Podcast Interview—The Million Dollar Mortgage Experience
Episode 94: How to Serve Self-Employed Borrowers with Non-QM Loans
Episode Summary:
Alejandro Szita is a mortgage broker who’s been involved with real estate and loans since 2006. He specializes in serving artists and entrepreneurs as he expertly maneuvers the ins and outs of mortgages for self-employed borrowers.
During this episode #94 of the Million Dollar Mortgage Experience, FundLoans CEO Jon Maddux and Alejandro Szita discuss how Alejandro became a mortgage broker, why it's important to have a niche as a mortgage broker, how to help self-employed clients with the challenges they face as borrowers, crazy loan stories, and opinions on non-QM loans and bank statement 2nds.
Visit the Million Dollar Mortgage Experience’s official webpage
Podcast Transcription:
Intro: The Million Dollar Mortgage Experience Podcast.
Jon Maddux: All right. Welcome to the show. Today's guest is a mortgage broker, Alejandro Szita, who's also been involved with real estate and loans since 2006. He specializes in serving artists and entrepreneurs as he expertly maneuvers the ins and outs of mortgages for self-employed borrowers. So welcome to the show.
Alejandro Szita: Thank you, Jon. It's a pleasure to be here. It's a pleasure to be on your show.
Jon Maddux: Thank you. I appreciate you coming down, and I know you're from Irvine, so I sure hope there wasn't too much traffic on the way.
Alejandro Szita: A breeze.
Jon Maddux: Nice. Good. Good. And finally, the sun's out, so we're thankful about that. So you work with entrepreneurs and artists. In the mortgage business.
Alejandro Szita: That is correct.
Jon Maddux: How did you get into doing that? Because I've always, you know, I've done some loans for some, some artists and some entrepreneurs and some celebrities. But, you know, who will remain nameless, but how'd you get into that?
Alejandro Szita: You know, it was by accident. I used to be in the marketing business. I used to be in the infomercial business. Okay. Those 30-minute commercials. And one of my clients in the infomercial business had a financial company. He was starting a financial company, and it was a loan company. And he said, Alejandro, would you like to come to a financial seminar? This is way back in 2000 or so. So I said yes. And then unbeknownst to me, that financial seminar, you know, ended up in me doing loans. Which is something that I would've never thought about. I thought that real estate was boring, you know. If you would've asked me before, Alejandro, do you see yourself working in real estate? I would've said, what? Are you crazy? This is the most boring subject that ever exists. Boy, was I wrong.
Jon Maddux: I mean, that was probably before all these TV shows came out, like '“Flip That House” and, you know, all those shows that are now on, and it seems exciting. Like with the drama and all that. But I could see where you could think that it was boring and, and you know, numbers and finances, never seemed exciting, but you, you got into it and and you say, boy, were you wrong. So tell me why you think you were wrong. Like what kind of exciting things happened when you got in the mortgage or in the real estate mortgage business?
Alejandro Szita: Well, I can say that at the beginning, more than exciting, it was challenging. You know, I had these perfectly, in my opinion, good clients that wanted to buy a perfectly good piece of real estate. And I was amazed and taken aback by the stops, by the problems, by the complications, which to me seemed trivial. You know, I could see that the person made the money. I could see that he could afford to buy the property, but for some reason he couldn't, you know? And all of the complications to me seem more from an administrative nature, you know, not having the paperwork, not being dated correctly, not showing the number that it should, you know. But at the same time, the person looking at the paperwork will not completely look at it. They would only look at lines. They would only look at totals. They would not, in my opinion, look at what the numbers were telling them. Then years later, I found out that it was because of rules. You know, this is one of the things that I always tell my customers. It always takes them by surprise. I say, look, the mortgage is a bunch of rules. We need to comply with a bunch of rules. And I need to know your story. I need to know how you make your money, and I need to know what you’re really planning, because I need to see which sets of rules we're going to go with. That always takes them by surprise, because they think that taking a mortgage is like going to a supermarket and buying an apple. And I say, well, it's not quite that because it's like going to a supermarket and saying, I want an apple. And the guy saying, hold on, what kind of apple? Red, green. Okay. Do you want it organic? You don't want it organic. And it goes on and on like that.
Jon Maddux: So where was the apple created? What were all the different questions?
Alejandro Szita: Exactly. How are you going to pay? Because if you pay by credit card, you pay by cash or Bitcoin, the apple is going to be different.
Jon Maddux: Good point. I mean, mortgages are like, I always think of it as like little boxes. You got to fit in these boxes. And if you kind of, you know, a little bit out of the box that it's, you know, they're going to be like, they're going to deny you.
Keep going. So you got started working with artists and self-employed borrowers, entrepreneurs, because they're a little more complex. Did it, did that interest you or just...
Alejandro Szita: No, no, because they are like me, you know, my, my dad was an entrepreneur. He had a factory and they produced clothing like the Men's Warehouse in Chile. You know, I'm from Chile. And this is the world that I was used to. I was never used to the world of the employee. I think in my life, I've only worked as an employee temporarily for a few months. I've always been self-employed. I've always, all my friends, everything that I knew was always in this area, you know? So actually I never even understood the other side. It wasn't until recently that I started to do what they call, what I call the “normal loans.” Which is a W2 employee loan. And I must confess, I didn't know how to do them. I had to call my mentor. I said, hey, I could do the most complicated self-employed loan that you can imagine. But when it came to somebody saying, hey, this is my W2, this is my tax return, get me a loan. I was like, give me a second.
Jon Maddux: This is all the paperwork. This is it.
Alejandro Szita: Exactly. So I learned how to do them. But to answer your question, those were the only people that I've ever related to. So it's not that I consciously decided to do this. It was just the environment I was in.
Jon Maddux: It's kinda what you knew. That's interesting. A total side question, but like in Chile, are there a lot of self-employed people?
