EMC Mortgage was (still is, I suppose) a mortgage trading company that buys mortgages originated by lenders and brokers and then services them. EMC was largely managed directly by Bear. That means it was subject to Bear’s policies and procedures, and was tightly controlled by Bear.

During my time there, I basically came to see and feel that Bear was not necessarily a company that cared a whole lot about its people - at least, and especially about the EMC worker bees. As stated by the president of EMC mortgage, John Vella, the company’s mission statement was to service loans better than anyone else - or something to that effect. Whereas many companies have a stated and communicated vision such as being a great place to work, there was nothing like that stated in the EMC or Bear written corporate policies that could be found by someone working there. In fact, it would be easy to believe that their executive mission might be to be the worst place to work in America. And I am not kidding either! In fact, when I see Catbert, the evil HR director, I see the EMC marionette and the Bear Stearns hand pulling the strings.

The question I am positing is this, could a company’s human resources practices be tied to their failure or their success? I have heard that Southwest Airlines is a great place to work. I have also heard that they are viewed as extremely successful. What do you think?

In my personal experience with EMC, I was treated unfairly, and was misled by my boss who hired me. My position had about a 100% turnover rate in the 5 slots of my role for a rolling 12 month period. And, within one month of my leaving, half of my team vacated. (Hint: there was a reason for this, folks).

It was political, and ugly - corporate conspiracy in motion. I personally did not witness anything illegal, but I did see good people getting treated like… well, dirt…

In my case, I was lied to by top executives and set up to fail. Don’t worry, I have retained incontrovertible evidence and have my ducks in a row. Upon leaving, I contacted the top people in Bear Stearns’ HR department in New York. Though I was basically shafted out of my performance bonus during their touted financial banner year of 2006, my goal was to at least share with HR about some problems that could be addressed to help make EMC a better company. Instead of dealing with me in good faith, they got their legal department in the loop immediately to determine that they had no legal liability to me. I reiterated that I was not pursuing legal recourse, but just wanted them to listen.

However, they came back and rendered their judgement that basically I was the one in the wrong - not them. But, now they are the ones going out of business.

Let’s take a quick look at another legacy mortgage company with which I also have had firsthand experience - Countrywide Mortgage. Countrywide was also very political, and things they did didn’t make sense to me. I know a lot of people from there also who suffered and thought it was a bad working experience. And, considering the 2007 bailout of Countrywide, it looks like there might be some correlation between being known as a bad place to work and being a financially failing company.

So, to my point. With mortgage companies, as with any financial institution or any other type of company (Arthur Andersons, Enrons, World Con), there are good ones and there are bad ones. And just because they are big, does not necessarily mean they are good. What you hear about people’s experience working for a company has a lot to do with the soul of the company. In fact, the attitude of the person you talk to on the other end of the phone might be a very good indicator of who you are dealing with.

Let’s say you buy a nice home in an established neighborhood. It is maybe 10 years old and in good repair. You see new stores and schools being built all around, and the area has a good track record for growth. And it continues to grow. That is good, and in general it is good for the value of your home.

But let’s say you need to sell your home for some reason after 2 or 3 or 5 years…Here is the potential problem… The home builders have continued to build because they saw the same economic growth you did. And now there are lots of unsold homes in the new developments. NEW homes - brand spanking new ones that the builders are willing to negotiate down on because they have too many that have not sold, and the market is in a cooling cycle. (Remember, even in a growth economy, there are cycles, and they include cooling). So, while your house is on the market for an otherwise reasonable price, the home shoppers see the brand new homes across the street. You mention that you just remodeled your kitchen and your bathroom, but they tell you that they can still pick out the appliances and the color of the paint and carpet in the new home, and that they can get the same or better price than you are asking.

What I am really trying to say is, be careful when you buy an established home in a growth area, as well as before you remodel one. Things are a bit different when buying an established home in an established area where everything has been built up for years, because there aren’t a bunch of new homes being continually built, because all the land has already been sold for decades. However, there will be teardowns and rebuilds that change the dynamics.

All the best!

Stephen Dunbar

Let me just say that despite the bombardment with offers from all sorts of banks and mortgage companies with offers to refinance – that I usually ignore – I would have to say that now is one of the best times in a long time to check it out. Even though I refinanced only 2 and a half years ago, my mortgage company keeps sending me offer notices. I have called them twice, only to find out that they cannot beat the deal I already have…

Be wary of simply getting a better base rate. That does not always mean a better deal. If you end up having to pay origination fees or closing costs, those end up getting financed as well. So, you might end up with a lower APR, but you could end up with a higher effective interest rate. One simple little trick I do is this… I add up all the payments I would have to make between now and my payoff date for my current loan, and compare it to the sum of every single dime I would have to pay between now and the would-be new payoff date. Then I ask, “which is less?”

