Transcription
All right, we're recording, and this is a day in the life of the mortgage lending industry with my good friend Paul Sheeper. Paul, welcome!
Hey, thanks! It's good to be here, and thanks for inviting me.
Hey, it is great to be here, and we're doing this for the students about the day in the life of. And before we do that, maybe Paul, tell them a little bit about you and uh, a little bit about your background, a little bit about Harvard, and uh, how you got to be here.
Well, it's good to be here, and here's how I kind of got here: I went to high school in the Los Angeles area, played football and baseball at Granada Hills High School. I got recruited to study and play baseball and football at Harvard University. Went there—you're going to laugh—my major was psychology, not Finance. There you go! So I know how you're all feeling right now. Yeah, but so so what what is the mascot of Harvard? The mascot is Crimson; it's literally a color. The Harvard—oh, it's the Crimson. Okay. All right. And so, not the pilgrim? Correct. Not the pilgrim. That would have been a good one, or the Patriots, the Super Winning Patriots.
So after Harvard, I went to—um, not directly into the mortgage or real estate business. I went into—to—um, I worked at Gallo Wine Company to learn sales and marketing and merchandising because they came on campus to recruit leaders. After a year, a friend of a friend all of a sudden says, "Hey, why don't you get into mortgage lending and real estate?" And I went into it immediately, but not until I talked to my father-in-law, Joe Raa, who's my wife's awesome dad, and I asked him for advice. It's probably the coolest advice ever, 'cause I said, "What should I do?" Because I was looking into real estate development, maybe becoming a full-time realtor, only maybe a lender, mortgage investment uh, portfolio manager, whatever—something money. I knew I wanted, and he said, "Whatever you do, every real estate transaction"—and he was a developer, architect, land developer, engineer—"he said that every transaction in the real estate space all centers around money, and he goes, 'My advice would be at the center of the wheel is finance and money because you got to have the money, and then the spokes in the wheel are things like realtor, buyer, seller.'" So that's why I got into it.
Oh, cool! That's a cool story. That's when I learned about um, Jesse James, the bank robber. Uh, there's a guy even better than him named Willie Sutton, who was once asked, "Why do you rob banks?" And he said, "That's where the money is." We're not robbing anyone; trust me, I'm not robbing anyone, but the money is in the center of every transaction, financing. So I got into the mortgage lending, Mortgage Banking business back in 1983.
Oh wow! So you're dating yourself there.
Well, tell us a little bit, what does a typical day look like for you since 1983?
Uh, each day is kind of like going into a hotel lobby where the lobby is the same, the office is the same; however, the people coming in and out of the hotel, in and out of the real estate buying process, the buying process—it's just different names and faces. Um, so it is kind of an exciting thing. You wake up, and you meet a whole new circle of friends because it really comes down to—today I always start with, "Okay, what people are buying a home today or refinancing a home today that are in process?" Because I got to deal with the people closest to the funding of the loan first, make sure everything's under control. And then I would say uh, the rest of the day is marketing, promotion, uh, building a platform so I can get new customers because, mhm, nothing happens in business until somebody sells something, until somebody markets something. You got to get the marketing because I want new clients every single day. So my my life is helping new clients, new customers, and marketing, marketing, marketing. Yeah, because that's the Moneyball. If you don't have a new client, you you have no business.
What are some, Paul, what are some of the biggest challenges that you have on a day-to-day basis?
Well, yeah, when a loan begins, when you want to process a loan, you think, okay, logically it's all laid out because it really comes down to fundamentals. I got to prove and document, substantiate and verify income, job, employment, assets, down payment, reserves. Reserves is how much money do you really have liquid in the bank, residual after everything is done. Credit report is a huge one, credit report, which is liabilities, car loans, car leases, Visa, Mastercard, TJ Maxx credit card. So I look at it all, and each day you think, okay, I've nailed this, I got it ready to go, but then all of a sudden there's title reports, escrow, there's things that pop up like inspection. So you have to be ready for change, adapt, pivot quickly because nothing goes smoothly. Uh, you think—and I'm just making this up—if there's 17 things to be done, milestones on a loan, 14 go pretty well, but there's always three that you don't know where they're going to pop up, where you just got to be ready to solve a problem quickly with your team. So you have to be quick on your feet; you got to be uh, yeah, you've got to be um, I call it uh, you know, fast-footed, but you got to pivot fast and be like Gumby, not Pokey, which is an old, you know, it's a green little flexible—you got to be flexible, and you got to, you know, brainstorm, and you got to come up with solutions fast. Speed doesn't kill; lack of speed kills. If you're quick and responsive, and if you don't show you care for the client, uh, good luck; it's not going to happen. So uh, people will know very quickly, 'cause people will look—they don't care how much you know, but they know how much you care, so you better care and raise your hand sometimes and apologize and say, "Oops, we hit a little snag." I call it a a snake bite, uh, an arrow in the back, but have a solution. "Here's what we're going to do; it's going to delay things about two days, but we got this solved, but we wanted you to know there is a problem, but we've got a solution."