Alejandro Szita: Yes.
Jon Maddux: Interesting.
Alejandro Szita: But there the culture is different. You have to, this is something else that I learned, you know, when you do the loan or when you talk to the borrower, every borrower, especially if it's from another country or from another culture, they have a different set of values. It's not really about the numbers. Of course people call you because they want a loan, you know, they have a certain amount in their minds. But it's not the money. It's what they're going to do with the money and how they're going to do it. That's really their motivation. So yes. In Chile, you know, there are a lot of self-employed people, but the rules there are a little bit different.
Jon Maddux: Interesting. So is it, is it just more independence, do you think? Or is it like a tax thing? Or is it they just want to kind of do their own thing?
Alejandro Szita: You know, I would say that the way we have it in the United States, it's unique. In a good way. My experience in Europe and my experience in Chile is completely different. Here in the United States with not much information and not much of a track record, in my opinion, you can get a loan. That would be impossible in Europe. That would be impossible in Chile.
Jon Maddux: Like a business loan or mortgage?
Alejandro Szita: The mortgage loan. Mortgage loans are very expensive. You know, the rate over there is a mixed rate in the sense that you have sort of an index. You have an index that pretty much in the country, you have several indexes, but there is one index that every financial institution uses, and it's variable. On top of that index, you build your interest rate.
Jon Maddux: The margin.
Alejandro Szita: The margin. And most loans are like that. So the loans are extremely expensive. You know, the down payment requirements are high, although now less than before. And over there talk about presenting paperwork and talk about being a nightmare. It's a little like that.
Jon Maddux: So do you also do a lot of loans for foreign nationals?
Alejandro Szita: Not in the sense, not in the lending sense of foreign nationals. I mean, I do a lot of, many of our clients are foreigners. But they do have a social security number. They do have American citizenship, but they are foreigners in every other respect. So foreign nationals, meaning a person that doesn't have a social security, we don't do them.
Jon Maddux: But people who've migrated here or, you know, immigrated or, that's great. And, as a mortgage broker, do you feel like it's important to have a niche, like to really focus on something that's a niche? A niche?
Alejandro Szita: Yes. Because if you don't have a niche, you cannot be really efficient on what you deliver to people. Like, for instance, we don't sell rates. If somebody calls me up and I get a couple of calls, you know, we started to advertise on the internet, and because of this reason I told my wife, who's my marketing person, you know, don't advertise on the internet anymore. Because it's just a waste of time. I'm going to get these phone calls, hey, I'm getting a loan at X rate. Can you do better? We are not wired up that way. You know, because as I was, as you know, a loan is a very specific transaction for a very specific set of rules and circumstances. Unless you know that you cannot really correlate. But unfortunately, all of the publicity that you see on tv, all these ads about lending, all of these rules about lending basically take in what, in my opinion is, is an exception, which is the W2 loan. And now this exception or this special type of loan that only benefits a certain type of people now becomes the norm. By which all of the other loans and all of the other programs need to be compared to. But the public doesn't know that. They see on TV, say, hey, call blah, blah, blah, we'll give you X rate. And they go, well, maybe that's what I should get. Not realizing that that is just an exception for certain types of people that only have a certain type of documentation that matches that criteria. So it's always an educational process, you know? Which I don't mind doing, but some people are hindered by that frame of mind. That they don't open up to you trying to explain that, hey, you know, you don't happen to fall in this category, so we need to talk, we need to take the conversation this other way.
Jon Maddux: I remember having a client who was a very successful songwriter client and songs everyone has heard before. And he always asked me, I, why can't I get this rate that I see on the TV and here on the radio? And I go, you just don't qualify for that rate. Like, that's, he's like, why? I've got good credit and I make money. And I'm like, but you're also self-employed and you don't pay a lot of taxes. So then I've had to have this conversation about, would you rather pay a lot more taxes and have that rate? Like, no. I'm like, well, then it doesn't, you can't have both, you know, you can't have, you know, you go and write off this income and all your expenses, which is a benefit for self-employed people. But then, you know, your bottom line adjusted gross income is, or your net income is much lower than what it would be if you were W2 and you paid all these taxes. So, there's always that battle between they don't, they want both, but you have to instruct them and really educate them on why you can't have both. And it takes effort.
Alejandro Szita: It is very challenging. And I'll give you something else. You know, I come from a country and at a time where tax returns did not exist. When I was born in Chile until pretty much the eighties. There was no income tax in Chile.
Jon Maddux: Really?
Alejandro Szita: So when I came here and then I saw this thing called income tax, I thought, wow, this is really weird. You see, I did not grow up in this system. So my first thought was, if you want to know how much money someone makes, why would you ask for a tax return? I thought that that was the document that I would never ask. If I really wanted to know how much money somebody was making.
Jon Maddux: Look at their bank.
Alejandro Szita: You see that was my foreign viewpoint, you know? So it's really interesting when you see all of these things play together.
Jon Maddux: Interesting. So what about when you, so when you started doing loans, go back, you said before you started doing loans, you were in real estate. And you, you were selling real estate. Why did you switch?
Alejandro Szita: What happened is this, a long time ago, you know, I went to this real estate office and the guy says, you know what? I think you should do loans. I think you're good for loans. I said, okay, go and get a real estate license. And I go, what? Why should I get a real estate license to do loans? He said, oh, because, you know, it's just a requirement and if you get a real estate license, you can do loans. But I did that. I did get my real estate license and I started to do loans.
Jon Maddux: California license.
Alejandro Szita: California license. In California, you can do that.
Jon Maddux: I remember that's how it used to be. You had to have your mortgage license. Your real estate license was your mortgage license; was actually a real estate license. It wasn't a mortgage license. Correct. And they switched it after the crisis, but kept going.