Many sales people for loans (you might also call them loan officers, among other things), like to sort of trick the borrower by asking, “what do you want your monthly payments to be”, or “how long do you want your loan term to be”. Then they proceed to meet your single-specified criteria while at the same time putting together the highest cost loan package they can get away with in order to get the biggest commission they possibly can. Car salesmen are among the worst in this. Many times my blood was sent to boiling when the salesman ignored my clearly-stated criteria of “best rate with lowest absolute payout over the life of the loan”, and instead kept asking how much I wanted my monthly payments to be. Yes, he would love to jack up the interest rate and extend the loan term and get a financing bonus in addition to his sales commission.

All I am saying is, be informed. Be armed with information to protect yourself, and don’t worry about hurting a mortgage officer’s or a car salesman’s feelings by seeking to get the best deal for yourself. Take advantage of some of the free financial calculators here at LoanQuotes.com. And don’t be discouraged by my words of caution. There are lots of good and reputable lenders out there. In fact, we’d like to introduce you to some ourselves right here.

Happy financing!

Stephen Dunbar

Simply put, he said that the interest rate on a second mortgage is typically so unfavorable that it would be cheaper to pay the PMI for as long as it takes to reach the loan-to-value ratio (LTV) where PMI is no longer required (usually where the appraised value of the home is at least 80% of the amount of the loan), than to suffer the interest rate - especially if it is a variable rate loan.

So, Dave and I agree at least in opposing variable rates. However, in my case, my second mortgages were never variable. Granted their rates were just a little higher (like half a percentage point), but I calculated that the minor elevation in the rate would still be cheaper than paying the PMI - in both the long term and the short.

When it comes right down to it, I take a very simple approach, and I ask “what is going to be the total cost of my decision over the life of the loan?” Using one of the handy free online mortgage calculators in the LoanQuotes.com Resource Center, you can calculate and compare your various loan options and see what the cost is over the 20 or 30 year loans you are considering will be. If you have a lower rate but pay PMI for x? years, how much do you think it will cost. Or, if you pay a little higher rate on a second mortgage but pay no PMI for x? years, then how much will that cost? And to the point of the latter, remember that neither Dave nor I are fans of variable rate mortgages, so I say avoid the variable rates if you have to choose between them and the PMI.

All the best!

“How could they do that?” you ask.

It can occur when your own insurance company drops you or you otherwise fail to get your own insurance.  The terms are spelled out in the middle of the 30 page document you signed at closing when you purchased your property.

It happened to me one year. It was a very bad insurance year for me. I had 5 different insurance companies for various reasons (another story for another time). One of them was placed by my lender upon notification from the insurer that I was no longer covered. The cost was over $3,000 per year. That is 300% of the amount I am paying now - for the same house!

Placed insurance is not a good thing. Not only is it a higher cost, but the coverage is pitiful. It provides nothing for the benefit of the owner and pays the lender in the case of a fire or other severe loss or damage. Likely your lender will begin billing you separately after a few months; or you might start receiving a bill from the insurance company itself. Otherwise, if they start rolling the insurance into your mortgage balance for you to pay at the end, it could add years to the life of your loan as well as add tens of thousands of dollars to what you would have paid my maintaining your own insurance.

Avoid placed insurance by being proactive on your renewals or new policies, and by keeping your credit clean. Unfortunately, credit glitches and prior claims and rumors of claims are used against you.

It is no secret that I am a student of pragmatism and simplicity. As such, it is also no secret that I am a student of Dave Ramsey and a graduate of his FPU - Financial Peace University.

As a prudent student of financial products such as investments and insurance, one of the first steps in truly learning the lesson is to truly understand the objectives of those products and their types.

When the purpose of life insurance is to financially protect your loved ones in the event of your untimely demise, then the product you buy should do just that. Insurance is not an investment vehicle, though it is often sold as one. There are lots of different type of life insurance, but the type to go with is term life. It is called “term life” because it is quoted for a specific period of time - or term. When the term is over, you no longer pay premiums, and you are no longer covered.

When insurance is bundled into some sort of investment vehicle, it is not longer conforming to the specifications of what insurance is. (Editor’s note: I just started to go into an elaborate anaology using airline tickets vs. travel package, but decided to delete it to keep it simple).

In keeping it simple, the way I see it (and am in very good company), if you want insurance, then buy insurance.

If you want to purchase an investment, then purchase an investment. But, if you want insurance and you want an investment, purchase insurance, and then purchase an investment. Insurance is not designed to be a retirement savings vehicle. Here is why…

The insurance agent makes money from the commissions he earns by selling insurance. When he sells something with a bigger commission, he earns more money. Whole life and variable annuity types of insurance (among others) provide a bigger commission.

To be fair, these non-term-insurance types do actually have an investment component - and probably usually a legitimate one. “So”, you ask, “Then what’s the problem?” Simply this, by the time you have paid for the cost of insurance and the built-in product and portfolio management fees, your non-insurance paid-in money would have bought more in terms of investment and would be able to earn you more money in interest if put into a mutual fund.

If you are already committed to a whole life or variable life or some sort of annuity policy, then you would do well to do some research - check with an experienced and trustworthy financial advisor - to see whether divesting of that policy and going with term life is the best thing for you to do. And check carefully indeed. As a matter of fact, I do know of at least one person who has a variable life policy that was purchased over 10 years ago, and it is better for him to hang on to it at this point. However, he has supplemented it with term life to accomplish the amount of coverage that his family would need if he were to die with young ones still in the house.

