Mr. Trump recently fired Fed Governor Lisa Cook ostensibly because she committed mortgage fraud.
Someone then promptly posted a video on X showing that a renter lived in one of the properties Ms. Cook bought with “owner-occupied financing,” and the world exclaimed: “Oh, the horror!”
But my first questions were:
- Did she live in the property for a year before she rented it out?
- Did she buy the house intending to live in it, only to get transferred in 8 months?
- Does she like moonlit walks on the beach?
- Does she have a parrot named Bob?
- When she goes to Taco Bell, does she use Fire or Diablo hot sauce?
The answers to all of those questions put Ms. Cook in a whole different light.
Owner-occupied mortgage financing offers far better terms than investor financing, with much lower rates and far smaller down payment options.
But owner-occupied loan documents only require a borrower to attest that she intends to live in the property for 12 months. No longer.
So, Ms. Cook could rent out her properties after 12 months – without issue. Similarly, if she were unexpectedly transferred to another state 8 months after she bought, she would also be in the clear.
Watch Out for Gell-Mann Amnesia
This reminds me of the blog I wrote about Gell-Mann Amnesia – The Awful Disease Impacting Mortgages & Real Estate. The Gell-Mann Amnesia Effect is a psychological phenomenon that highlights people’s tendency to recognize the unreliability of media when it comes to topics they’re familiar with, while still trusting the media for information on other topics.
Those of us in the mortgage and real estate industries see utter nonsense in the media every day that only we know is nonsense because we are in the industry. But yet, we still often trust info we read about other industries. 😊
Anyway, I have no clue if Ms. Cook committed fraud or not, but I promise that there is more to the story that the media is not fully explaining.
Beware of the “No Out-Of-Pocket Costs” Trick! Another Slimy Lender Trick!
A borrower recently sent us a Loan Estimate with a 1/8 percent lower rate than JVM’s and $10,000 less in “Cash to Close!”
A way better deal, right? Not even close.
The lender merely increased the loan amount by $10,000 and rolled the closing costs into the loan.
This is the classic “no closing costs loan” (what we offered) vs. “the no ‘out of pocket’ closing costs” loan (what the other lender offered, but implied it was a “no cost”).
With rates much lower, refis are upon us – and this trick will surface everywhere. Please make sure your clients are aware.