Alejandro Szita: Correct. Correct. So I didn't have any leads. I didn't have any clients. I didn't have no one. So what I did, I love writing. So I started to write articles in a local magazine in LA and then there was an advertorial, what you would call today an advertorial. Like 500 words, one page. And that's how I started to get my first few customers. And that's what I started to do. You know, I got my customers, I remember I used to do loans with a World Savings Bank, which now today, if you don't know, and you look them up, they are like maligned. And they're held up as the, as one of the ones that cause all those problems. Which is not true at all.
Jon Maddux: I used to love the World Savings Bank.
Alejandro Szita: Me too. I loved their underwriting, I loved their people. I loved their option arm, you know? Which is also hailed as the worst type of loan, but it's not true.
Jon Maddux: They actually give to old people. When you heck them. It's like, nah, this is a terrible loan. Don't ever take it. Oh, but we'll give it to the elderly.
Alejandro Szita: You're totally correct. Some people that inquire about a reverse, I say to them, you know that you can pay this. What do you mean? I don't have to pay? Well, you have the option of not paying it. But if you have income, and if you want to give equity to your heirs, and then if you want to use it, if you take the variable side, then now you have a line of credit. And if you want to use the line of credit, that will never die on you, that they cannot cancel on you, and it goes up every year, and you have some money, pay it. And then use it again. Pay it, and then use it again. It comes as a surprise to them. That's an option arm.
Jon Maddux: So, I mean, I was a big fan of Option Arm. I know people like the news gave it, you know, terrible, you know, terrible reviews. And I think at the end of the day during the crisis, the option arm actually, it never recast because the rate kept going down on it. And so these, you know, all the people that had these option arms, they never went bad. They, they actually kept, a lot of, they had a lot of equity in their homes because you had to have lower LTVs to get these loans. And so I think I look at it as great. You know, and I think someone's bringing them back. That's bringing them back. But everyone stayed away from it. So I don't think they're doing very many of them. But I have heard that there is a bank bringing them back, which is interesting.
Alejandro Szita: Are you going to have them? Are you going to offer them?
Jon Maddux: You never know. I mean, you know, maybe, maybe at this point with the, with the rates being so high and after some time, maybe it wouldn't be a bad thing, you know? But you know, with protections, you know, education.
Alejandro Szita: I agree. I agree that to sell an option arm to somebody that doesn't understand it, it's a disservice. And that should not take place. But other than that, they were great products and was awesome.
Jon Maddux: They were great. So you were talking about world savings and I cut you off, so keep going.
Alejandro Szita: So then one thing that I realized in world savings which I didn't know, and, you know, at the time I was young, I didn't know anything. I remember once I had a very complicated loan and my account executive said, well if you want this loan through, you need to go to the main office in Glendale and pitch it. I said pitch, pitch it to whom? To the head, you know, of the department of the area. I said, are you crazy? You want me, I don't know anything to go and pitch it. He said, don't worry. So I did it, we made an appointment, I drove to Glendale and then this was, to me, this was a life experience that really made me understand the mortgage business a lot better. I'm going to this office, I see this very capable person, a very capable woman. Besieged by phone calls, stacks of paper, super fast. You know, like I could see that this was a power person. And I thought, I'm dead. Because when she starts to ask me about the files, what about this, what about that, what about, I just froze and I want to be able to answer any questions. Like, this is dead, but I'm here, so what can I do? Sit down and then suffer. So sit down and then after the first two questions, I get a blinding realization. I thought, wow, she wants this loan to go through. Her business is not to deny loans. Her business is to find reasons to approve them. . And she just wants me to give her reasons to approve the loan. That was to me a surprise. Because I was still coming from my, the mentality of, you know, in Chile, in Chile would be the reverse. In Chile, you'll be like, man, this guy shouldn't shoot me down. How can I avoid him shooting me down? . Now this was a partner on a, on a time crunch and just wanted the correct reasons to approve the loan.
Jon Maddux: That's cool.
Alejandro Szita: So she approved it. But then I understood how the mortgage industry works. We are all in the same boat. . We are all trying to approve the loan. We are all within the rules that were given. Yep. We are trying to see if the loan can go through. That was to me a moment, one of my moments.
Jon Maddux: And I think that's why I wanted to start FundLoans because there was a time, and, and it was, it was after the crisis. So it was after 08 when it wasn't like that. And, and it still is, is tough in some ways to, to have that kind of mentality with a lot of lenders out there because they don't think outside, outside of the box. They don't, they are looking for ways to, you know, if it doesn't fit the guidelines, you know, to deny it. And so we're, you know, kind of our mentality being a little bit more aligned with yours in the sense that, you know, we're looking for ways to approve the loan within the, within our rules. And if it can be sold to, you know, investors and put into a mortgage backed security and if it could fit in there and everyone, you know, agrees that credit risk is, is there.
But it's, there's been a lot of, you know, ever since the 08 crash, everyone kind of got really nervous that, you know, that certain things caused kind of, certain things caused the crisis. And I do believe in the ability to repay, but, you know, it shouldn't necessarily be all about the ability to pay. Shouldn't necessarily be do you have a W2. And that's what kind of was happening when I, I remember looking at the mortgage business in like 2010 and 11 and, and I remember looking at a deal where a guy had enough cash to, to pay off the loan in his retirement account and they wouldn't give him a loan. And I was like, he has the ability to repay it. He could pay it off tomorrow. And they still wouldn't give him the loan unless he pulled money out. And it was like, it was because he just retired and he had plenty of money. You know, they've, the industry's changed a little bit like since then. I think that was in 2012 maybe when I saw that deal. But you know, it really frustrated me that the business had changed that much after 08. Kind of swung to the other side of the pendulum. And but you know, it's, it's, I like thinking, you know, outside the box, I like thinking about loans and looking at the deal holistically. Kind of like you're talking about with the World Savings woman.
