CMG Home Ownership Accelerator WebEx Training Sessions

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CMG Home Ownership AcceleratorWebEx Training
Sessions 10-11Handling Objections
Kern Lewis CMG Marketing [phone] klewis_at_cmg
mortgage.com V1.0 live5.31.06
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Closing an HOA deal

• Your clients are clearly interested and will
  benefit from taking the HOA. They say
• Ive got the concept..
• It makes sense..
• But

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Closing an HOA deal

• For a host of reasons, they cant pull the
  trigger.
• Their current situation is comfortable
• Historically low-interest fixed-rate loan
• Predictability vs. the unknown
• They are in no rush

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The big hurdles

• It seems a little too good to be true.
• Will it work for me?
• Will I lose deductibility?
• Whats the payment?
• It seems so complicated
• What about rising rates?
• Maybe Ill just wait a bit. .

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Rope in all the Objectors

• Dig to uncover the various influencers who may
  give your client conflicting advice
• Family and Friends
• Previous mortgage agents or officers
• Accountant
• Financial Advisor
• Consider these influencers people to convert to
  your cause!

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1. It seems too good to be true!

• Its not magic.
• its just math.

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It is true!

• Big banks do not offer this product because it
  threatens their cheapest source of funds
  (checking accounts)
• Banks in Australia only offer it because of
  consumer demand (driven by different tax laws)
• Our partner, GMAC Bank, is willing to take the
  risk because investing in this loan offers
• Loans that will last longer than traditional
  loans do.
• A chance to steal market share from the Big Banks.

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Your best friend piles holes

• Prepaying isnt attractive
• Might need that money
• Cant get it back

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2. Will it work for me? PROVE it!

• Use the 4-Pass Method !
• 1) Stable
• 2) Increasing
• 3) Low Margin
• 4) Park Money

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Will it work for me? PROVE it!

• Calculator on www.cmghome.com
• Other things toaccomplish
• 1) Its not about rate
• 2) Go for low margin

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3. Ill lose my interest tax deduction!

• Good newsyou WILL!
• Interest is not in your best interest!
• Want larger tax deductions? Get a higher rate!
• Pay 3 in interest to get a 1 deduction?
• Interest is still deductible while you have the
  loan

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Tax deductibility explained

• Important You are not tax advisors!
• It is NOT based on the type of loan
• Based on what you do with the money
• Acquisition debt (up to 1M)
• Home equity debt (up to 100K)

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Tax deductibility the point is.

• RED HERRINGS ABOUND!
• Dont miss the main point.
• You will likely save on interest
• HOA often wins even if deductibility is ignored
• Example
• 30Yr FRM 450,000 interest costs (315,000 after
  tax)
• HOA 300,000 interest costs (before tax)
• HOA as low as 215,000 after tax if fully
  deductible
• Keep the whole picture in mind when making
  financial decisions

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4. Whats the payment?

• Toughest question to answer.
• Answer it depends (on you)!
• Answer there isnt any set payment.
• Answer its from 0 to your entire net pay.

• OLD mortgage payment

• NEWmortgagepayment

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5. It seems so complicated.

• Not complicated
• Piles Holes
• Same behaviors (ATM/Visa, Checks, bill-pay)
• Set it and forget it aspect
• Unlike manual First Loan/HELOC Second combos

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6. What About Rising Rates?

• Rate discussions need to emphasize that
• Rate is only part of the picture. Balance
  reduction is often more important in saving money
  long-term (go to simulator)
• Rates are peaking for this cycle. Over the next
  two years it is as likely that they will decrease
  as increase

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7. Maybe Ill just wait a bit.

• 4 reasons to act now.
• If you are going to save money, why not act now?
• No prepayment penalty
• Even stable rate scenario is now conservative
• Lock in a lower rate-cap (when rates are rising)

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CMG Home Ownership AcceleratorWebEx Training
Sessions 10-11Handling Objections
Kern Lewis CMG Marketing [phone] klewis_at_cmg
mortgage.com V1.0 live5.31.06
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Housekeeping

• Keep your phone line muted (5) during the call.
• Send questions to Janice or me at
• jabuilta_at_cmgmortgage.com
• klewis_at_cmgmortgage.com

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Fall Friday Training Schedule
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7. Maybe Ill just wait a bit.

• 4 reasons to act now.
• If you are going to save money, why not act now?
• No prepayment penalty
• Even stable rate scenario is now conservative
• Lock in a lower rate-cap (when rates are rising)

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Questions from the Audience

• Concerning rate
• Our 2.5 margin HOA (7/8 rebate) carries a
  current note rate of 7.83
• A current 30-year fixed with 7/8 rebate might
  carry a rate of 6.5 or less
• That initial jump in rate is too much for some
  clients to bear.

