1/7/25 Making Sense of Lending Rates, Credit Reports, and the Crabtree Report

The Moneywise Radio Show and Podcast Tuesday, January 7th, 2025 BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Guys" podcast call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management instagram: MoneywiseWealthManagement Guest: Allyn Medeiros, Loan Officer at Agape Mortgage website phone: 661-496-9311

• 0:00Speaker 00

  From the padded radio room off Stockdale Highway, here is Money Wise. Call or text in at 661-396-1000.

• 0:09Speaker 01

  I need a dollar, dollar, dollar, that's what I need. Hey, hey. Well, I need a dollar, dollar, dollar, that's what I need. Hey, hey. Said I need a dollar, dollar, dollar, that's what I need. And if I share with you my story, would you share your dollar with me?

• 0:30Speaker 02

  Securities offered through SEF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SEF Investment Advisors, Inc. SEF Securities, Inc. and Money Wise Wealth Management are independently owned and operated.

• 0:40Speaker 00

  Now, let's start the Money Wise Show.

• 0:42Speaker 03

  Welcome to the Money Wise Show. We are live from the padded radio room off Stockdale Highway on ESPN Bakersfield, 1230 AM, 101.1 FM, and always streaming at MoneyWiseGuys.com. You can call. Wow.

• 0:57Speaker 00

  Wow.

• 0:58Speaker 03

  Is right.

• 0:58Speaker 00

  That was a great start.

• 1:00Speaker 03

  Thank you. Thank you.

• 1:03Speaker 02

  Different than other starts?

• 1:04Speaker 00

  No, he just killed it. He's on fire.

• 1:06Speaker 02

  It was, okay.

• 1:07Speaker 03

  I still read it, but I've got to, I've got to adjust a couple of the words on there, but I'm getting there. I'm getting there.

• 1:12Speaker 00

  You made it yours.

• 1:13Speaker 03

  I know. I'm get, like I said, 20, almost 20 years doing this. You think we'll figure out this show?

• 1:19Speaker 00

  Well done. Well done. And the woman that we heard at the beginning.

• 1:23Speaker 02

  Yeah. She does a good job.

• 1:25Speaker 00

  I was gonna say, she's killing it too.

• 1:27Speaker 02

  I mean, she's a fast talker.

• 1:27Speaker 00

  She never hiccups? She never yawns? Messes up? She, yes, it's just fire.

• 1:33Speaker 02

  She's pretty good at that talking stuff.

• 1:35Speaker 03

  Well, that's, that voice you hear is Emily Waite. I'm Sharad Waite.

• 1:39Speaker 02

  I had to practice really hard to talk that fast.

• 1:42Speaker 00

  You should hear her sing.

• 1:43Speaker 02

  It took some.

• 1:44Speaker 03

  Oh, you might.

• 1:45Speaker 02

  I can't sing that fast.

• 1:46Speaker 03

  Stay tuned, we got some buffer music coming up. You don't want to miss.

• 1:49Speaker 02

  Don't make any empty promises, Sharad.

• 1:51Speaker 03

  I know.

• 1:52Speaker 00

  I got you.

• 1:52Speaker 03

  There you go. Hey, we've really enjoyed the uptick that we've seen in participation from our listeners. Many of our listeners do listen live on ESPN Radio and on FM or AM radio, but we also get a lot on through our podcast listenership and we've got some great messages and comments here. And Em, do you have them? Do you want to read them?

• 2:13Speaker 02

  Sure, sure. Yeah, yeah, we've got a few here. The first one says, great show. I've been with Money Wise since 2021 and Chris has been a lifesaver, now retiring in 2027.

• 2:25Speaker 03

  Hey, congratulations, listener. Getting close on that retirement.

• 2:28Speaker 02

  That's great. Our very own Chris Pelster, I'm assuming.

• 2:30Speaker 03

  I'm assuming, yeah, Chris. Yes, that's right. And thank you, listener, for tuning in and congratulations on your upcoming retirement in a couple of years.

• 2:39Speaker 02

  That's a big deal.

• 2:39Speaker 03

  You're right in that sweet spot, that retirement red zone period where, you know, a big change is coming and congratulations on that. Thanks for tuning in. Got another message.

• 2:49Speaker 02

  Go ahead.

• 2:50Speaker 03

  How often should one review their life insurance policy? My wife always took care of this crap and I guess she was right. I would be lost without her.

• 3:00Speaker 02

  Yeah, you're not the first one.

• 3:02Speaker 03

  That's great. It is crap. Life insurance is crap. I don't want to say it's, you know, like it's, don't, don't have it, but it's, there's really almost nothing fun about life insurance. I mean, even, even if you are the beneficiary of life insurance, it's not a fun event. There's nothing really joyous about it. And I've never, I've never met and have, over the years have been involved in many, many estates that have passed on, that have involved life insurance payouts. And I've never once seen it be this joyous occasion, even though it's, it's, it's a positive thing, right? You're leaving on money to your heirs or your beneficiaries to help out. But I, you know, I just want to credit the listener

• 3:46Speaker 03

  here for referencing insurance as crap because it really is kind of a necessary evil that we have in this world is insurance.

• 3:56Speaker 02

  Well, intrinsically, it means life is lost, so.

• 3:59Speaker 03

  Is that what insurance means?

• 4:01Speaker 02

  No.

• 4:01Speaker 03

  Oh, yeah.

• 4:02Speaker 02

  Life insurance.

• 4:02Speaker 03

  Life insurance, yeah.

• 4:03Speaker 02

  Yeah.

• 4:04Speaker 03

  Yeah.

• 4:04Speaker 02

  Even if you're receiving the money, there's a loss involved there.

• 4:07Speaker 03

  Yeah. And, you know, it's also acknowledgement that, you know, we have couples and marriages where you have different people that are doing different responsibilities in terms of their finances, in terms of, you know, the, the, the work that goes into managing a household, like life insurance. And in this case, whether it's the wife or the husband that's taking care of it, and when one of them is gone, it is a headache. It is a very difficult, can be a very difficult transition. But to answer the question, how often should you evaluate your life insurance? Really, I think the easiest answer to that is anytime you have a major life change.