Alejandro Szita: And I'm glad that you started this company, Jon, because there are not many companies with your philosophy. I get promotions and emails every day. You know, some lenders say, hey, we do bank statements loans now. But I know that it's not a fit because if you are in that kind of very strict mentality, and now you offer another loan program doesn't mean anything. You know, it's two different things. I didn't think that that was the case because usually when I get a borrower, I don't ask him for any documentation. I say, you know what, I would rather have a zoom call with you or meet you in person. Very few people go for that. I say, oh no, let's have a phone call. All I want to know when I meet a person first is that I want to listen to his or her story. I want to know what kind of, why does he or she want a loan? And what are her plans? That's all. . And depending on the story, if she says this or that, that's the initial documents that I ask. Only to, only because when, you know, borrowers say, hey, I owe $2 million. It usually is not two millions, one eight or two. I don't remember it. That's why I ask for the documentation just to narrow down the story. But I just want to know for myself if the person needs the money and what he or she is going to do and whether or not can't afford to pay the loan. . That really doesn't require more than a 30 minute conversation. . You don't need to run the credit report. You don't need to have a mountain of paper. You know, you don't need to do anything like that. . That I find that almost no one does. You do. I mean, you, you, the people that work here do. . But most people don't.
Jon Maddux: No. It's very much transactional, which we've done podcasts about relationship versus transactions and, and when people are just doing transactions, you miss out on all that human touch. You miss out on, you know, that, that client for life mentality versus, you know, let's just one and done, get your commission check and then move on. And that's what I think a lot of people who have shifted into the mortgage business have done with their businesses and it's why they're suffering today. And they're not able to do as much business. Whereas like someone who has a relationship built, driven, relationship driven business can, can thrive even in times that are slow. . You know, because you have clients, repeat clients, you have people that remember you and they, you know, because you don't remember the person that just was transactional, you, it's like, you know, you got your rate, you got your loan, you closed, done. You know, there's no real connection to that person and they're not going to refer you to any business. They're not, you know, and then if they did, they're going to refer you to your business and if your rate's not there, then you didn't get the deal.
Alejandro Szita: Exactly. If you, if your rate is one eighth off, which is nothing for most people. That for most people, that is completely immaterial. Whether it's 6.6 or 7.5, it's immaterial. But that's enough for them to like, just go away.
Jon Maddux: I've seen people walk away from a deal for a $200 fee, like a 195 funding or whatever the fee was. . They're like, oh, they, they didn't charge that. And you're like, you didn't tell me that they weren't in charge, I would've matched that. You know, but that's just it. It's so funny how there are people that, you know, I mean, I get it. There's, there's a lot of people that count numbers and that's the way they are and, but you know that that's where the relationship would've helped save the deal versus just a transaction.
Alejandro Szita: Correct. And I completely agree with you. That's what, that's what I go for. I go for the relationship. Because another thing that I try to tell people is that loans are a process. . They say, well, but I got approved. Well, you got approved initially. I approved you because I think that you, you, you can pay for the loan and you qualify. . Then the lender is going to automatically approve you or approve you initially. But now there is a whole process where we need to show that everything we said, we can back it up. And then you get the final approval at the end. So if you don't have the relationship and you embark in the process, it's going to be a nightmare. It's going to be a nightmare for the client and it's going to be a nightmare for you.
Jon Maddux: True that. What are some challenges that you've seen self-employed borrowers face today? And and how, like how do you help them?
Alejandro Szita: Well, I'll tell you a challenge that comes to mind. That was this person, a financial advisor, 15 years being a financial advisor from India. Very successful. Savings, wonderful savings, 1 million plus. Beautiful income. He couldn't get a loan from anyone. Said, why not? And he tells me, I used to be a W2 employee for this company for 15 years, they offered me the option to be independent. 10 99, same company. They even raised my salary. And I said, yes, that happened three months ago. So I'm not a W2 employee now. And I haven't been in business enough to qualify. .
Jon Maddux: But it's the same work. More money.
Alejandro Szita: Same work, more money. I want to buy this house and I want to put 50% down. And I go, this is one of those examples where the rules that are initially meant to protect everyone. . Now they're, they're being counterproductive. . And they're stopping someone that is overqualified. . By the way, the house he wanted to buy was not a mansion or anything, which is a regular, I mean, it was a nice home but it's not a home that you would say, hey, you know. So actually Shane helped me. He said, you know, we can't do the loan you need. You need like a community mortgage. And we went to a lender that offered the community mortgage loans. But that's an example, of somehow someone who's truly, truly, truly qualified is not able to get a loan. .
Jon Maddux: I wish Shane would've asked me. Shane, you might have done that loan, but I'm glad you got it done. I mean, it's 50% down and, you know, the same line of work.
Alejandro Szita: Well now I know you can do it because before the podcast I was talking to him and I understand now that when I have a unique scenario, I can submit it. And you have a secondary credit committee. . You have a secondary option, you know, to pitch at certain investors that want a certain criteria. .
Jon Maddux: Shane's great. I just, you know, when I hear these, it's sometimes like, oh, we could, you know, we could, we could have looked at it and maybe we wouldn't have done it. But, you know, it's and maybe he did ask, you know, we don't, I don't, I don't know the whole story.
Alejandro Szita: But I have some crazy stories. I can tell you another crazy story.
Jon Maddux: Let's hear another one.
Alejandro Szita: About a month ago we closed a mortgage on a home in Santa Monica for a borrower. And then in the middle of the process, the lender started to wind down his wholesale operations. Because another thing that I try to tell people right now, you know, right now for the people that are watching this, this is April 19th, 2023. And another thing that is not being published or nobody's talking about it, there are lenders that are winding down. They're closing their doors right now. So even though you read the press and everything seems okay, everything is not really okay. Things are really changing at a fast pace. So this lender was going out of business or closing down their, their, their operations. On top of that, because he's a teacher, the way they pay him was so complicated. Even I could not understand it.