Yeah. Paul, what do you find most rewarding about what you do? What's the most rewarding thing about—
The most rewarding thing, and what gives me purpose and passion, is helping a first-time home buyer uh, or a first-time investor buy their first home. It's awesome; it's a great feeling because I know that you can build generational wealth with real estate, but it takes that first home to overcome fear. Fear is an acronym that stands for false expectations appearing real. If you can overcome the fear, step up to the plate, uh, get into the game, because even if a property for, let's just say 700,000, goes up 5%, just 5% per year, that's 35,000. Yeah, if it only 10%, excuse me, not 10%, just say 1%, that's still $7,000. Okay, so real estate in the long run wins; it's undefeated. It's like Rocky Marciano, a famous boxer back in the 50s, undefeated. Real estate values will always eventually go up, like persistence. Persistence is undefeated.
Paul, tell us about—can you—let's let's switch over to the loan process and loan products. Can you walk us through, at a high level, the general steps of the loan application, the approval process, just kind of how it works in general?
Yes. I always say step one when buying a home is not the home; it's the home loan. The home loan is number one. You have to pre-qualify and get pre-approved and make sure that the big three items look good. And here's the big three on everything. So the big three—all right, we're going to write these down—the big three, here they are: Big three. And I said it earlier: Income. You got to have job income. Nothing is stated anymore; no one believes anyone. You got to verify it, document it, substantiate it with W2s, tax returns, pay stubs, uh, tax returns, etc. Okay, income's number one. Number two is down payment or equity. You've got to have some skin in the game, which I'll come back to in a minute. And the third is credit report. There's this thing called FICO scores, that's a nickname for Fair Isaac's company, but Experian, TransUnion, Equifax—those are the big three bureaus—but credit report has to be clean, crisp, and show that you can uh, pay payments on time, on schedule, in in a responsible matter without a bunch of uh, bankruptcies or foreclosures or late payments. No one likes a sloppy, lazy, unorganized applicant. You got to have good, good solid credit. So those are big. So I take those three and I say, initially you can qualify for a loan amount of X plus the down payment of Y equals the sales price of Z. So it's start with the X, what's the max that I can afford, plus down payment equals the sales price. And one thing I want to go back to because the most important thing, the number one factor, believe it or not, people know instinctively, "I got to have a job and an income." Okay, so that part has not been that hard. Uh, credit report—people are smart, they're prudent; they know, "Hey, I got to have good credit." The down payment is key. So I call this—here's the low down on no down—the best no-down loan is a VA, if you're a veteran, um, you can get zero down. So that's very rewarding also because of all the sacrifice and service that they've done. That's another rewarding thing, helping veterans, but those are zero down; they don't come up that often, maybe only 10% of what I do is VA loans, but then FHA is only 3 and a half percent down, three and a half for for FHA, which is Federal Housing Administration, government fact that along with the Veterans Administration are very good low-down loans, but now conventional loans have 3%, 5%, 10%. Those are probably where 80% of my loans are because people somehow can scrounge, find 5, 10, 15, or 20% down, but normally it's 5 or 10% down is the most common.
Yeah. Well, you brought up all kinds of things I want to follow up with. One, I want to follow up—use the words pre-qualification and pre-approval. What what's the difference? What are they, and what's the difference?
