In today’s interview I spoke with local mortgage lender, Dave Porter to discover opportunity amidst crisis. With 40 years in the industry, Dave has seen it all and holds a different perspective on lending that is both interesting and advantageous.
According to Dave, consider yourself very lucky if you obtained a mortgage (purchase or refinance) during the Covid cortex. From 2019 to early 2022 rates were artificially low—the lowest in decades. The Fed purchased mortgage-backed securities which caused rates to stay low. If you have one of these loans, he says he hopes you can find a way to keep it. If you need cash out of the home, he recommends a Home Equity Line of Credit. And instead of selling the house with that low mortgage, consider renting it out.
Dave, thanks so much for taking the time to speak with me today and for helping to shed light on this ever-changing market.
You’re welcome. This is indeed an ever-changing market—things might change even before this article gets out. And in some ways, we are in uncharted waters. However, some perspective may be helpful.
In your forty years of experience working in the mortgage and lending industry, what seems different and what seems right in line right now with what you have experienced before?
One thing that is different is that COVID layered on not just a slowdown in the economy, but a diminished workforce and major blockage in supply lines which have just aggravated the situation. As I said before, in many ways we are in uncharted waters, but the first thing we think of is to try what we’ve always done. COVID slows down the economy; the Fed frees up money to stimulate it. Lower rates drive up demand for goods and services which together with a smaller workforce and supply change causes prices to rise causing inflation. To fight inflation, the Fed raises interest rates. What’s the misattributed Einstein quote? “Insanity is doing the same thing over and over and expecting different results.” Because now inflation isn’t just a function of higher demand. It is exacerbated by a war in Ukraine which is disrupting energy and food supplies and big corporations taking advantage of the situation and reaping giant profits from the higher prices. Can you say greedflation?
Also, we are experiencing an historic shortage of housing—fueled in part by the decade of decline in the building industry following the 2008 recession. That shortage of available housing coupled with an artificially low interest rate sent the price of houses—and as a result the price of rents, encouraging more investors to buy up houses—into the stratosphere in nearly every market in the country. And here locally, we lost many homes to the fires which added to an already strained need for affordable housing.
How are you working with your customers to make the most out of the current situation?
I’m coaching my clients and real estate agents that it’s not what happens to you, it’s how you deal with it. To me the message is that when there are less buyers in the market, there are more opportunities for home buyers and investors. So, we look at their full financial situation and long-term goals and determine if investing in real estate is an appropriate wealth-building option.
What is your best advice right now?
Do not be afraid to buy real estate. It continues to define the foundation of wealth. Over the last 60 years in Jackson County the annual appreciation level has gone up 4.63% on average per year and during the last 10 years it has been 5.75%.
Dave, what are the biggest myths and concerns that you face on a regular basis?
You don’t have enough pages in the LocalsGuide for this! But here are a couple of them:
Client: My credit score is too bad. My answer: We do FHA loans for borrowers with 580 scores and VA loans at 520.
Client: I don’t have 10 or 20% for a down payment. My answer: VA buyers can often purchase with no money down and the USDA also has a program with zero-down if the borrower qualifies. First-time homebuyers can sometimes qualify for a loan with 3% down and FHA is 3.5% down.
Client: Interest rates are too high. My answer: There are several solutions including temporary or permanent rate buydowns which can result in a lower rate and therefore a lower payment.
Client: All the houses I look at need too much work. My answer: I offer renovation loans that can help add energy efficiencies and desired improvements.
Client: I don’t have the money for the closing costs. My answer: In a market like this where housing sales have slowed, you can often negotiate with the seller to pay your closing costs.
Dave, I appreciate that you always have imaginative solutions to challenging situations. Can you share a case study or two on interesting solutions you have created?
The most common mistake being made is focusing solely on the sale price, that to make the deal work the seller has to keep lowering the price or the buyer hopes the seller will accept a low offer. Stop and do the math! Consider this scenario:
Recently I was working with a buyer looking at a house with an asking price of $500,000. They told me they were going to make an offer at $490,000 with 10% down. I asked what their motivation was for making a lower offer. Their sole motivation was to achieve a lower monthly payment. Here’s how that scenario plays out: The buyer offers $490,000 and 10% ($49,000) down, making the loan amount $441,000. The monthly payment* with principal and interest (before taxes and mortgage insurance), assuming a 6.625% interest rate with an APR of 6.770%, would be $2,823.