Jon Maddux: As a teacher, you'd think that you get a W2.
Alejandro Szita: But the calculation, how they calculated their hours, you know, this particular school had a, had sort of a benchmark hour that all of your hours had to be translated into. So if you did an hour of this benchmark index, it's not that you did an hour, it's that everything you did was equivalent to this one hour.
Jon Maddux: Wow. That's definitely interesting.
Alejandro Szita: But not only that. This benchmark hour, depending on how many years, depending on your position, depending on this, had like six or seven different scales of pay. So, to make a long story short, it took quite a while for me and the underwriter to figure it out. I knew that he had the money because I already interviewed him. You know, I already saw what he was doing. I knew that this loan was done. Because I never submit a loan that I don't think a hundred percent that the person can get approved for. But that complication plus the complication that a lender was winding down their operation, had the listing agent wanting to kill me on site.
Jon Maddux: I've been there.
Alejandro Szita: My God. It was really stressful for everyone. In the end, in the end, the lender, it's a good lender. They closed and that was good.
Jon Maddux: That's frustrating when that happens. I mean, yes. Who knows what's going to happen. I mean, we, we, you know, we're in a good spot, but it's like, this market is just so odd. And I'd I want to ask you, you know, it sounds like you're, you've been doing well, you know, you do good volume with us. Like how has it been going for you with the higher rates? Is it, has it, have you seen a big decrease in your business or have you seen it kind of, is it still sort of steady?
Alejandro Szita: I've seen that the borrowers are more cautious now. They want to know when rates are going to come down again. And in the case of this borrower, he went into a major bank when we were doing this loan and this major bank gave him a loan estimate. The loan estimate was just a little lower than what we were doing. Just a little. Not much. Not even half a point. And he said, can you give me this rate? He faxed it to me, he emailed it to me and I said, no, we can't do that. Because yes, they gave you this loan estimate, but they will never be able to close on this loan. And he goes, you're right. I know, but can you give me the rate? You know, sort of what you were telling me before about this other customer that is a musician, a famous musician. . I wanted you to give him the rate. The same thing he kept on and on and on. Now that rate that we got from him is completely unattainable today. . Completely unattainable. This was just a few months ago. Completely unattainable. But, to answer your question, people are more careful about the rate and they're shopping a little bit more.
Jon Maddux: Because it's, it's when it's when they're all down in the threes, you know, you're, it all feels great, you know, but when you're up in the six or sevens and eights, like it's, it's, you know, you're all trying to get lower.
Alejandro Szita: But like you were saying, in your podcasting, your earlier podcast when you began in this business, rates were like ten and a half. When I began in this business, rates were like seven and a half. And I remember one of my first loans, I got the loan for this girl that was like seven or 675, this was right before 2007. And then I said to her, you know what, something is happening. I don't know what it is. I didn't have enough arguments at the time. I didn't have enough know-how to really convey it, but I could feel it. And I said, you know what? You should take this loan. Oh, but can you get it cheaper? I don't think so. A few days later, that lender went out of business. So I was logging in and boom, out of business, I called and the number has been disconnected. And I said, okay. I had like two or three lenders line up for her. This second one the same thing, this third one, the same thing. And during that week. Pretty much all the lenders I was doing business with just went out of business.
Jon Maddux: They all imploded.
Alejandro Szita: They all imploded.
Jon Maddux: I remember watching that imploded meter, you remember that?
Alejandro Szita: No, I didn't see.
Jon Maddux: There was a website called the implode-o-meter, the loan and mortgage implode-o-meter, something like that. And literally every, every day you go on it and see who went out of business. And it was like, it was just business. It was lender after lender over a span of I think two months, three months. It was just like, just fallen. It was imploding. And then, you know, this, it happened a little bit here in this last, you know, run with the rates hiking and this, this, this last year, I mean, it, it's been kind of crazy but different, you know, different in, in, in a lot of ways because this, this, the real estate market so tight because there's no listings, everyone's holding onto their low rate mortgage. They're holding onto their house that they're, you know, there's only like forced sales, really. People who have to move either through a divorce or a death or, you know, stuff like that is really where the transactions are happening. No one's really just deciding, you know . There's some people that are like, I need to, you know, change my area, move or whatever. But, you know, it's tough to give up that low rate. You know?
Alejandro Szita: Inflation alone is going to pay for that mortgage. If you are, if you make your payments and you have it long enough. Inflation alone is going to pay for it.
Jon Maddux: It's so true. How do you think needs and mindset are different between the self-employed borrowers and the, and the W2?
Alejandro Szita: They're completely different. The self-employed, the, the W2 borrower comes to you as if he's self-employed. He says, I have great credit, therefore I should get the lowest possible loan. I always say to people, you have credit, you have collateral, and you have income. Out of those three things, income is the most important thing. After income, we're going to look at your credit. And then if it's a single family residence and it's not falling apart, we're going to assume that the collateral is okay. But it's income, the determining factor. They go, oh, well, but my credit is, whatever. I said, no, let's look at your income first. So people that are employed, when they come to you for the loan, they already assume that they're going to get the loan that is advertised, you know, the cheapest possible that is on the news. And it comes to them as a surprise when I, when I want to know more than just their credit , you know. So that's for the employed people. For the self-employed people, they assume that they are like the, that like the, like the W2. They said, well, I'm a business owner, I make a lot of money. Well, my credit has a few things here and there because you find, maybe you agree with me that usually we self-employed people have more dings on our credit.
Jon Maddux: I think you'll see more self-employed people in, in, in a general, general statement that, you know, people who are entrepreneurs tend to focus on their business. Yes. And they, and sometimes they have other people or not handle their bills and so they just, they don't focus on it. And so there could be a slip up where that might happen where like, oh man, I had the money to pay my car, but it somehow, you know, it just, it got skipped. Because I'm so focused on my business, you know?