• 4:45Speaker 02

  Mm-hmm.

• 4:45Speaker 03

  There's a marriage or divorce, birth or adoption, you change jobs, your mortgage or your debt situation changes significantly, maybe you retire. Those are all reasons why you'd want to readjust your insurance. In some of those cases, you may actually find that you, as you age, you can reduce the amount of insurance that you have. This is a reason why I'm a big advocate, early on in your career, for term insurance, which is not permanent insurance. You're buying it for a certain period of time, maybe it's 20, 30, 40 years. But after the end of that term.

• 5:21Speaker 02

  Reassess.

• 5:22Speaker 03

  Yeah, you can reassess, right? Generally, you're gonna have to get a new policy because your policy premium's gonna go way up. And so, but by then, when you are older or getting close to retirement, your needs for life insurance really do start to go minimize. Unless you have something in your mind that you have in set, that you want to pass on to your estate, to your beneficiaries, your kids. Life insurance generally is used to fill in a gap in the event that you're no longer on the earth. You're no longer making money, so you're no longer there to pay the bills. Therefore, you gotta have something there to back you up.

• 5:58Speaker 02

  And that changes later in life because you have all this retirement or all this savings? Is that why?

• 6:02Speaker 03

  Yeah, because you have less debt, less obligations. I'll take, I'll use us as an example. So we have life insurance, both you and I. Have life insurance, but because I was the primary breadwinner all most of these years.

• 6:13Speaker 02

  Financially.

• 6:14Speaker 03

  Financially, then the concern was if I die. There's going to be a financial burden because now the income source is gone. So we need to have a way to make up the income, at least so that you can get on your feet again and get going and keep raising the boys. And so, you know, we have our insurance for that. But now that our boys are grown and gone, we're empty nesters. It's not so much of a need, right? You and I are both working. You're you you went back to back to work, I guess, or back to the a career after.

• 6:49Speaker 02

  Paid work.

• 6:49Speaker 03

  Paid work. And so now a scenario of I died, it's not it's not that big financial burden because you're still working. You know, you can you may not want to work, but you know, for a little bit, but you know, things, things will sort of carry on. And we don't have this this obligation to our kids. Same thing with our home. You know, if something happened to me, what you know, you'd be able to continue to afford what we have, you know, to be able to continue to pay for housing and things like that. So again, to answer your question, you know, reassess your your life insurance needs. Really, you're looking to what's going to sup. You have to go through the morbid exercise of picturing your life and your family with you out, with you not in it.

• 7:33Speaker 03

  If you have been taken out of the picture, and what does that do to your finances? The good news is, especially when you're younger and healthy, it's it's it's not that much to really get enough insurance, get a few hundred thousand dollars of life insurance for, you know, under a hundred dollars a month. Generally, if you're younger, you can get decent sized life insurance policy, and you just really don't think about it. You don't have to worry about it.

• 8:00Speaker 02

  So I guess this would, yeah, this would depend on what this listener's age was and where they were in life. But big life changes is what you're saying.

• 8:07Speaker 03

  Big life changes. That's the answer to that question.

• 8:09Speaker 02

  Uh, we got one more message here. Um, says, I don't have much of a question, but just want to let you know, we really enjoyed Monday's episode. How you broke down the importance of having a financial. Expert working with you, no matter how much money you have. I'm thirty one and finally paid my student loan off. And I've realized just in the past year or so, how important saving for the future, or not to be funny, but how important it is to be money wise. Hey yo, and have a strategy. I appreciate your show and first time sending a message, but wanted you to know your education that's shared on the show is really helping. Have a blessed day and happy new year. It's so good to know because that's it's a huge reason why we do the show. Right. Sherrod is is just for education, community education, public education.

• 8:53Speaker 03

  Yeah, this is I love this comment. So thank you so much for that listener for tuning in and for, you know, for, you know, the shout outs really appreciate it, especially first time like sending in a message the first time. I've only, you know, personally, I've only called, well, I guess you have to take out the shows that I've called into since we started the show because I've called into, you know, local shows and I've done other other things. But generally I'm I'm also a little shy to like reach out, raise my hand in a group or reach out to a show or a podcast. I'm a I'm a fan of several podcasts and

• 9:27Speaker 02

  This is why the texting option or the email option is so nice. Yeah.

• 9:31Speaker 03

  Yeah.

• 9:31Speaker 02

  So thanks listener for your first comment and hopefully, um, yeah. If you bring them on if you have others coming up.

• 9:36Speaker 03

  And our listeners talking about yesterday's show, which our conversation was between me and Sammy. And we were talking, a listener called in or or sent a message in about asking, working when, you know, basically, when do you, when would you not want to work with a financial advisor? And, you know, how can a person just do it on their own? So I love this topic because there's definitely do it yourselfers. And there's people that can can be successful and be okay with it. But it's really hard to to. I guess you can't avoid the benefits that you that you that you're passing up by not using a financial advisor. And I gave the example of a of a personal trainer.

• 10:15Speaker 02

  Sure.

• 10:17Speaker 03

  You know, Emily, you were a personal trainer, licensed personal trainer for a few years.

• 10:20Speaker 02

  Five, yeah.

• 10:21Speaker 03

  Five years here in town. And how many people do you know that can actually personal train themselves better than having? A outside personal trainer.

• 10:31Speaker 02

  Right. Yeah. You need, you need some guidance.

• 10:35Speaker 03

  Even.

• 10:35Speaker 02

  And some foundational education to help you move along and do it yourself.

• 10:41Speaker 03

  Well, sure, but even if you're, even if you're well versed in exercise.

• 10:46Speaker 02

  That's so helpful. Physiology. Have somebody else tell you what to do.

• 10:48Speaker 03

  I mean, Tiger Woods has a coach. He probably has several coaches. You know, we have, all professional athletes have trainers that they use regularly, even though they themselves could be a trainer, like they know this stuff. It's having that outside view, keeping your, you know, keeping, keeping, like you would tell me, don't lock your knees. You know, don't, don't overextend, keep your back straight, you know, those things. If you don't have them after a few years, all of a sudden you meet with a trainer, like, you know, you've been doing squats wrong this whole time. And before you know it, you've got some injury or something.

