29 April 2013

Fun plus hard work equals success for Quicken Loans

Story originally appeared on USA Today.

Quicken's residential mortgage business outshines its more buttoned-down competitors.

DETROIT -- Nerf gunfights and costume contests are generally not encouraged inside major mortgage banking companies. But at Quicken Loans' headquarters in downtown Detroit, high jinks and horseplay figure prominently in a corporate culture that is upending the industry's more buttoned-down players.

The latest statistics show the value of the firm's mortgage loans soaring to $70 billion last year from $12 billion in 2008. Quicken, which operates online with no brick-and-mortar storefronts, now ranks as the nation's third-largest residential mortgage lender, closing in on No. 2 JP Morgan Chase, based on 2012 fourth-quarter figures. In a highly fragmented industry, Quicken now writes nearly 5% of all residential mortgages in the U.S., and is still growing.

Record-low interest rates have helped, spurring a refinancing boom that has boosted profits. And despite a few charges of overly aggressive sales techniques and some questionable loans, analysts credit Quicken with prospering today because it mostly stayed away from the worst sort of mortgage practices that punctuated the nation's housing meltdown.

Perhaps most important to Quicken's growth was its ability to grab market share from lenders badly bruised by the 2007-08 housing market collapse.

"Dan Gilbert has been smartly seeing an opportunity and filling a void left in the industry," Paul Moulo, managing editor at Inside Mortgage Finance Publications, said last week. "While they were napping, so to speak, Quicken ate their lunch."

The benefits of this meteoric rise flow not just to billionaire founder and chairman Dan Gilbert and his partners in the privately held Quicken, but also to Quicken's headquarters in the city of Detroit. With Quicken the flagship of Gilbert's business, sports, casino and real estate empire, profits from mortgage lending underwrite his investments downtown, where he owns 17 buildings and controls others through leases, as well as his purchase this month of Greektown Casino-Hotel.

Gilbert's vision for a downtown revival featuring Parisian-like sidewalk caf├ęs and other amenities would be unimaginable without profits from Quicken's 10,000 employees and their mortgage expertise. Gilbert's aides estimate his downtown investments exceed $100 million and likely will grow.

Relaxed environment

Gilbert, 51, received a real estate license and law degree early in life, but he was always more interested in running his own company. He started Rock Mortgage in 1985 with his brother and a friend.

By 1993, when now-CEO Bill Emerson joined as a loan officer, Rock was still a traditional paper-based lender in suburban Bingham Farms. Employees wore suits and ties.

It was a different environment and business model than today's Quicken, which sprawls through several of Gilbert's buildings downtown. The atmosphere is high-energy, the dress is casual and the decor colorful as youthful mortgage bankers compete on loan volume and mini-basketball hoops.

The company's loan process has been paperless for years. The transition began in early 1998, when Gilbert wrote a memo urging staff to explore an online format. The company eventually closed its 30 or so storefronts.

In May of that year, Gilbert took Rock public. Software maker Intuit bought the company in 1999 for more than $500 million and changed its name to Quicken Loans to match its popular software product. The two firms never quite meshed, and Gilbert and his partners bought it back in 2002 as a private company for a fraction of the earlier sale price, retaining the Quicken brand on a perpetual lease.

By going all-online, Quicken could digitally track every step — from taking the initial call from a potential customer to ordering closing documents. Quicken shrunk the mortgage approval time down to about 30 days from three to six months — a major selling point for marketing and advertising. Today at Quicken's headquarters, teams of data analysts sit in "mission control," tracking thousands of loan applications on banks of oversized computer screens.

"The only way that works is with technology," Emerson said. "The only way that works is if you've got a paperless system, so you can literally have 25 people touching the same loan at the same time doing different functions."

'Engineered to amaze'

When the national housing market collapsed, Gilbert, Emerson and other Quicken executives decided to ramp up efforts to grab mortgage lending market share. They launched the "Engineered to Amaze" marketing campaign and started hiring at a time when competitors were still laying off.

"(Other) lenders had pulled back," said Kenneth Fears, senior economist with the National Association of Realtors. "They weren't expecting this boom — they weren't expecting rates to go lower, so they were trying to cut costs. Well, they cut a lot of staff. And these aren't the kind of (employees) you can pull off the street and train right away."

Moulo, the managing editor at the financial services publication, recalled his own visit to Quicken's website earlier this year when he considered refinancing a home loan. He filled out the online questionnaire, and — bang! — his phone rang about 15 seconds later. It was a Quicken salesperson. "That's how aggressive they are," he said.

Shayla Miller, 24, an elementary school teacher from Bartlesville, Okla., turned to Quicken when she and her husband bought their first house. Miller's parents had used Quicken earlier and referred her. "I like that they were available all the time to me," she recalled last week. "I can always call after 5 (p.m.). I can always call on Saturday."

It took 27 days from her and her husband's offer on the house to closing on the mortgage, she said.