Alejandro Szita: Also self-employed people like us, we focus on cash flow. . If you have 10 Gs and you can use it to buy inventory, you can use it to do something instead of paying your bills. You go, well, I'm going to be late, but who cares? I'll pay the late fee. But that, who cares? I'll pay the late fee is going to ding your score, you know? And then it shouldn't be that important, but if you're planning on a major decision, then it becomes important. So we end up pretty much helping people with their credit scores. We don't charge for that. We don't advertise it, but usually we get between 20, 50 and on one occasion a hundred points. Just by asking them, because self-employed people have the cash. So just by paying certain bills in a certain order and then keeping their limits as well, you know, all of this. But to answer your question, self-employed people, when they come to us they are under the assumption that because they have the money, they should be able to get the best rate. And it counts as a surprise and a shock. And bewilderment. Like, I remember this client, he's a really good client. He sells tens of millions of dollars. He's a distributor. His income is over a million dollars a year, and sometimes even more. He used to bank and he still banks with a major, major bank. And he approaches them before coming to me and he says , hey, you know can you give me a mortgage? And the bank says, oh sure, no problem. Okay. Begins the process. And he has little things that, in my opinion, are trivial on his credit score. And they say, no, I'm sorry, we can't. He couldn't believe it. 20 years. Relationship management.
Jon Maddux: You know, and they just turned him down.
Alejandro Szita: They just turned him down for something that really, with $40. This is what it cost me. $40. You could fix it. You would think how come someone at the bank with all the resources that they have, knowing the guy, being able to punch on their computers one or two buttons and looking at his balance, how someone but, you know, I guess thanks to them is why we have so much business.
Jon Maddux: That's what I was going to say. If they were able to do it, we wouldn't have those loans. So you do, what about different types of professions? Like, you know, do you ever come across athletes or accountants or, you know, others.
Alejandro Szita: People in the music business? Like you, you know, my wife, she's a songwriter. She's a jazz songwriter. So, and of all the clients, the ones that I personally have connected with, I don't know why on a more intimate level, there have been people in the music business. To me, they're really easy to work with. And they're great borrowers. So not because of design or planning we have gravitated toward, towards people in the music business.
Jon Maddux: Interesting. It's tough for them to get loans sometimes, you know, because the income shifts and changes and you know, they have these huge years and then down years and then, you know, there's different sources of the income, whether it's you know, through like TV film or whether it's, you know, through their, their publishing, you know, income. So it's hard for some people to understand the residual part of that.
Alejandro Szita: But you do very well because you have serviced one of our VIPs, you know, and I'm thankful. I'm thankful for that. Because one of the things is when you look at his income, he has a lot of these deposits, you know , they all come from different licensing and different organizations that pay him royalties. Had I tried to explain that to a regular underwriter, to a regular financial institution, I would've gotten nowhere. But you, I mean, not you, but your staff. They understood it really well.
Jon Maddux: That's great. And I think that's partly why we focus only on non-QM because it's hard. I think it's hard for an underwriter who is constantly doing government loans or Fannie Freddie to change the mindset in between, you know, and like still work on the morning, they'll work on a, you know, I say a regular, a normal loan like a W2 and you know, something that's very down the, you know, and then, you know, in the afternoon you, you get thrown on their desk or into their inbox a, a file that's just super complex. And then it, you know, the natural thing is to like go, wow, you know, this is very hard, difficult. I'd rather all of them be very complex and, you know, have nuances and so that they're used to that kind of thinking. And so that's why we, I think, you know, as a company have, have done, as, you know, we've done pretty well because of that mentality is we have underwriters that understand that they're going to be complex and things like that.
Alejandro Szita: You do a really good job at that. And the other thing is, music, I mean, people in the arts are very creative. They can shift their mindset very quickly. Like you were saying, like if the underwriter was a musician, let's say he could in the morning do a W2 file and in the afternoon he could do a completely different, you know, non QM file. But you, I find that in the lending industry, people are sort of really set in their ways. And it's very difficult to either shift a little, you know. That's another thing that makes it problematic for people in the creative arts to get a loan. Because it's not that they don't have the money, it's just that we tend to be a little too narrow minded.
Jon Maddux: To fit in the box for someone that's creative. What about any other crazy stories that you might have?
Alejandro Szita: Oh, I have so many crazy stories. I had the same day, I remember when I was starting doing loans the same day, on the same drive, actually, I used to live in San Diego. I was driving my car. I have a client call me and berate me saying how bad I was, you know, that I was costing her money. This was terrible. As soon as she hangs up, the next call, oh, Alejandro, I love you. You're so cool. And I thought, wow, this business really has ups and downs, you know?
Jon Maddux: What happened? What was in between that call, that changed, they got turned down by someone else?
Alejandro Szita: Yeah. And it happens, you know, I also have a lot of crazy stories in real estate. But one crazy story I can tell you, and then actually you helped me do this loan. This is a guy who is a famous designer and he's also a music guy. He had all the money in his account to buy the house. He already said, what, why don't you just write a check and buy it? He says, no, I don't want to use all my capital on this. I will want you to get me a loan. But the culture is completely different. You know, he starts his day at three o'clock in the afternoon. He wants to meet you at 11 o'clock at night. He doesn't have the weekend, during the week weekend, it's not part of his culture at all. His assistants are not as capable as he is. He's a really capable individual. And I remember that just to make him sign the loan application, because I didn't really trust DocuSign on this one. I had to chase him. He says, okay, meet me in the hotel at 7:00 PM. I ride, drive there. Then he's not coming. One of his assistants says, oh, he's not coming. Why not? Oh, didn't he call you that he's not going to be there at seven? He's going to be there at 10. So I pick up the call and say, hey man, I'm here waiting for you. Oh, well, I'm sorry. Well, I'm going to be here. I'm not going to go anywhere until you show up. He shows up like around 11 at night. I made him sign a piece of paper. I made him write a social security number. Then it turns out his social security number, he wrote it wrong.