• 11:23Speaker 02

  It's hard to see from inside yourself sometimes.

• 11:25Speaker 03

  Very, very hard to see. And so, great, great comments and great questions. Keep them coming our way. You can call or text into the show 24 hours a day at 661-396-1000. Speaking of consultants and advisors, we're going to take a break. We come back, we're bringing on to the show. Great time for you to bring your questions, if you have any, about mortgages, lending, buying a house. Alan Maderos is going to, is our guest coming up from Agapi Mortgage. Great time for us to discuss about what's going on in the real estate market, what's going on in the lending market, interest rates, loans, all that. He's our expert. We're going to get to Alan. We come back, we're Money Wise.

• 12:03Speaker 00

  Don't forget, Money Wise is more than a radio show. We're an independently owned, local wealth management firm with 60 plus years of collective experience. Our financial advisors are here to help you, Kern County. Together, let's be smart, be safe, be money wise.

• 12:26Speaker 03

  Thanks for tuning in for Money Wise, live on ESPN Bakersfield, 1230 AM, 101.1 FM. We're always at MoneyWiseGuys.com. Joined right now by Alan Maderos. There's his theme song.

• 12:39Speaker 02

  That's for you, Alan.

• 12:40Speaker 03

  Alan's our lending expert.

• 12:42Speaker 04

  I had no idea that they were going to plan that song for me, guys.

• 12:46Speaker 03

  I know. It's what an honor. What an honor to have.

• 12:50Speaker 02

  Billy Joel sing a song for you.

• 12:52Speaker 03

  Alan Maderos, you brought some information with you as usual, and let's first start with the Crabtree Report.

• 13:00Speaker 04

  Sure.

• 13:00Speaker 03

  And this is always a little confusing to me because the Crabtree Report, I'm holding in my hand right now, it shows that November of last year, so just a month ago, the existing median price in Bakersfield, $391,000. In November of the previous year was $375,000. So here in Bakersfield, we saw the increase in the median sale price, or I'm looking at the existing median sale price of homes, went up about $16,000. That's almost a 3% increase year over year.

• 13:37Speaker 04

  Yes. I think that there was a lot of speculation as to whether or not housing values would be stable in the year of 2024. And just year-over-year stats from '23 to '24 still had an increase net of 4.3%. Now, with that being said, it's not everywhere. You're going to have more desirable areas, but because these are medians, you're going to see these averages creeping up. One thing we will notice, though, is at the very top, it shows in November of 2024, the number of units on the market were 823, whereas the previous year was 640, which means you had roughly a 28% increase in inventory.

• 14:19Speaker 03

  There's almost 200 more homes listed than there were the previous year.

• 14:25Speaker 04

  Correct.

• 14:25Speaker 03

  Now, 28% increase.

• 14:27Speaker 04

  One of the things to consider is that a balanced market between buyers and sellers... Where open negotiation happens and there's really more of an equilibrium between the two is when you have between 1,200 to 1,800 homes.

• 14:43Speaker 03

  We're still way below that. Where do you get this number from?

• 14:48Speaker 04

  It has to do with the number of months of inventory. So if you come down on this actual chart here, you'll see that the number of months of inventory is, in this case, just under three. It's 2.86. Once you hit that 3% to 3.25%, it's basically the number of months, three to 3.25 months

• 15:10Speaker 03

  I see.

• 15:10Speaker 04

  of supply, you're at a balanced market.

• 15:13Speaker 03

  You're saying it's balanced, it's a more, is it, say, healthier market? Because you have the opportunity, both sides have an opportunity.

• 15:20Speaker 04

  Yeah, there's no advantage to one side versus the other. So in a seller's market, there's enough inventory that you'll still sell if the house is appropriately priced, where you're not having to discount the price to get it sold. Now, there are other factors, and this is where you're going to get the commentary from the field.

• 15:42Speaker 04

  Everybody wants to list their house for the highest they can get. Sure. And if they don't take proper advice on what is actually out there for comparable sales, you're going to see homes that are listed and will not sell until the price is reduced. Now, I'm going to ask you from a general consumer standpoint, if you see a house that, let's just say, hits the market $450,000, but it was advised that you list that property at $425,000. And the agent says, okay, well, we'll just try it, and if it doesn't, we'll reduce the price. So you list the price at $450,000. You have a few showings, but no offers. Two and a half weeks goes by, and the conversation comes, we need to lower the price from $450 to, say,

• 16:26Speaker 04

  $10,000. Let's drop it to $440,000. So you try that. Same thing. Couple of showings, no activity.

• 16:34Speaker 04

  Then you have that tough conversation says, you know, really, this has been on the market for already 30 to 40 days. We really need to get it down. I think the appropriate price is going to be 425. So they drop it to 425 and boom, they get an offer immediately. And the reason why is that agents that are looking at property are also looking at comps. And the buyers now with the, you know, internet searching ability are always looking at what they can find as far as data. Nobody wants to overpay either.

• 17:04Speaker 03

  Right.

• 17:05Speaker 04

  So your inventory starts to stack, but your days on market increases.

• 17:09Speaker 03

  I see.

• 17:10Speaker 04

  So these are just the supply and demand aspects of things, but at the end of the day, big picture thinking, houses are still selling if they're priced appropriately. And there are some situations where sellers are giving credits to offset the out of pocket for buyers because interest rates are high. So the incentive is there to purchase if you can afford and the sellers are selling if the house is properly priced.

• 17:36Speaker 03

  There is trouble in looking at these numbers because they're averages.

• 17:41Speaker 04

  Correct.

• 17:42Speaker 03

  Right? Because it's deceiving to say the median price in Bakersfield is just under $400,000. And then you look at the sales numbers. Well, the sales numbers are skewed because you don't sell a lot of $800,000 properties. You sell more of the closer to the median or the average price. And so it can be, it can be just deceiving.