Okay, a pre-qualification would be uh, it's pretty pretty flimsy to me; it's not a solid piece of oak from an oak tree; it's more like balsa wood. Okay, it's a little soft; it's based on what you've told me, what you've pledged and promised, um, and just based on your word of you make this much money and here's your credit report, um, that we're going to run just a quick ballpark credit report, you can qualify for a loan amount of 700,000. And initially it's a really good thing to have for budgeting, so it's it's good to have; it's not useless. Sometimes having that balsa wood, kind of just a ballpark figure, is good, but you want to elevate to a solid piece of oak, which is reliable and solid, and that means let me get the proof of income, let me have it all. There's a checklist that I have, which I can also provide for you, Mark, for your students; it's a checklist on all new loans, but it's real obvious: it's W2s, pay stubs, tax returns, uh, bank statements, the last two months are the most recent quarter, stocks, bonds, IRA, 401K, but mostly checking and savings. So it's really, "Get me all of that, get a full tri-merge credit report." A tri-merge means I'm going to get all three credit scores from all three bureaus. Now we can really upgrade it to a pre-approval because then we can go into Freddie Mac and Fannie Mae, which is government-sponsored agencies that will set the guidelines, the rules, and they will say, "Yes, this is totally pre-approved." Then we go to an underwriter with a bank or one of our investors who stamps it and says, "This is a real deal; it's pre-approved." And that pre-approval is like the E-ticket at Disneyland; for 90 days you can use a pre-approval and go shop and find homes because it's legitimately truly pre-approved, not just pre-qualified.
Got it. So so one is kind of, "Hey, if what you told me is kind of true, we think we can do this," the other one, "We've verified these are the facts, these are true, and we've run it through a system that says, 'Hey, we're going to approve this,' you know, unless something catastrophic happens, you're good to go."
Yes. And there was only one deal killer; normally the deal killer—it doesn't happen that often, but you know it's in the news today—if you lose your job, yeah, your source of income, then then you're pre-approval—
Yeah, right.
So what we've done many times is we have to delay things until they get a new job and have one pay stub deposited, but to me, job is the only weird thing. And sometimes you get an uneducated consumer because the loan officer, the mortgage originator, let's say me, failed to communicate effectively. I always tell people, "Don't be buying cars, leasing cars, getting new credit cards during this next 3, 4 weeks; you better come to me first." 'Cause it could ruin everything. So it's my job to tell people, educate: "Don't do anything; don't go rogue on me; don't be—"
Yeah, don't don't change your financial condition. Don't—
Well, Paul, the other thing you mentioned that's worth going into, you talked about different kinds of loans: VA, FHA, conventional. The VA is a little easier to understand because that's a veteran who served. I'm a veteran. But FHA and conventional, what what's the difference, and why would there be two, and is there uniquenesses why someone may want to do FHA versus conventional?
Yes. I—FHA loan is usually Plan B, not Plan A. Plan A—and I'll explain why—Plan A is a conventional Freddie Mac, Fannie Mae loan because you will save a little bit on the upfront fees; the closing costs are less on a Freddie Mac, Fannie Mae loan, uh, but the income compared to the debt, the qualifying is a little more stringent, tighter, and the credit score has to be a little bit better on conventional. So conventional will yield a lower rate overall, lower payment overall, and that's all Plan A. We start with conventional first. Plan B does not mean it's bad; I never called it Plan F, okay, even though it's right, FHA, but right, Plan B is a wonderful loan; it's still very, very good, but it is Plan B because what they do is there's a fee upfront to get an FHA loan, so the closing cost is a little bit higher, plus they have uh, a monthly factor for insurance, so the rates are still good, but they're not always great like Plan A. So conventional is your top choice, but here's the reason FHA is awesome: they only require 3 and a half percent down payment, but here's the biggie: the income compared to the debt, they allow the ratios to be expanded, and so an FHA person can put less money down, get a bigger loan, stretch into a more expensive home many, many times because the government backs it, and they charge you for it, but it allows the consumer to get a higher loan amount to stretch into a home because they really love that home; they want to go the extra $50,000. Plan B will let you get a bigger loan amount.
Got it. And and isn't the appraisal uh, they're a little different? The FHA appraiser is going to be a little more health and safety focused where the conventional appraiser is going to be more market value based?
Yes. Uh, FHA is a little more stringent; they're going to look at things like the stucco on the side of the house, some of the dry rot, some of the wood siding; they want to make sure there's no chipped paint. So they're a little more details, plus they do what is called a head-and-shoulders inspection, which is not a Danru shampoo, but they literally pop the ceiling up and they look and take a flashlight, make sure you know that in the attic, you know that Jimmy Hoffa is not up there. I mean, they—I mean, they look in the attic; they look below the house, in the garage—more thorough. It is more thorough; it's a little bit more stringent than a regular Freddie Mac, Fannie Mae Plan A appraisal.