Now consider this scenario: The buyer makes a full price offer at $500,000 with 10% down for a loan amount of $450,000. But part of the offer is to ask the seller to pay $10,000 toward fees that will lower the interest rate to 5.99% with an APR of 6.3215%. Essentially the seller is still giving up $10,000 to get the house sold in a difficult market but the buyer fares better by lowering their payment* even more to $2,659 per month. “I could explain it better but then I would need charts and graphs.” (Leon Kodak, “The American President”)
What is the worst it can get?
I often show clients my rate sheet from when I started in lending. The rates were 17.5%! Rates have more room to go up than to go down. I recall popping champagne bottles when rates went to single digits! Don’t be afraid of these rates. Be afraid of missing out on a historic equity gain opportunity. Plan on refinancing when rates normalize.
What are the most important questions we should be asking ourselves right now?
What will be the legacy I leave to my family? Should I continue to pay someone else’s mortgage, while I rent from them and they build equity?
Now is a great time for investors. Why is that?
Investors have a bit more inventory to choose from—since homes are staying on the market longer and prices are starting to level out or come down—and sellers are a bit more flexible on terms. And I am seeing some very savvy buyers that are buying a multifamily home like a duplex or triplex or even fourplex. They live in one unit and rent out the others, helping to offset the mortgage payment while building equity and potentially creating tax write-offs.
Dave, please explain your favorite new term, “divorcing rent.”
Divorce rent. Marry real estate. Date your mortgage.
If you are renting you are most likely paying a mortgage, just not your own. The idea here is that if you buy a home, you are not married to the mortgage. They can be refinanced once the rates settle back down (key economists predict we will see lower rates but certainly not to the super low rates we have experienced).
Explain the strategy of intentionally refinancing and the loanDepot Guarantee for Life program?
So one mindset is radical acceptance which basically is dealing with the current reality of what rates are today and being happy that they aren’t higher. And in doing so, realize that you certainly can—and should—refinance once it makes sense to do so to get a lower interest rate. This is the strategy of “intentionally refinancing.”
I could have worked at just about any mortgage company or bank. One of many reasons why I like working for loanDepot is their Guarantee for Life program. Basically, loanDepot does not charge for certain loan costs and pays for the appraisal when a loanDepot borrower. This is a big win for our clients especially since many will be exploring refinancing down the road.
In conclusion, do you have any last thoughts or advice to share with our readers?
Don’t make assumptions. Ask questions. Meet with a professional real estate agent and lender and do your due diligence. Too many decisions are made without all the information needed to make a smart choice.
Dave, I know you are always available and very prompt to reply to your customers. What is the best way to reach you and learn more?
I need to be available at a moments’ notice. In this market, time can kill a transaction. I can be reached by phone, text, email or send a telepathic message—I’ll probably get it. I work evenings and weekends and truly enjoy serving my clients.
LocalsGuide, thank you for interviewing me. I hope this will be helpful to your readers.
*Example based on a 30-year owner-occupied conventional conforming mortgage. Payments are for principal and interest only and do not include property taxes, insurance, HOA or other fees that may be required. Subject to qualification. Loan limits may apply. Interest rates and APRs valid through 11/15/2022.
Learn More:
DAVE PORTER, NMLS# 483876
loanDepot. LLC
344 East Main St
Ashland. OR 97520
541-708-4020
This information is not intended to be an indication of loan qualification, loan approval or commitment to lend. Loans are subject to credit and property approval. Other limitations apply. Rates, terms and availability of programs are subject to change without notice. State disclaimer: loanDepot.com, LLC NMLS ID 174457. www.nmlsconsumeraccess.org Licensed by the OR Division of Finance and Corporate Securities, Mortgage Lending ML-4972.| WA: Licensed by the WA State Department of Financial Institutions, Consumer Loan Company CL-174457. | ID | CA: Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act CRMLA 4131040.