Jon Maddux: Oh man.
Alejandro Szita: I mean, his buyer's agent was going nuts. The listing agent was like, what's going on here? And I was in the middle of all of these forces, you know?
Jon Maddux: Sure kept it exciting though.
Alejandro Szita: But we got it done. He came through. He came to a point, I just gave him an ultimatum. I said, you know what? You come to my office here in Irvine, otherwise this loan is never going to happen. You know, he came, 10 o'clock at night, doesn't matter. We took him to a nice fish restaurant. We had fish. We bonded a little more. That's why if this was not a, this is, if this was only transactional, I could have never done that loan. Never ever in a million years. So that was a crazy story.
Jon Maddux: That is crazy. I was thinking earlier when you were talking about the rates and how they called you back. And they, I was, I remember a very vivid story that I have and, and I'll try to say it succinctly, but my son was with me, and at the time, I think he was probably about 10 or 11 years old. He's 17 now. And I was sitting, I had this massage chair in my office and I was sitting on this massage chair. Son was sitting next to me. And I got this call and I, and they told me their scenario. They told me what they were doing. It was a big loan. It was, I think it was like a $4 million loan, something like that. I knew that no one else could do the loan based on what they were telling me. And I gave them the rate quote at that time, I think it was like 699 or something like that. And they, ah, that rate's too high. Sorry, I can't take it. And they said, you know, thank you anyway. Bye. And I said, I hung up and my son asked me like, what happened? I go, they didn't want the rate. And he goes, oh, why? And I said, they thought it was too high. And I go, they'll call me back.
I knew that they weren't going to find a loan anywhere else. And then the funny thing, it was like 10 minutes later they called me back, and then my son thought I was like, some magician or something, and they called me back and said, you know what? Well, thought it through and we'll take the loan. Like, we'll take that rate. And I was like, okay. But like, that's the thing about when you, you ask the thing, to your point earlier where you were saying, you asked them about their, their situation, you hear their story. You find out, you know, really what they are, are all about, what they want to do, kind of what, like what their intentions are. Why, you know, what their income's like, what they do for a living. Then you kind of create this, like, this kind of a bond, like you were saying, versus, just send me your paperwork or just here's a link, you know, fill it out. And then it just happened, you know.
Alejandro Szita: Oh, can I tell you another crazy story? Listening to you reminded me of this story. So this realtor that we became friends with. Now, this realtor, by the way, we became friends because of this transaction, because of this crazy transaction. He said, man, after this, I'm going to be with you. I said, fine. We'll, and then we've closed a few loans, and then he brings me a loan. He's called me, he called me about a year ago and said, Alejandro, I am hesitating on giving you this loan because this lady has already been for like three mortgage brokers and she's been denied by every single one of them. I don't think this is doable. I don't know if you want to spend the time. And I said, of course, send it to me.
Jon Maddux: I'll take the challenge, challenge accepted.
Alejandro Szita: Take the challenge. So the first thing we did, I said to the lady, hey, I would like to do a zoom call. She accepts it right away, which is unusual. People do, I say, well, that's a good signal. We do this zoom call, and I don't ask her anything. We spent half an hour talking. And I said, she says, well, I'm sorry to have wasted your time. And I said, you know, based on everything you've told me, you qualify. She says, yes, but I've been denied already, like three times. I said, I don't know why, but based on everything you're telling me, this is a doable loan. Are you sure? I said, yes, send me just this and this. As I hung up the phone, five minutes later, this is also extremely unusual, as you know. Information was there in my mailbox. I thought, wow, this lady has some intention.
Alejandro Szita: I reviewed it. I said, you know what? Send me these two, three more things. To make a long story short by the end of the afternoon, which is extremely unusual, I had a full file. Sometimes people don't understand why loans don't happen. It's because sometimes people take a long time to give you the information or they give you pieces or It's incomplete or it's illegible or, or blah. So we start doing the loan, we come to the final crunch. She was a thousand dollars short, a thousand dollars a year, by the way, not a thousand dollars a month. And then I start to think, that's why maybe she was denied. But because we spent quality time. And I said, hey, you said that you have, like, you have adopted like two or three kids, right? She says, yes. And then I go, well, how can you provide for them? Because I see that you, you could, but your finances are really, really at the max. She goes, well, LA County pays me a thousand dollars per kid per month. I said, no kidding. And I said, do you have proof of that? I have all the canceled checks and I have a contract. And I said, can you send that to me? And as soon as I got the phone, boom, it's there. Loan done.
Jon Maddux: You have to be able to ask these questions, right? And dig in. And that's a great success.
Alejandro Szita: Only because of the Zoom call I saw the kids. I said, oh, you have many kids? And she goes, no, they're adopted. You see, that's why Zoom calls are important.
Jon Maddux: Meeting in person and also Zoom calls are very important. That's great.
Alejandro Szita: So this is a very rewarding business. Now, like you said on your podcast, you know, I don't remember the name of the guy that interviewed you, but that was a really good podcast.
Jon Maddux: When I was being interviewed?
Alejandro Szita: You were being interviewed. You know, this is one of my rules. Always before I go on a podcast, I want to listen to two or three podcasts of the hosts. So I have something to talk about, you know? And there is one thing that you said there that I thought, wow, this is so true. You said that you wanted to find out, you know, I don't know how you said it correctly, but you wanted to connect, you know, you don't, you were not just after the transaction. You know, you really wanted to know what was behind. And you also said that it was very rewarding when you did a loan. When you did a loan for the reasons, for the customer, you know? It's not just the commission. It's so, you feel that you are part of the community, and you feel that in your small way, you know, with that loan, that probably in the scheme of things is nothing, but for that person, that loan makes a big difference in their lives. And that gives you satisfaction, that it goes just beyond the commission.