Well, Paul, let's pivot to advice for Real Estate students, which is our audience here. What what skills and qualities, in your view, are essential for being a successful loan officer?
Well, my—as I mentioned earlier, I was a psychology—you know—major in college, and after three years in the real world and finance, uh, I went and got my MBA in finance at USC, which is uh, University of Southern California—that's the initials.
So you went from Crimson uh, to a Trojan?
Yes, Crimson to Trojan. I did it because I felt like the thing that I was lacking is you got to know the numbers, you got to know Finance, the numbers, Excel. Back then it was called Lotus—that's how old I am—you know, uh, that's what the uh, spreadsheets were, um, and Finance and Accounting and and all that kind of stuff, but it really helped us. So I think you got to love the numbers and be able to calculate numbers, uh, not so much in your head, but a little bit, but know percentage is cold, and and know how the spreadsheets work and know the software and be able to calculate stuff. So I think uh, Finance, real estate education, get your real estate license; that would be awesome. I got my broker's license in 1984, real estate broker, so that I could then do any mortgage, but also it allowed me to flip and transition into real estate as well, which is another suggestion: it's good to double-dip, be the mortgage expert and the real estate expert, if possible, if you can, because then you can have a bundled service and be able to help people in a vertical way where you can say, "If you want to buy a home, sell a home, finance a home—one call, better call Paul." Why can't we all just get along? Yeah.
Um, Paul, what—let's assume you're not both—how do real estate agents and the loan officers work together most effectively, and then the best way to serve the client when there's when you're working with the real estate agent?
The relationship, like the realtor relationship, is key. Uh, they are the uh, procuring cause; they're the one who refers me business, you know, who refers me business is—Realtors are number one; financial planners are number two; accountants, CPAs, elder attorneys, but realtor by far is really in control because the realtor has that trust with the customer, with the buyer, and when they say, you know, "You better call Paul," or call this, you know, "Call these two uh, mortgage lenders; they're both excellent," or three of them sometimes, I'm one of three, you know, today, because some Realtors don't want the liability, you know, of referring one, but usually they refer, "Here's two great, great, highly respected lenders," but the Realtors—everything we have to work in conjunction because no realtor should make an offer without a pre-approval letter, pre-approval, and some advice and tips on down payment, how do we structure the offer? So the realtor is my life; they're partners; I trust them; I need them. So this communication is important that you're able to communicate back and forth, understand each other's needs, and have a a a close working relationship; it is so important. The realtor cannot do it alone; the realtor needs a great mortgage lender or a bank or somebody they can trust, and vice versa, we need the Realtors. And right, also one of the things that we do at our company, and hopefully other people do this, is once you make an offer, what we do is I get on the phone and talk to the receiving end, the listing agent, the one who accepted the offer, and I explain how great the buyer profile is, the approval, and the—and that's important; you're you're helping install confidence in the other side that this is a solid deal and and this is good.
Yeah. Yes. I mean, it's not needed, and but I think it's kind of a nice little plus, a bonus; yatzi, we call it—just a bonus to be able to say uh, "You have three minutes; I just want you to know, income, credit score." I brag; it's kind of like pom-poms and cheerleading, so I—I kind of—well, but it's actually it's it's going the extra mile; it's going that extra step, as you and I know—it's never crowded on the 405 at the extra mile.
Right. That's right.
Um, Paul, what are some of the biggest red flags that come up that are red flags of, you know, maybe, "Hey, maybe this deal's gonna go sideways"?
Oh, got it, got it, got it. Um, I think when you're buying a home, when you're in escrow, the most important three things, but number one is the inspection contingency. You got to, as a buyer, inspect—
The home inspection is really 95% of the deal, because the buyer gets to read literally a 45-page report. And on every inspection, there's always about 5 to 15 red markers with yellow arrows that talk about plumbing, electrical—you know, all these issues. So the red flags, the things that I focus on—and I never, never—this is advice for every student—never count your money; nothing's done until the inspection is done.