• 18:05Speaker 04

  So here's something that you should do on your own and any listener out there, do it, do it yourself. Go ahead and search for homes that are under $300,000. Okay. Then go ahead and ask yourself, and this is not trying to throw anybody under the bus. I'm not a real estate agent, so I don't really sell homes. I do financing, so I see the outcome of the contracts, right?

• 18:27Speaker 03

  Yeah.

• 18:31Speaker 04

  You shouldn't say this, but I'm gonna say it because I'm not a licensed real estate agent. Will you want to live in the area? Will you feel safe? And will this be the house that you're gonna live in as a primary residence? Look at homes that are below 300,000 and ask yourself that question in current market.

• 18:48Speaker 03

  Your likely answer is gonna be no.

• 18:50Speaker 04

  Correct, and the reason why is because generally speaking, these homes were about, let's just call it five years ago, prior to 2020, okay? Were somewhere in the range of about 125,000 to, or pardon me, 200,000 to around 225,000 dollars.

• 19:11Speaker 03

  So you're saying, and we're talking about these junk homes, these are, I mean, these are low, not junk homes, but low-end homes.

• 19:17Speaker 04

  Their homes are greater than 40 years old.

• 19:20Speaker 03

  They're being forced, this is the rising tide lifting all boats theory, this is why, this is, we're slowly turning into what LA and San Francisco is, where grandma's got a house in, in, you know, El Segundo, that's, you know, 800 square feet, that's one and a half million dollars. You know, it's because everything else has gone up, it forces even the, the, the least of the properties to go up, is that what's happening?

• 19:45Speaker 04

  Yes, and what you're finding is homes that are ugly are still selling, but they're selling to investors and they're flipping them. So let's just say you have a house, and I'll just throw out an area, let's say 95308, Oildale. You have this house that's 1,000 square feet, it's a two-bedroom, one-bath. It's elevated, it's not, you know, let's call it, um, a lot of the homes built in the 1950s are not on the ground.

• 20:11Speaker 03

  There's no foundation there.

• 20:13Speaker 04

  Yeah, there's a crawl space.

• 20:17Speaker 04

  And the house is selling for 200,000. You get an investor that comes in, says, I'll take it as is, I'll clean up the yard, I will do all the improvements, I'll replace the carpet, I'll replace, you know, all the fixtures, I'll do granite countertops, new, fresh coat of paint, everything. They'll turn around and sell that same 200,000 dollar property for 275. They may have spent 20,000, 25,000 on it, so.

• 20:43Speaker 03

  That's happening?

• 20:44Speaker 04

  Yeah, all day, every day.

• 20:45Speaker 03

  That's good stuff, that's really good stuff.

• 20:48Speaker 04

  Because the property itself, itself has value. And a first time home buyer that's trying to purchase a house does not have the financial ability to improve the house to where they want it.

• 20:59Speaker 03

  Yeah.

• 21:00Speaker 04

  So, a good flipper is doing a good thing for a consumer.

• 21:04Speaker 03

  Right.

• 21:05Speaker 04

  And they're gonna make some money because they have the capital.

• 21:07Speaker 03

  Yeah, yeah.

• 21:08Speaker 04

  But if you do a poor job, and it's literally just a lipstick on a pig, let's just call it, then you're not helping the market.

• 21:14Speaker 03

  Yeah.

• 21:15Speaker 04

  So, there are good flippers and bad flippers, and I've seen both, and banks will not lend on a property that has a rapid increase unless they can show really what they've done. They literally are asking, "What is an inventory of things that you did to improve this property?"

• 21:29Speaker 03

  So, we're joined by Alan Maderos. He is our lending real estate expert. Alan, go ahead.

• 21:35Speaker 02

  You, you mentioned before, people have access on the internet and things to search for these homes themselves or whatever. We have a message here from a listener. Good afternoon. Does Zillow and other home sites overestimate on the price listings?

• 21:47Speaker 04

  Perhaps.

• 21:48Speaker 02

  Okay.

• 21:48Speaker 04

  So, here's the downside to online portals like Zillow, Realtor.com, you know, Trulia, Redfin. They're all repeater sites, meaning they take data from the MLS. Once the MLS is updated, it'll throw data. The catch 22 is, is that I have seen situations where it does not make adjustments for subject property conditions, or, let's say it has paid solar. There's value to that because it's owned solar. They may not adjust for that. Maybe this particular property itself is on a thoroughfare, let's just call it Ming Avenue, and the property square footage matches a house in the Oaks, but it's in Amberton. Those are

• 22:32Speaker 04

  two distinctly different neighborhoods.

• 22:34Speaker 02

  Right.

• 22:35Speaker 04

  So, is it adjusting appropriately for neighborhood conditions? It does do it pretty well in a very conforming neighborhood, where, let's just say it's River Lakes, all the homes in River Lakes, if there's enough sales, it's gonna be super darn accurate. It's gonna be within probably $3,000 to $5,000 or less, because there's enough sales.

• 22:52Speaker 03

  Yeah.

• 22:53Speaker 04

  You take a custom home. That is in an area that there's not a lot of sales, there's a lot of projections on what they think it might be worth.

• 23:03Speaker 03

  That's where I can see Zillow and these types of services really kind of skewing things because you have somebody who's thinking of listing their home and they're looking on Zillow and they're looking not just at the comps, but the Zillow number itself is that you have on your own home is also is not always accurate. So you're thinking, well, if I'm going to hire a Realtor, well, I got to at least this is a starting point and it just could it's just not always

• 23:29Speaker 04

  But it's a very powerful suggestion. So

• 23:33Speaker 02

  Sure.

• 23:34Speaker 04

  I don't know any consumers that aren't also looking at Zillow and saying, what's the Zestimate?

• 23:38Speaker 03

  Yeah.

• 23:39Speaker 04

  It's become like a thing, you know?

• 23:42Speaker 02

  It's in the zeitgeist.

• 23:42Speaker 04

  Yeah. So at the end of the day, we don't, we don't know if the house is truly worth that value until it's a willing buyer and a willing seller.

