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SECRETS EXPOSED!
Insights, Opinions & Commentary
Government Intrusion Hurts Consumers

In South Carolina, "The Predatory Lending Act", became law as of January 1, 2004, as a result of long-running concerns about the mortgage broker industry. while the resulting legislation as a whole is a good, reasonable, workable law, it, like most other pieces of legislation, had by the time of its passage become a political football amongst lawmakers. As a direct result of a law whose original intent might have been well-meaning, there is now an easily identifiable group of consumers who will be adversely affected by its passage.

So many of the customers I speak with today have variable rate mortgages, mostly 2/28's, and their loans either are now or will soon leave their fixed-rate periods. Faced with aggressive margins and a Libor that rises weekly, and Federal Reserve that's raised rates 16 times since last August, many of these same customers face huge increases in payments. These increases threaten to wreak havoc with our customers' budgets, and do imperil their ability to sustain future mortgage payments.

For example: Customers of mine at this moment has a 2/28, set to adjust in March of 2006. Their current rate, prior to leaving their fixed period, is 7.75%. The home is valued at $110,00, the middle score for the husband is 586. Their index is Libor, and their margin is 8.75. So, in March of 2006, their rate will leap (in theory) to 13.28% (Libor @4.53 + 875 points). In actuality the terms of the note do specify it will be no higher than 11.75% at first adjustment. So their payment will leap on a $93,000 loan from $666 to $938, and this is just at first adjustment!!!!

Here's where the Predatory Lending Act begins to have an adverse impact. In strict accordance with the "Act", as it is known, these customers cannot rewrite their mortgage unless they are able to satisfy the "net tangible benefit" portion of the code which says variable rate mortgage holders must be able to recoup their costs in 2 years, with a lower rate of interest. Here's the rub: with the scores they have and the fact they are 2x30 on the mortgage last 12 months, the best I can find for them is 8.25 fixed. This loan, according to the Department of Consumer Affairs, cannot close until March of 2006 because only then in this scenario would there exist a "rebuttable presumption of benefit", since the rate would then be 8.25%, much lower than their 11.25%. The problem with that is even if their scores are the same in 5 months as they are now, rates, we all know, will continue to rise, so the 8.25% that is available now may not be in 5 months, and rates are likely to be much higher, even assuming they do qualify. So, the net effect of this legislation on my customers is that the longer they are made to wait, the more it will cost them, and the worse their position will be when they do convert to a fixed rate. I have asked for a clarification on this from the "Department", and been told my interpretation is correct. Of course, they don't sniff at the idea that this is nonsensical, and that it puts these kids in a terrible predicament, by requiring, by statute, that they wait.

Moral of the story: We should learn to police ourselves, because when we let lawmakers seeking face time do it, customers suffer. Article written by John Fowler - Mentor, Secret! University Give us your thoughts about this issue on our Discussion Board - CLICK HERE


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As I Work on this Newsletter

I feel compelled to share something with you. After each of our Live sessions, we naturally ask people if they would like to send us a Testimonial to be posted on our website, some do some don't. That same question was asked to our group this past week end, just like always. Here's one e-mail we received just about an hour ago from one of the attendees:

"My blog on the event.
In my lifetime I have made it a goal to associate myself with people who could be considered the best at what they do. Why learn how to invest from the Janitor? If you want true knowledge go to the source. I think Peter Samuel Cugno, AKA Secret, has through much study and personal experience been able to position himself as a fountain of knowledge in the mortgage industry. Many criticize his manner of tough love, but how else could such a market be taught? We as brokers/lenders tend to only focus on the money and many times hurt the consumers through our quest of personal satisfaction. Once our minds are opened to the circle of economics we can know why we really do what we do and in turn protect the general public; especially our clients. Peter helps walk people through a process of re-evaluation helping them do what is right not just for today, but throughout time. Giving our industry a strong foundation by allowing a stable market and security for the future.
Giacomo Puccini
Mortgage Lender Agent"


I was taken aback by the kind e-mail we got from this starry-eyed young LO. Received many dozens of nice ones from a great bunch of wonderful students and alumni in the past, but this one just struck me so. Felt I needed to share.
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