And then, number two is the appraisal has to be done. The appraisal—there's a loan contingency. A loan contingency says, "Hey, after 14 days, you got to guarantee me they got the loan." Yeah. What are some of the things that come up in appraisals that go sideways?
Uh, the appraisal would be—uh, typically it would be when they're appraising it, and it doesn't happen that often—they'll see something like uh, paint, dry rot, uh, rain gutters; they're like falling off a roof where there's evidence of leaking in the ceiling, or holes you can see through—you can see air through the ceiling. Then you know you have a problem. But you'll see little drops, and some people will paint over the little bubbles at the ceiling. So I think, you know, it comes to roofing, appliances, but mostly, um, health and safety are not a big deal, because those are just exposed electric wires and just making sure that the plumbing and the electric is good. They test everything, by the way—stoves, ovens, things like that. But I, I think that roofing and the foundation—those are big ones. Because if there's huge cracks, sometimes they will say, "Well, wait a minute, what's going on here? You know, could we have a follow-up inspection?" But 98 out of 100 appraisals go pretty smoothly; don't pop up that often, unless there's health, safety, or um, deterioration, or evidence of things like leaking, uh, mold. Occasionally, one in a million, you know, does come up that often.
Well, Paul, as we wrap up, I've got two kind of wrap-up questions, and we'll get your contact information, on website, that kind of a thing. But if you go back to 1983 through today, what's kind of stayed the same, and what's changed in in this industry?
I, I think that the fortunate news is each and every day, no matter what, somebody is going to sell a house today; somebody's going to buy a house today. They're either going to invest in it and not live in it, or they're going to live in it. So those are those are the things that have stayed the same. And the other thing that has stayed the same is you got to qualify, typically loan—you got to have income, credit, assets. There was a time, guys, way back uh, in 2005 to 2010, where you could fog a mirror and qualify, because you used to be able to state your income for five years. But it's back to normal now. You've got to be the real deal and qualify.
Uh, what has changed is I think when the times get tough, some real estate agents—some, not all—will quit. Don't quit, oh, because it gets too hard. Yeah. So either the obstacle uh, wins, or you figure out how to move around the obstacle to to find your success. And that's true with mortgage lenders as well. Um, but my suggestion to overcome that, and the reason I have stability in my income, is because once I have a client—tip of the day—never lose their phone number, their address; put them on a mailing list, email list. I stay in contact. Um, I have a hat, a baseball hat that says SIT, and people go, "What, you want me to sit?" And no, I said it stands for Stay In Touch. Stay in touch. Do a newsletter. Stay in touch. Keep in touch. Because um, that's why it's never gotten horrible for me, because people will always, at some point, have a son, a daughter, a friend, a coworker—call Paul, call this lender. You better stay in touch, because out of sight, yeah, out of mind. Because you're staying in touch.
Well, speaking of staying in touch, one, how can uh, how can people check out your website, get a hold of you? Maybe they need to get a loan themselves for an investment, or or their parents are looking to buy something, or or whatever. How, how do they get a hold of you? How do they find you?
Best way to get me would be PaulSheeper.com—P-A-U-L-S-H-E-E-P-E-R.com. PaulSheeper.com. And on there, it's got a website that goes to my cell phone, and I will, if you mention, you know, "Hey, I'm a student of Mark Johnson and I was on a webinar," you know, I will personally do it. I don't delegate that to loan officers. I would be so happy to to always be your resource, and and I don't need the loan or business—just call me for advice, friendly advice. And PaulSheeper.com—my contact information, my email, everything's on there. And um, it's also SheeperPaul.com for reverse mortgages—it's my name in reverse. And those are—I literally created that because I do, you know, probably seven out of 10 loans are regular loans, but three out of 10 are reverse mortgages, because people who are over age 62 want to live in their home forever, and there's an equity line you can get without making the payments each month. But that's wow, that's for another time.
Well, Paul, this has been great. Thanks for pouring into the students and spending some time with us. I, I just love this because uh, I always used to live by my mom's advice, which was, "Are you smarter today than yesterday?" And if the answer is yes, then you had a great day. Yeah, there you go. So hopefully you learned one or two things today, so you can feel good about, "Hey, I learned something new today," bye golly, there we go. All right, well, I'm going to stop the recording. Appreciate you, and let's uh, why can't we all get alone? Yes, why can't we all just get alone? All right, thanks, Paul. Thank you.