• 23:52Speaker 03

  You've, you've worked, obviously you've done, you know, thousands of these loans. And so you have, as the bank, as the lender, you have, you can't lend over what its appraised value is, but you're not involved in the appraisals at all.

• 24:07Speaker 04

  No, but say, let's say for instance, and this happens very occasionally, the house is overpriced and the buyer feels it's worth it. The seller says it's worth it. They're going to take as high as they can get.

• 24:18Speaker 03

  Yeah.

• 24:19Speaker 04

  Now it's up to the agents to provide supporting documentation as to why.

• 24:24Speaker 03

  Why it's above what the appraised value is?

• 24:27Speaker 04

  You know, the development that's there on the corner of Ming and Gosford, University Park, you know, that's out?

• 24:35Speaker 03

  Yeah.

• 24:36Speaker 04

  Okay. The homes in that corner there have road noise. They back up to Ming Avenue.

• 24:43Speaker 03

  Yeah.

• 24:44Speaker 04

  Or to Gosford.

• 24:45Speaker 03

  Yeah.

• 24:46Speaker 04

  The interior homes will sell for more because you have a noise nuisance. But if you price the home the same there, but you're trying to get the interior price. Zillow might tell you it's worth it.

• 25:01Speaker 03

  Mm hmm.

• 25:02Speaker 02

  Right.

• 25:03Speaker 04

  But a consumer says, no, it's not. I would prefer to be on the inside. So buyer demand, if there's enough inventory, will drive that sale.

• 25:14Speaker 03

  Yeah.

• 25:14Speaker 04

  Does this kind of make sense?

• 25:15Speaker 02

  Yeah.

• 25:16Speaker 03

  Yeah, what you have, the problem comes sometimes, the example of somebody wants to buy a house. They want to pay more than what the estimate or the, let's not even the Zillow estimate, but the appraised value is and

• 25:30Speaker 04

  Then they would have to come up with the cash difference.

• 25:32Speaker 03

  They can't just say, adjust the, well, I'm willing to pay this.

• 25:36Speaker 04

  Well, pay the difference in cash because you're then taking on the risk for the differential.

• 25:40Speaker 03

  That always bothers me. And this is an issue, I guess, with the appraisal world, which is the appraisal, it's only part of the factor of the appraised value if there is, happens to be a buyer and seller, like that already matched up. Like, isn't that the market value? Like, if you have somebody that's willing to pay that price, or a few people that are willing to pay that price, that should be the new value, but it can't be that.

• 26:06Speaker 04

  No, because they're not the ones on the hook for the loss.

• 26:09Speaker 03

  Yeah.

• 26:10Speaker 04

  If your perceived value changes over time, then your perception of value doesn't matter to the bank.

• 26:17Speaker 03

  Yeah.

• 26:18Speaker 04

  Because they're the ones with skin in the game.

• 26:20Speaker 03

  Yeah, they're the ones that are going to have to deal with the property if you bail.

• 26:23Speaker 04

  That's right.

• 26:23Speaker 03

  And they're like, okay, we're just going to, what's this worth out there in the market? Not what just anybody would pay for it.

• 26:27Speaker 04

  Exactly right. So the more money you put down, the less risk it is. If it's worth more, then you're willing to pay the cash difference in your mind, then you are then carrying that risk, that additional risk. And we're really talking about maximum financing that becomes an issue. Somebody's financing 95% plus, right?

• 26:47Speaker 03

  Yeah. Yeah. Well, let's take a break and talk about financing. When we come back, where are interest rates going? The Fed is supposed to, Wall Street's banking already on what the Fed's going to do with interest rates here coming up in their next meeting. But I want to hear what you have to say, Alan. That's Alan Maderos from McGoffey Mortgage. I'm Sharad Waite here with Emily Waite. We're Money Wise and we'll be right back.

• 27:05Speaker 00

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• 27:20Speaker 03

  Welcome to the Money Wise Show. Thanks so much for tuning in. I'm Sherid Wait here with Memzey. There I am. And Alan Maderos. Alan, the recent news, brand spanking news, medical debt will soon not be part of a credit report. And I'm asking you this because I know you have dealt, you've seen a lot of credit reports, I'm sure, in your day, many, many, many credit reports. I was shocked to see the statistics that are coming out of the number of people who have medical debts and the number of people that this will affect. Twenty, they're expecting

• 28:00Speaker 03

  the, that the, this rule to change the credit of what goes on your credit report to exclude medical debt is expected to lead to the approval of about 22,000 additional mortgages this year.

• 28:14Speaker 04

  Correct.

• 28:15Speaker 03

  So it means, another way to put that, you have 22,000 families last year who couldn't get a home.

• 28:22Speaker 02

  Because of their medical debt.

• 28:23Speaker 03

  Because their medical debt.

• 28:24Speaker 02

  Sure.

• 28:25Speaker 03

  It's like, oh, man. I mean, obviously, there's

• 28:28Speaker 02

  Significant.

• 28:28Speaker 03

  You want to be responsible with your finances, even with health insurance and even with a savings account, people can go through their money very quickly. So it does make sense that, like, we have to make some accommodations for people who've had just bad luck by cancer or whatever it is they're going through. But, and apparently, from what I have read, studies show that debt that is carried due to medical is not a good indicator of management of credit, of finances. So like, why did it take so long for this to happen? And what's your take?

• 29:02Speaker 02

  Yeah.

• 29:03Speaker 03

  As a lender?

• 29:04Speaker 04

  So, I had heard that this legislation was in process about two months ago, and now it's at that point where it's either going to have passed or has passed.

• 29:13Speaker 03

  Yeah.

• 29:14Speaker 04

  At the end of the day, we're talking about one-time catastrophic events typically that are major medical collections. The issue that it comes down to is insurance.

• 29:26Speaker 04

  So generally speaking, people that go into collection for medical debt, it has to do with what they thought insurance would cover.

• 29:32Speaker 03

  Right, yeah.

• 29:33Speaker 04

  So if it doesn't cover it, they have now a bill that was unexpected because of a medical situation. It could have been literally a broken collarbone.

• 29:42Speaker 03

  Right.

• 29:42Speaker 04

  Right, to a abscess.