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Possible Answers

• Do the math to see if the increased rate is
  offset by cash inflows.
• Balance reduction can cancel rate jumps
• Investigate a lower margin HOA
• The .75 margin gives us a 6.08 start rate
• Combined with cash flow, the break-even would be
  about two years away
• They can dump cash in at closing to keep fees to
  a minimum, even if they need to pull it out
  near-term
• Their pay-off will accelerate

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Possible Answers

• Emphasize that this is a long-term plan.
• Current rates are one factor to consider, but not
  the only factor
• When do they want to be done with their mortgage?
  This loan can be structured to meet that timing
  better than other loans
• Find a nice way to say that focusing solely on
  the rate is missing the big picture

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Questions from the Audience

• It is easier to overcome objections to the Neg Am
  loan because the starting note rate is closer to
  current fixed rates, so selling them into an
  adjustable rate loan is easier.

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Possible Answers

• It may be easier, but if the client qualifies for
  HOA, they should never get the neg am loan.
• Over time, indexes perform about the same
• This loan offers lower margins, which is the key
  shopping point for adjustables
• This loan offers infinitely more payment options
  than the Option ARM
• Access to equity is greater with HOA, if
  financial needs change

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Sample Indexes since 2001
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Possible Answers

• It may be easier, but if the client qualifies for
  HOA, they should never get the neg am loan.
• Over time, indexes perform about the same
• This loan offers lower margins, which is the key
  shopping point for adjustables
• This loan offers infinitely more payment options
  than the Option ARM
• Access to equity is greater with HOA, if
  financial needs change
• You can pay HOA down and still access the equity

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Questions from the Audience

• Clients say that they can get a HELOC from other
  lenders for no fees, which gives them most of the
  benefits of the HOA.
• This is true even if they place the HELOC in
  second position and use it to pay down part of
  their first loan (The Tartus approach, etc.)

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Possible Answers

• The goal of accelerating balance reduction can be
  accomplished without the HOA
• It takes discipline, which many folks dont have
• Standard HELOC dont offer
• Full deposit and withdrawal privileges
• Low lifetime caps
• You still have to park your monthly cash in a
  standard checking account, losing the value of
  that money.

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Possible Answers

• HELOCs often have minimum withdrawal limits (250
  is common)
• HELOCs limit the number of checks you can write
• Most HELOCs dont have ATM access
• So you have to keep your day-to-day cash in a
  basic checking account.

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Possible Answers

• HELOCs dont come with online banking services,
  which allow you to
• Schedule payments automatically
• Schedule them to be disbursed the last possible
  day to maximize cash flow impact
• Transfer funds in within a day from other
  accounts to maximize cash flow impact

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Possible Answers

• The Tartus-Style manual system requires a very
  involved game of moving funds from the HELOC
  second to the first mortgage, then manually
  moving income into the HELOC and moving it back
  to the checking account to pay bills each month.
• If you miscalculate, overdraft fees start to hit.

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Questions from the Audience

• Clients can be suspicious because we say that we
  are cutting the bank out of the equation, but
  we are doing business with GMAC Bank. That
  doesnt sound right.

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Possible Answers

• GMAC is an online bank, and therefore has a lower
  percentage of low-interest-bearing accounts
  (checking accounts, standard savings, etc.)
• GMAC gains a lot of new loans from people who are
  not current GMAC customers (gain market share)
• GMAC gains loans which are predicted to stay on
  the books longer (less need to refinance for HOA
  customers)
• So, even when HOA customers pay off early, GMAC
  makes more money because they kept the loan
  longer.

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Questions from the Audience

• Why would a client want to pay down the home loan
  more quickly if cheap mortgage debt is a good
  source of funds for other investments?
• Home equity earns nothing while it sits there.
  Better to put it to work!

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Possible Answers

• The goal of maximizing return on equity is
  compatible with financing your home with the HOA
• If you plan to extract equity to invest
  elsewhere, you are not concerned with paying down
  the balance
• You can still finance your home with the most
  efficient tool available

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Possible Answers

• HOA allows investors to
• Park cash that is between investments against
  their loan balance
• Continue to reap the benefit of having monthly
  cash flow run through the account, saving
  interest
• Continue to keep rainy day funds in the account,
  saving interest and building more equity to invest

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Possible Answers

• HOA allows investors to
• Extract equity quickly to take advantage of
  investment opportunities the moment they arise
• Extract equity steadily each month as part of an
  investment plan, allowing the cash to keep the
  balance lower until it is invested

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Possible Answers

• Investors should always take the lowest possible
  margin
• Maximizes long-term gain
• Upfront cost can be minimized using available
  funds to minimize the initial draw (if that is an
  objection)

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Fall Friday Training Schedule
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Thank you!