero--which was now miraculously operable. By now I need a nap, but I still have to be coherent enough to make my request. Sandra greets me by asking for the last four digits of my social security number. She knows who I am. She knows the loan number that I'm calling about. She knows that I've input my last four digits already. But they just have to ask one more time, don't they?
"Ahem, yes, I would like to speak to someone about freezing the rate on my adjustable loan mortgage. So, what is the process for making this request?"
Sandra told me that I need to address this with someone in the Adjustable ARM Department. Gee, a whole department. But they close at 5:00. Oops, it's 2:15 my time, but after banking hours on the East Coast. I asked her to give me a direct line to this department as I had no intention of visiting hell two days in a row. She was kind enough to give me the extension number, which I will be able to input immediately after the phone connects. We'll see. I hope to write another post about this later today.
Monday, December 3, 2007
Quick Question
I have tried to post four comments on www.thehousingbubbleblog.com, but have been unsuccessful so far. It appears as though my comment is accepted by the site, but then it never shows up. Can any of you who have posted on this blog give me some insight? Thanks.
Tenant Victim
I saw this article last week and just about fell out of my chair. Haven't I asked you over and over again about the different angles that the media will concoct from this real estate nightmare?
OK, so, poor lady. Innocent victim of some overzealous investor and greedy bank. Now she has to move again through no fault of her own (except that the months of foreclosure notices should have been a dead giveaway, no matter what the owner said). I feel so bad for her. Boo hoo.
I'm not heartless. It doesn't make me happy that this renter has to move out of her home, but are we missing the point here? Doesn't anyone feel bad for the investor? Maybe he was approved for a house he couldn't afford in hopes of cashing in on the appreciation. Maybe he sucked all the cash out on a refi or HELOC (or ELOC, whatever). But maybe, just maybe, he lost so much money from other investments, and he wasn't charging enough for rent, that he just couldn't hold on to the house any longer. Now who do you feel sorry for?
I admit. I'm one-sided on this. Can't help it. I just lived it. I didn't go into foreclosure on anything (if you're unfamiliar with my story, start here and scroll to the bottom). There, but for the grace of God, go I.
Does it even occur to CNN to tell the tale of the poor investor who owned the house that the renter has to move out of? How 'bout any investor? Can someone send me a story that is sympathetic to everyday citizens losing their non-owner occupied homes? I don't think so because investors and speculators were the ones who started this mess. It's our fault that real estate hit a downturn. We're the lousy culprits who have victimized an entire nation, and now our own renters have fallen victim to our oh-so-greedy ways. How ironic.
You may not remember that we forced millions of people to sign loan docs for interest rates that they eventually would not be able to afford. We were the ones who caused the tumble in a market whose time it was to correct. It was we who approved the loans for all those who were not qualified. So, then, why run a sympathetic story in the media for such low-life barracudas?
And now I, miserable investor who has dug my own grave, have the nerve to contact my mortgage company and ask for a freeze on my interest rate. Talk about ironic. Did I just victimize myself? I don't think so. If PHH doesn't agree to put a hold on my rate increase, I can just refinance because I have the equity to support it (even in this market). I'll never get a rate as good as the 4.75% that I have now, especially if I have to use stated income, but I won't lose my home. That's the difference.
Why ask for a rate freeze then? Because I can ask for anything I want. Doesn't mean I'll get it. But, most of all, it's for your entertainment, my dear readers. Since the media hasn't detailed what that experience is like, I guess I'll have to jump in and do it for them--either now or after my rate increases. I'm always up for a new real estate experience. Aren't you?
OK, so, poor lady. Innocent victim of some overzealous investor and greedy bank. Now she has to move again through no fault of her own (except that the months of foreclosure notices should have been a dead giveaway, no matter what the owner said). I feel so bad for her. Boo hoo.
I'm not heartless. It doesn't make me happy that this renter has to move out of her home, but are we missing the point here? Doesn't anyone feel bad for the investor? Maybe he was approved for a house he couldn't afford in hopes of cashing in on the appreciation. Maybe he sucked all the cash out on a refi or HELOC (or ELOC, whatever). But maybe, just maybe, he lost so much money from other investments, and he wasn't charging enough for rent, that he just couldn't hold on to the house any longer. Now who do you feel sorry for?
I admit. I'm one-sided on this. Can't help it. I just lived it. I didn't go into foreclosure on anything (if you're unfamiliar with my story, start here and scroll to the bottom). There, but for the grace of God, go I.
Does it even occur to CNN to tell the tale of the poor investor who owned the house that the renter has to move out of? How 'bout any investor? Can someone send me a story that is sympathetic to everyday citizens losing their non-owner occupied homes? I don't think so because investors and speculators were the ones who started this mess. It's our fault that real estate hit a downturn. We're the lousy culprits who have victimized an entire nation, and now our own renters have fallen victim to our oh-so-greedy ways. How ironic.
You may not remember that we forced millions of people to sign loan docs for interest rates that they eventually would not be able to afford. We were the ones who caused the tumble in a market whose time it was to correct. It was we who approved the loans for all those who were not qualified. So, then, why run a sympathetic story in the media for such low-life barracudas?
And now I, miserable investor who has dug my own grave, have the nerve to contact my mortgage company and ask for a freeze on my interest rate. Talk about ironic. Did I just victimize myself? I don't think so. If PHH doesn't agree to put a hold on my rate increase, I can just refinance because I have the equity to support it (even in this market). I'll never get a rate as good as the 4.75% that I have now, especially if I have to use stated income, but I won't lose my home. That's the difference.
Why ask for a rate freeze then? Because I can ask for anything I want. Doesn't mean I'll get it. But, most of all, it's for your entertainment, my dear readers. Since the media hasn't detailed what that experience is like, I guess I'll have to jump in and do it for them--either now or after my rate increases. I'm always up for a new real estate experience. Aren't you?
Saturday, December 1, 2007
My Experiment
I try to take the weekends off, but I just had a great idea! I was on http://www.thehousingbubbleblog.com/, reading the post on "New Twist Or Is Everyone Pretending," when it hit me. I told you last week about my 5-year ARM at 4.75% and how I plan to refinance. However, with all the media talk of asking your lending institution to freeze your rate, I decided that I'll test it out. After all, I lost a ton of money last year, so my taxes are really going to tank. We just started a new business a few months ago, so we aren't in a position to afford the $580 predicted mortgage increase. I take the responsibility for signing my mortgage loan agreement, but I wonder what it's like to ask for an exception to the rising interest rate.
I have not seen one interview with someone who has successfully negotiated a freeze on rising rates. (If any of you have, please send me the link.) Personally, I don't think it's possible, especially with some of the accurate details about institutions selling their loans on the blog above. My mortgage is with PHH, and they sell very few of the loans that they originate. I'll call them next week and start documenting all of the details of what it takes to make the request to freeze your rate. More than likely, I will have to wait until it is set to adjust in June. If that's the case, I'll let you know, and just wait until then.
I have not seen one interview with someone who has successfully negotiated a freeze on rising rates. (If any of you have, please send me the link.) Personally, I don't think it's possible, especially with some of the accurate details about institutions selling their loans on the blog above. My mortgage is with PHH, and they sell very few of the loans that they originate. I'll call them next week and start documenting all of the details of what it takes to make the request to freeze your rate. More than likely, I will have to wait until it is set to adjust in June. If that's the case, I'll let you know, and just wait until then.
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