• 29:45Speaker 03

  Right.

• 29:46Speaker 04

  And there's treatment. Now, the insurance company is given these codes and the medical provider is now billing these things and it gets rejected. Then all of a sudden, they resubmit, it gets rejected. Now, they send a bill to the consumer. The consumer says, I'm not paying, this insurance should cover it. Right. So then it becomes a principle. I'm gonna die on this hill. And it becomes a medical debt that shows on credit. Now, here's the issue with that. Did that represent the buyer's ability to repay back normal debts that they normally would have incurred? Like a credit card payment or a student loan or an auto loan? No, it's an isolated event. Now, this could potentially affect also the bankruptcy code

• 30:30Speaker 04

  in the sense that the number of people that file for bankruptcy generally has to do with a very large amount of medical debt.

• 30:38Speaker 03

  Yeah, in fact, 15 million people, according to the Consumer Financial Protection Bureau, 15 million people have an estimated, or between 15 million people and estimated 49 billion in medical bills. So, you know, a lot of people are dealing with this and the impact on the credit score can be at least 20 points. I was, which I was surprised.

• 31:04Speaker 04

  It seems low. It's actually larger than that. I think if it's an ongoing re-reporting debt. So let's just say it reported late in May of 2024. But it reports late. June, July, it's a rolling late.

• 31:19Speaker 03

  Yeah.

• 31:20Speaker 04

  That's where it has the biggest impact. If it's an isolated reporting, you can let that age out, but these are things that are in process. We will start seeing the benefit of this very soon because anything that's on there now that's a medical debt may be removed. You're going to see an instant increase in credit scores.

• 31:38Speaker 03

  Yeah, yeah. So this is, this could be good news, not good news for the hospitals.

• 31:42Speaker 04

  That's what I was gonna say. The losers in this are the carriers or providers that are not able to collect.

• 31:50Speaker 03

  So let's shift gears now a little bit to lending. Talk about credit, credit reports or scores a little bit, but what about interest rates? Where are we, what are we looking at now in terms of our 30-year fixed rate mortgages?

• 32:03Speaker 04

  So national averages are hovering around 7% right now. And they were as low as 6.1% in April of last year.

• 32:12Speaker 03

  Mm hmm.

• 32:13Speaker 04

  So the increase really has to do with what I would call inconsistencies in reporting of the stability of our markets. So everyone talks about the Fed funds rate and well, hey, they just lowered it. Why is my rate higher? Well, the reality is we're talking about short-term money on the Fed funds rate. This includes student loans, auto loans, credit cards, home equity lines of credit. Those have direct correlation. Mortgage interest rates are tied to mortgage-backed securities in the bond market. So as those yields continue to increase, meaning they're earning more, they can offer lower interest rate. But if they're earning less on those yields, they're going to offer you a higher interest rate to make the same profit margin.

• 32:57Speaker 04

  So you'll see some places that you receive advertisements from that offer these ultra-low rates. Oh, we can offer you 4.75%. It's to get you to pick up the phone.

• 33:08Speaker 03

  Yeah, because

• 33:08Speaker 04

  Or to apply online, but that's not a realistic number.

• 33:11Speaker 03

  It's, it's usually their points, right? That people are buying down that rate.

• 33:15Speaker 04

  You can buy points, but there's a breaking point. Like, for example, if you've got a $400,000 loan and you're paying six points.

• 33:22Speaker 03

  Yeah.

• 33:23Speaker 04

  Yeah. CFPB won't even allow you to do a loan. They call that a high, it's called basically. Gosh, what's it's

• 33:30Speaker 03

  Predatory?

• 33:31Speaker 04

  Yeah, predatory and high cost lending. So there's limits. They have a means test. And if you don't pass that test, then you have to lower the fee or cancel the loan.

• 33:40Speaker 03

  So you can buy, buy your interest rate down only to a certain point. And then it's, it, it, what's the most you could buy it down?

• 33:50Speaker 04

  Normally I've seen as much as three, three and a quarter points. It depends on the loan size.

• 33:54Speaker 03

  Yeah. And, and so when would that make sense for, how do you, how do you calculate?

• 33:58Speaker 04

  If you have a large enough loan and that same, so let's say the payment is going to be reduced by $600 a month by buying those points. How many months at the multiplier of that loan amount would it take to recover that cost? Generally, if you can get in and out of that within three years, it's worth buying the points.

• 34:15Speaker 03

  Yeah.

• 34:16Speaker 04

  All you're doing is hedging against future rate changes because we don't know if rates are going to drop.

• 34:21Speaker 03

  Right.

• 34:21Speaker 04

  So it's not appropriate for everyone. It's case specific, but if the only way you can qualify is buying points to get the rate low enough. So your ratios fit, then you have to do it.

• 34:31Speaker 03

  Yeah, right. Talking about some of the other, this column, national advertised lenders out there. I think we had you on the show several years ago, we were sort of mocking, was it Rocket Mortgage? Or Rocket something, you know, do, they advertised on during the Super Bowl or around that time. It was a total disaster. They weren't quite ready for the, for the, for the onslaught of people thinking they could get a mortgage by just, you know, clicking a few buttons on their phone. Right. But have there been any advancements in technology and at least streamlined?

• 35:07Speaker 04

  Absolutely. So one of the things that you would think is not as present now because of all of the changes that have happened is fraud. It's actually increased. So fraud today is one of the biggest categories of loss for any type of financial institution. So one of the things that we're trying to pass in legislation is stopping trigger leads.

• 35:30Speaker 03

  Trigger leads?

• 35:30Speaker 04

  Trigger leads. And what that refers to is somebody who basically is called or solicited once somebody applies for a mortgage. So TransUnion Equifax Experience sell the data that you had just applied for a mortgage and your phone literally blows up with text messages and phone calls within 30 seconds from across the country.

• 35:52Speaker 03

  Yeah.

• 35:53Speaker 04

  So here's the thing, it confuses the consumer. They feel as if there's a data breach and their personal information and they're confused as to what's going on. So if you don't notify them, let them know, hey, this is information that we are not providing, however the bureaus are, to people purchasing the opportunity to sell you a mortgage. That happens. Now.