Take the time while you have time, and assess your life insurance needs.

Best Regards,

Stephen Dunbar

Let’s look at Mike and Jill. Mike goes to work every day at his job, and Jill works every day as a stay-at-home mom and homeschool teacher. Mike works hard, but willingly acknowledges that Jill probably has the harder job.

Mike earns about $100,000 per year. With a $1,000,000 term life insurance policy, if Mike should die while the kids are young, Jill will likely need the death benefit to pay off the mortgage, property taxes, save for the children’s college educations, and continue to pay all the bills as usual. If Mike were to leave Jill and kids with insufficient or no insurance, then Jill would likely have to give up her homeschooling immediately and get a job. She would have to find someone to take care of the kids when they were not in school. Even with whatever job she might be able to land amidst her crisis, there is a good chance they could still lose their house.

Assuming a 10% rate of return if conservatively invested, the one million dollars would provide about $100,000 per year, as to which their household has become accustomed.

However, she and Mike agreed that if he died in such a case, they would want Jill to be able stay home with the kids. They also agreed that if she were to die and leave Mike with the kids, they would want Mike to either not have to work or only work part time. They took out a $500,000 policy on Jill because it fits their current monthly budget. With Mike’s expertise in his profession, they believe he could fairly easily work part time and make sufficient income to satisfy their needs.

Nonetheless, Mike realizes that if Jill’s work was monetized, the value of her cooking, cleaning, washing, raising and schooling the kids, and handling most of the administrative household functions would probably cost as much to hire out as Mike’s job brings in. Plus, if Jill died, he would want to spend more time with his kids and not have to work. So, they plan on purchasing a supplemental policy for Jill when their budget allows.

Mike and Jill each purchased 20 year term policies when their first child was born. Now he is 10, and their youngest is 1 year old. In order to keep coverage until their youngest is about 20, they plan to purchase a 10 year policy when their current 20 year policy expires in 10 years. However, because when you buy a policy you are locked into the rates or rate plans from the time of purchase [as long as you continue to make your payments on time] regardless of whether your health changes, they are considering purchasing an additional 20 year policy for each of them sooner than later. Yes there will be an overlap amongst the policies, but it will be during the time that all of their kids are at home and when a death benefit would be most greatly needed.

In summary, consider carefully how much money your surviving household would need, and consider the timeframe of the needs. The measure of your financial success in this life might not be realized until you leave it and go to the next.

Regards,
Stephen Dunbar

PS: On a personal note regarding “eternal life insurance”, my favorite policy is stated in the Bible: John 3:16 - and it’s already paid for, if you decide to accept it!

Fortunately, I was running late on filing my tax return from the previous year (yes, I filed the appropriate extention forms, and I owed no money in taxes). So, when I finally had all my information together and sent in my return, I elected to apply the previous year’s would-be refund to the then-current year’s taxes. I did that because in being in a 1099 situation, there was no withholding from my income payments. That meant that I would later have to pay a bunch of money in taxes in a lump sum. So, by applying my refund to an expected future obligation, I paid my entire tax burden in advance, and was fortunate to have overpaid enough to actually get a refund.

Of course when you are self-employed, you should be filing quarterly 941’s to stay out of trouble. But when you are primarily W2 with some 1099 mixtures, be sure to either file a 941, or otherwise prepay your federal income taxes. It can save you time, money, and headaches.

Regards,

Stephen Dunbar

Don’t worry, the uncertainty in the economy is not over. With the pains that Britian’s Northern Rock Bank is feeling with withdrawl runs on it, there will be much more. The addage that misery loves company exists for a reason.

Talk about bank bailouts abounds. And there has been talk about bailing out lenders as well. Regardless of whether in the United States or in the UK, I would not hold my breath for either. As long as capitalism and free market economies are hoped to endure, bailouts should be kept off the table (or at least locked up in an air-tight vault). However, that is not to say that assistance might not be a viable solution.

In the case of individual lenders, lending institutions should make efforts to put procedures in place to review and revise [within reason] loan arrangements to make the borrower successful in paying back their loan. That by no means means forgiving the loan, but rather amending the terms in regards to lightening up the interest somewhat or forgiving late payment penalties.

Often I hear people say with great skepticism that the mortgage companies want their borrowers to fail in making their payments so they can foreclose on them and take their homes and then resell them for a profit. This however is not the case for any lender who wants to make money or stay in business. In fact, I have only ever heard of one company that tried it, and they got their butts sued off.

Instead, lenders are successful when their borrowers are successful. If you find yourself in a pinch in regards to making payments, then you will do well to pro-actively contact your mortgage company or bank and discuss matters with them. In working their long list of troubled loans, they would prefer to note your account as a “special plan”. That way they can sick their attorneys on the borrowers of the other loans who did not call in.

Not to worry, you are not alone.  In fact I have been their myself in certain borrowing situations.  And I can honestly say it is a phone call well spent.

Best Regards,

Stephen Dunbar