Such feedback from consumers has helped Quicken win the coveted J.D. Power award for quality three years running.

Pressure and rewards

For employees who adapt to Quicken's high-energy culture, where the mantra is "Every client, every time, no exceptions, no excuses," rewards can be high. Quicken is routinely atop local and national Best Places to Work lists.

For those who don't thrive, work can seem a high-pressure chamber where leaders extol workers to sell, sell, sell.

In recent years, some former employees filed lawsuits seeking unpaid overtime. The claims turn on a facet of federal law requiring overtime for salespeople but not "mortgage bankers" who function as broader financial advisers, as Quicken defines its sales staff.

In early 2011, a federal jury found in Quicken's favor. CEO Emerson felt so vindicated, he framed and mounted a blowup of the case document on his office wall.

Quicken also has been accused occasionally of engaging in overly aggressive and improper sales tactics. That includes a lawsuit in West Virginia brought by Lourie Brown, a nurse who made just more than $14 an hour. She said she was sold a 30-year, $144,800 adjustable rate mortgage in 2006 with a $107,000 balloon payment. Brown defaulted on the loan less than a year later.

The total amount due on the 30-year loan would have been $550,000, despite her house's fair market value determined by the court to be about $46,000, according to court records and attorneys involved with the case.

A state circuit court found Quicken committed fraud and violated various provisions of the state's Consumer Credit and Protection Act and awarded nearly $2.8 million in punitive damages and attorney fees. In late 2012, the West Virginia Supreme Court largely upheld the decision but sent the case back to the lower circuit court for it to explain how it arrived at the award and the amount. The case remains in the lower court awaiting further action.

In a statement Friday, Quicken said, "We fully expect the circuit court's continued review of the case to find that the irrational award to this plaintiff is out of line with any near reasonable review of the facts and the law surrounding this case."

Despite such incidents, several industry analysts contacted by the Free Press said Quicken largely steered clear of the types of business practices that contributed to the subprime loan market meltdown that drove some banks and other lenders out of business. "They were smart enough in their previous lives to stay out of hard-core subprime," Moulo said. "So that allowed them to live to play another day."

Emerson said last week that Quicken has never written inappropriate loans: "Our industry forgot what responsible lending was, and fortunately for us, we didn't," he said. "A good chunk of the reason we're still here is that we didn't do that stuff."

Building for the future

The looming question for Quicken: What happens as historically low interest rates inch up? That could curtail the refinancing boom, a major part of Quicken's current business success.

Emerson said Quicken has enough partnerships and strategies to generate strong revenue. Among other steps, Quicken has partnered for the past 18 months with investment firm Charles Schwab to offer cross-branded mortgages.

Quicken also has started servicing mortgages, handling the payments and paperwork during the life of the loan for fees. In late March, Quicken purchased about $34 billion in mortgage servicing rights from Ally Bank. The purchase will boost Quicken's servicing portfolio to about $120 billion, Emerson said. The pool of loans can be mined for refinancing opportunities.

Shah Tehrany, managing director with Franklin First Financial, a mortgage company based in Melville, N.Y., said he believes Quicken will continue to thrive even as the market pivots.

"Dan Gilbert is a smart guy," he said. "It will be interesting to see how he maneuvers the company if the industry shifts, but I think they'll do just fine. They have a good brand, and they're spending money in the right spots."

15 April 2013

Cut costs and make home improvement pay off

Story originally appeared on USA Today.

Spring has sprung and home improvement is on the minds of many Americans who – according to a Harvard University Joint Center for Housing Study -- are spending more on home improvement.

Indeed, 72% of homeowners have at least one home improvement project on their to-do list this year, expecting to spend an average of $4,000, according to an Echo Research survey conducted on behalf of American Express.

So, how can you get the most bang for your home improvement buck? Here are six tricks of the trade from BankRate.com:

1. Think of your home like a car. Give it regular maintenance before costly repairs sneak up.

2. Consider used tools instead of new. You can often snag them at yard sales and at auctions. Farm auctions are an amazing source for mowers. FarmersAdvance.com has a calendar of upcoming events.

3. In some cases you can save hundreds – even thousands – of dollars by renting versus buying tools like power paint sprayers, scaffolding and platforms.

4. Invariably there's a screw or two left over after every project. Keep things like nails and screws organized in a plastic bag or mason jar, so you can find them fast next go-around without having to purchase dozens when you only need one or two.

5. There are probably some places you don't need to be real picky about paint. If so, consider the "oops" bin, where custom colors someone didn't end up buying may be. Local municipalities and waste management departments may have paint they'd love for you to take off their hands for free. And, go for as few coats as possible.

6. Lastly, keep things dry. Moisture is a real culprit in prompting pricey fixes. Make sure your heating and air conditioning system is well maintained. And consider investing in a dehumidifier.

When all is said and done, what kind of return can you expect on your home improvement investment?