• 36:18Speaker 03

  You can't opt out of that? Everybody's automatically?

• 36:21Speaker 04

  However, you need to do so 30 days in advance of applying and then you're on a list. So it's all this like if this, then this, right? And it's, most consumers don't come to the table with that. So where is going with all of this? When a consumer's applying for a mortgage online, the technology we have today to prevent fraud and make things faster is what they call asset validation and income validation through bank-to-bank communication. So for example, if you bank with Bank of America and you opt to connect your Bank of America checking account to the system for the automated underwriting, it will read all of your deposits over the last 12 months and it'll verify that the income

• 37:04Speaker 04

  you provided is accurate. We need no more income documentation. If the assets you provide tell us this is how much money we have and it pings it and it verifies it, we need no more asset information.

• 37:16Speaker 03

  That's nice.

• 37:17Speaker 04

  So that can literally happen and be fully approved outside the condition of the property and title work for a loan within 10, 15 minutes.

• 37:25Speaker 03

  Nice. So basically you can get approved.

• 37:28Speaker 04

  Correct.

• 37:28Speaker 03

  And not have to spit out your tax return or your.

• 37:32Speaker 04

  But if you have additional income, K1s, you have a self-employed situation with, you know, Schedule C, you have rental income, Schedule E, then we want to evaluate that. But that's a smaller percentage of the population.

• 37:45Speaker 03

  Yeah, great. Good stuff. We didn't, we didn't answer the question about interest rates and where they're going to go. We talked about where they are, but let's, let's take a break and take our final break and then we're going to talk about where interest rates are going and maybe have time for a couple headlines. We're Money Wise. We'll be right back.

• 37:59Speaker 00

  If you're a business owner who provides a retirement plan for your employees, contact Money Wise Wealth Management to see if you're maximizing your options and minimizing your liabilities. Money Wise 401k plans are customized to you and your company's needs. 661-847-1000.

• 38:19Speaker 03

  Thanks so much for tuning in. We're Money Wise. I'm Sherwood Waite here with Emily Waite. Alan Maderas is our guest, talking about loans, mortgages, interest rates. Okay, Alan, look into your crystal ball. We know mortgage rates right now, 30-year fix is about 7%. Where are they heading?

• 38:34Speaker 02

  What'd you think?

• 38:36Speaker 04

  It depends.

• 38:37Speaker 03

  Ah, come on. Here's, here's an eight ball.

• 38:39Speaker 04

  Yeah. So here's, here's, what does the eight ball say?

• 38:41Speaker 03

  It says, "Don't count on it." So we should have asked, "Are interest rates going to go down?" I mean, because that's essential, we're asking, are interest rates going to go up or down?

• 38:49Speaker 04

  That's the question of the hour, of the day, the, the next four years, let's just say it. Here's, here's what we're looking at. I believe strongly in my gut that it will all have to do with employment and consistency of our economy. If people are fully employed, it's what helps the economy. It's what will drive consistent payments on debts and will allow people to push towards the direction of having lower monetary policy involvement, meaning they're going to start lowering that Fed funds rate.

• 39:29Speaker 04

  If we have a higher unemployment rate, I believe that you'll see interest rates, believe it or not, going down. I believe if it gets to a point where there's enough hardship out there, the government will step back in and start printing money again and stimulus. So if we see that, I think you'll see interest rates drop. Now, projections are is that real estate will stay stable to flatline. I don't think we're going to see any more than, say, 3% in increase in values. But even if we flatline at zero year over year, we're still stable. I believe that long-term interest rates will float down, but somewhere ranged around

• 40:11Speaker 04

  6.5% to maybe 6.25% for conventional financing. And I believe that the government insured loans includes FHA and VA will be in the fives.

• 40:22Speaker 03

  Well, that would be good news. Today, according to CME FedWatch Tool, there's about a 50% chance, at least traders are placing a 50% chance that the central bank will cut their rates in its June meeting. I think yesterday was a 55% chance, so the chances are going down just since yesterday. But this is a moving goalpost.

• 40:43Speaker 02

  Sure.

• 40:44Speaker 03

  Because it's very difficult to know. There's, you, you mentioned unemployment and there's other factors that come into play with the, with, with the interest rate is, the good news is you're essentially looking at the 50-year historic average lending rate. So don't get too caught up that you're paying 7% where you could have gotten 6% last year or you could have gotten 3%, you know, a few years ago. You can always refinance down the road if rates do come down. And the main thing is whether or not you can afford it, which we've got a great message here. Do you see the message?

• 41:15Speaker 02

  Yeah, yeah, I was, I was just waiting. So we've got a first-time homebuyer question for you, Alan. What should I do as a first-time homebuyer who feels they can't meet the 28% rule due to current home prices? Is 28% still the golden rule?

• 41:31Speaker 03

  So we're talking about 20% or this is the you can't have more than 28% of your income.

• 41:36Speaker 04

  It's 29 or they say a third, right?

• 41:39Speaker 03

  Third.

• 41:39Speaker 04

  You take your income, multiply or you're paying it by three and that should be your total. So you're not alone. Most people, their housing ratios are at 40 to 44%.

• 41:50Speaker 03

  Right.

• 41:51Speaker 04

  So ideal number is 30%, but if you're not in that situation, but you have no other or very little other consumer debt, take the plunge and buy a house.

• 42:03Speaker 03

  Okay.

• 42:04Speaker 04

  And the reason why is because the level of long-term appreciation will far outweigh your weight.

• 42:10Speaker 03

  Yes, and it's not even a it's more than just your financial security. There's a mental security that comes about you when you know you have this forced savings plan in the piggy bank that is your equity in your home. Right. It gives you it gives you some financial stability that you don't realize you'll need down the road. You gotta have something like an asset like that. So even even if your property values don't go up for a few years, you still have that equity that's going into it. There's a percentage of that payment that's going into equity, so you're still getting that. And so I agree, I agree. It's one of the most important decisions somebody can make. Buy a home when you can afford it.

• 42:49Speaker 04

  But I think the most important thing in that process is have a plan. Talk it over before you're committed to anything.

• 42:55Speaker 03

  Yeah.

• 42:56Speaker 04

  You really need to know your numbers and feel at peace with that. Because at the end of the day, as nice as I may come across as being,

• 43:05Speaker 04

  I'm probably not going to make a mortgage payment for you.

• 43:07Speaker 03

  Yeah, that's right.

• 43:08Speaker 04

  So you really have to make sure that this is fitting in with your overall life plan because it is the largest debt for most people and the longest duration of an obligation that you'll have.

• 43:18Speaker 03

  I'll never forget it. Emily, I don't know if you ever will either, but when we bought our first house.

• 43:22Speaker 04

  You're scared.

• 43:23Speaker 03

  We're so scared. It's terrifying. We paid $110,000 for our new construction build in Silver Creek. Yep. And this is in 2000 and I was shaking in my boots thinking, how am I going to pay $900 a month or $850 a month?

• 43:36Speaker 04

  Aren't you glad Sharon manned up?

• 43:38Speaker 03

  I know.

• 43:39Speaker 04

  He's all, I'm gonna make it happen. My family and my kids.

• 43:42Speaker 03

  Well, I mean, it was a great house. We raised our, our, our, our kids for the first roughly 10 years of, of our kids' life there. Then before we moved to the house that we live in now, which was another big leap.

• 43:51Speaker 04

  It was. I remember when you guys made that leap.

• 43:54Speaker 03

  You helped us with that financing.

• 43:55Speaker 04

  But you know, the awesome thing about it is it's taking care of your family.

• 43:58Speaker 03

  Yeah.

• 43:59Speaker 04

  It's kept you stable and it's allowed you an opportunity for growth of long-term wealth.

• 44:04Speaker 03

  Yeah.

• 44:05Speaker 04

  There's equity.

• 44:06Speaker 03

  In all honesty, in, in all honesty, I, I have looked back and both of those purchases, and we talked about even our office, like our, our work. And I thought, man, I know I was stretching myself, but it, after a few years, it's like, I didn't stretch myself enough. Like, we outgrew it. Like, we outgrew our first home. We outgrew, we didn't outgrow our second home, but we outgrew our offices twice, three times, you know? And it's each time I thought, how are we going to get that big of an office and blah, blah, blah.

• 44:31Speaker 04

  So with the new building.

• 44:32Speaker 00

  Power couple.

• 44:33Speaker 03

  Yeah.

• 44:34Speaker 04

  So I mean, I was like, we have to make sure that you guys don't encroach in your guys' fun space at the new building. So don't grow that quickly, okay?

• 44:42Speaker 03

  Well, yeah, we, we overdid it a little with the, with the Woolworths. We've got more than enough for, for money-wise, you know, for, for years to come and, and plus.

• 44:50Speaker 02

  We didn't overdo it. We planned accordingly for future growth. There we go.

• 44:53Speaker 03

  I'm not, I'm not anticipating wishing that we had gotten more, at least for a few years, at least with the, with the site. But for, for, again, the lesson is for first-time home buyers, I think your dad told me this too. Your, your dad was, had gave some great advice when we were first looking for our first home.

• 45:08Speaker 02

  Yeah.

• 45:08Speaker 03

  And that is, um, you know, just, you, you don't, don't worry about it. Don't, don't stress about it. You're going to need a home. You know, it's, it's important to, to just homeownership.

• 45:19Speaker 02

  Just be smart. Ask them people know the numbers, just like Ellen says, right?

• 45:23Speaker 04

  Don't go without a plan. That, that's just the worst thing you can do is make a decision under duress, meaning I found a house, I need to make it work.

• 45:32Speaker 04

  Go with the plan. Know your numbers. Then when you're shopping, you're shopping for real, not window shopping. You're not putting yourselves into a compromised situation.

• 45:39Speaker 03

  Real quickly, we only have a minute here. Have you noticed any, I guess the implementation of the new, um, agreement with, uh, realtors?

• 45:47Speaker 04

  Oh, yeah.

• 45:47Speaker 03

  And buyers? Have you noticed anything?

• 45:49Speaker 04

  No real change.

• 45:49Speaker 03

  Yeah.

• 45:50Speaker 04

  You know, it's all about the prep in the sense that when a take, when someone's taking a listing, they educate the listing and let him know, hey, in order to get the best pool of buyers, you're going to have to give up something.

• 46:00Speaker 02

  Yeah.

• 46:01Speaker 04

  And if you get one that pays their own, you make a little bit more money, but let's bank this in. And if it works this way, then it's not going to be a change. We have not seen any major pushback.

• 46:10Speaker 03

  Or, or major shift in the, in the industry.

• 46:13Speaker 04

  No, no. Houses are still selling.

• 46:14Speaker 03

  Fantastic. That's fantastic. I, I, I think this will be a good move. More transparency. So if you're working with a good real estate professional, you've got an agreement in place right up front. You know exactly what you're paying for and what you're getting in return. I, I think this is good news for those good real estate, realtors that are out there. All right, Alan, thanks so much for coming on the show.

• 46:34Speaker 04

  Thanks so much. Happy New Year. Great to see you guys.

• 46:36Speaker 03

  Great to see you too. Fly, time flies by with you. Just so fast. Let's cross our fingers for another good year in real estate and in lending. I'm feeling optimistic myself and hopefully you are too.

• 46:49Speaker 04

  Absolutely.

• 46:50Speaker 03

  Any of our listeners out there missed any of these shows, we want to remind you, you can go and listen to all of these in podcast format. We even take the commercials out for you. You run through in about 35 minutes. You can find out all of our previous episodes wherever you stream your podcasts, whether it's Spotify, Apple, you name it, there we are. We're going to be back tomorrow, but before we do this, want to remind you of these three things. Be smart, be safe, and always be money wise.

• 47:22Speaker 02

  Securities offered through SCF Securities, Inc., member FINRA/SIPC. Investment advisory services offered through SCF Investment Advisors, Inc. SCF Securities, Inc. and Money Wise Wealth Management are independently owned and operated.