In their annual Cost vs. Value reports, Remodeling magazine and the National Association of Realtors estimate improvement projects on average return nearly 61% of the cost in terms of higher home values. So, you won't get it all back, but it's a decent return on investment if the repairs fit your budget.

08 April 2013

Colony Capital’s Barrack Sees Bubble in U.S. Housing Market

Colony Capital LLC’s Tom Barrack said U.S. homes are in danger of becoming overvalued as low borrowing rates and a strong labor market fuels demand.

“We have asset bubbles for sure and asset bubbles are necessary when you don’t have growth” in the economy, Barrack, Colony’s founder and chairman, said today in an interview at the Bloomberg Doha Conference. “If you go to new homes, the builders have to buy lots, so the next stage we are going to see is a land boom.”

The S&P/Case-Shiller index of residential-property values in 20 U.S. cities rose in January by the most since June 2006, the group said on March 26. The improving market will encourage property owners to put their homes on the market and prompt construction companies to start work on new buildings, boosting the economy.

Colony Capital is among the private-equity firms that are competing for a limited number of homes on the market. The Santa Monica, California-based firm has raised $2.2 billion for rental properties.

01 April 2013

Think before you tap 401(k) to pay off mortgage

Story originally appeared on USA Today.

Q: My husband and I have a terrible situation. Our mortgage rate is 9% with a loan balance of $122,000 and 25 years left to pay. Because of the market downturn, the home value is approximately $85,000. My husband is 57 and I am 55. When he turns 59½, would it be good to use our 401(k) retirement savings to pay off this mortgage? Or do we have other options?

A: No question, it's a bad situation.You did not indicate if the loan is a financial hardship, or if you and your husband are having trouble keeping up with mortgage payments.

If, indeed, you are severely stressed, then you should find out who owns the loan (FHA, Fannie Mae or Freddie Mac). You may be able to modify the loan under the HARP or HAMP programs. If none of these lenders owns the mortgage, you may still be able to negotiate a reduction through the Principal Reduction Alternative program. But you will need to demonstrate financial need.

If you can make the payments, the interest rate on the mortgage is really sickening, given today's rates. One way to recast this is to think of this loan as a credit card, at low interest (for credit cards). How would you approach paying off a large, expensive credit card debt? Here are some possibilities:

1. Accelerate principal payments. The goal here is not necessarily to pay off the entire loan, but to pay off, as quickly as possible, enough to have equity in the home (about $45,000 in additional principal reduction). That should make refinancing possible. Also, during this period the value of the home may increase so that there will be less difference between mortgage owed and then-current value.

2. Ask a Realtor or two to come over and do a market analysis. Is there anything you could do to improve the home relative to similar homes? Sometimes a thorough repaint, junk cleanup, or other fairly inexpensive alterations can make a big difference in appraised value. It's worth getting expert evaluation from a Realtor.

3. Ask the Realtor for recommendations on a mortgage broker and contact them. Some mortgage brokers are more creative than others, so it's worthwhile talking to several. It's particularly worthwhile to explore community lenders who may hold their own loans, or mortgage brokers who work with private investors. However, be very cautious with the terms of such loans, and have an attorney review the proposed loan.

4. Is there anyone in your circle of friends and colleagues who might be interested in making a private loan? Even if you pay a higher-than-current mortgage interest rate (say, 6%) it might be an attractive return for the investor. And even if you cannot borrow the full amount of the mortgage, you might be able to borrow enough to pay down the principal and refinance the balance. But the private loan should be reported as part of total indebtedness (otherwise it's fraud).

5. You might explore refinancing policies with your lender. Generally, a lender might be more willing to discuss loan modification if the loan is in default, but no one should attempt a so-called strategic default without consulting a reputable and knowledgeable real estate attorney.

6. You might explore the lender's policies on turning the property over to it. The lender may not be too enthusiastic, but if you are willing to move, you may want to talk this over with an attorney, as well.

Now to examine the original idea: Should you withdraw from your 401(k) to pay off the loan?

Based strictly on numbers, it is only worth paying off a mortgage if the interest rate on the mortgage exceeds what you might expect to earn from a diversified portfolio of investments. Historically, a portfolio of 60% stocks/40% bonds has earned approximately 8.6% (1926-2011), so you are right on the borderline of whether it would be worthwhile with a 9% interest rate. However, the psychological peace may more than outweigh simple numbers.

Before withdrawing the money, you should consider whether the remaining 401(k) will offer withdrawals sufficient to allow you to maintain your needed retirement income. Even though there will no longer be a mortgage payment, there will still be property taxes, home maintenance, insurance and incidental costs of homeownership. It's very important that retirees not become house-rich and cash-poor. You cannot replace the 401(k) funds with a home equity loan, and such a loan may be harder to secure once you are retired.

This is a situation where there are no good answers, but also tremendous flux in public policy. You should explore the suggested alternatives and keep a close eye on the news for any changes or new offerings in the next several years. As with most financial situations, the more money you can set aside for debt repayment and an investment war chest, the more alternatives you are likely to have in the future.