Jon Maddux: True. You think of the trajectory in someone's life. Like, if they buy a house and then how many, you know, 10 years later, that house has appreciated so much. And then what they can do with that money and, you know, they can move up or they can sell and downsize when their kids are gone, and then they can take that cash and use it for whatever and enjoy life, you know? And overall, I don't do loans really as much, you know, here and there, I'll get a loan, but.
Alejandro Szita: No, but you, you created this system, that makes a difference.
Jon Maddux: That's rewarding.
Alejandro Szita: That's rewarding. And let me validate you for that, because when I came back into doing loans, you were not the only company that I called. I did a search, only 5 companies that catered to the non-QM.
Jon Maddux: Back in what, 2016, 2017
Alejandro Szita: No. Beginning of 2021. After the pandemic. Only five companies. Now, your account AE was the only one that called away.
Jon Maddux: Interesting.
Alejandro Szita: That was surprising. You know, and then I think of the five people that I called, weeks later, I got one phone call. So the system that you created, you know, really makes a difference. I don't see that there are many companies that can do what you do. I mean, there are other companies like Impact, for instance. Impact has a division of bank statements and other people. Carrington Wholesale also has a division for bank statements. But they don't, it's like a frame of mind. It seems to me, and I may be wrong, and I don't want to insult those companies, but it seems to me that that's an add on. That's not what they do,
Jon Maddux: That's not their primary focus. It's not their primary focus. And that's what we've always pitched is like, you know, this is all we do. We're laser focused on this type of lending. And so it's almost like being an expert. Like being a ninja or being a, I don't know what to, you know, to compare it to. But like, you're this is all you do. Like, you're just laser focused on it and then hopefully you can do it the best if you do it that way. Right?
Alejandro Szita: Yes.
Jon Maddux: Where do you think the industry's headed? Do you think it's going to loosen up? Maybe we'll get back products?
Alejandro Szita: You know, I am very, how can I say this? I'm sort of the black sheep in a way, you know? I remember, I credit my dad, my dad, I remember many, many years ago when I was a boy, I was reading this in the newspaper, and I said, that is true, I don't even remember, but I remember what my dad said. He looked at me and he said, where did you get that information? And I said, well, I read it in the newspaper. One of the major newspapers in Santiago in Chile at the time, it's like saying that the Washington Post of the New York Times says, blah. And my dad said, he simply said this, he says, do you believe what the newspaper says? And that was a shock to me, because number one, he introduced the idea that the newspaper could be lying. That never occurred to me. I thought that if it was there in this major prestigious paper, it must be true. Somebody must have checked it. He automatically destroyed that idea. And then he introduced the idea that the information itself could be false. I never thought about that. And that unfortunately, like, clicked into me this questioning thing, questioning thing. Also, I've lived in various countries, you know, before coming to the US. So this is what, and I follow this guy that I'm going to, I, I'm not affiliated with him, and you know, he doesn't even know me. His name is Martin Armstrong. From Armstrong Economics. Armstrongeconomics.com. He used to be a super big hedge fund manager. And advisor to central banks and really big, big funds. And I follow his blog. So this is where this information is coming from. It also resonates with everything that I know. I'm a history buff, so I like to look at history. In my opinion, history repeats itself because we as human beings, even though we have all these technologies, like this microphone, these beautiful lights, we are at the core, the same. So we tend to repeat things. In a different way, but basically, we repeat things. So in the world right now, not us in America, per se, but in the world now, the world is crumbling for many, many reasons. This war in Ukraine is the beginning of World War III. All of those things do have an impact here. And also the things that are happening in the US also have an impact. He predicts, not me, he says, Martin Armstrong, that the US is going to split up along party lines. I happen to agree.
Jon Maddux: You know, you mean like, our whole country will be in two different, like physically?
Alejandro Szita: Politically.
Jon Maddux: We're already pretty split as a country. Politically
Alejandro Szita: But he means that completely politically, meaning that it would be United States one, United States two.
Jon Maddux: Oh, like the west and east or something.
Alejandro Szita: Exactly. I can tell you that I lived in 1973 when the communists took over Chile. I remember from 1970 to 1973 when that happened. So even though I was six or seven at the time, I vividly remember that time. I think we're heading to a similar time.
Jon Maddux: Like a shift in the country.
Alejandro Szita: Yes. In my opinion, what I've seen from the recession of 2008, 2007 that you saw, is that lenders get scared. When they get scared, even if there is not really a good economic reason, but simply because they get scared, they tighten lending. Even though they may have the funds, they do not deploy them. So I fear that as we evolve through these changes, you know, through all of these volatile times that are coming, maybe people in the secondary market are not going to want to deploy their capital because of the uncertainty. And that could create a crunch. So that's why I believe that private lending is going to start going up to simply absorb the demand that is still there. You know, people, like you said, people still need to buy homes. They still need to sell homes. You know, that is never going to go away. You know? So that's my opinion that maybe it's going to be a contraction on lending, not because of economic reasons, but more because of fear.
Jon Maddux: I see that, I think that there's, presently, there are people sitting on cash, right? Like there's, you know, for instance, just all these big corporations, they have a lot of cash on the side. You know, they're not, they're not really deploying it. They're not really investing in it. They're sort of keeping it in safe bonds or whatever. They're keeping it in, in cash. And then when the banks all started shaking, you know, then they were probably like, oh, what do we do? We don't want to leave our money in the banks, because then they bought treasuries or whatever they, whatever they're doing. But there's a lot of people sitting on the sidelines with money thinking, you know, what's coming next? What's going to happen? What am I going to do? You know, what, and so I agree that it could get tighter, especially in like the banking side of lending. Hopefully, non-QM and Wall Street will buy our loans. So it's still, you know, you still have to have these big, you know, investment funds and investment banks, that bid on the loans. They still have to be, have an appetite. And, you know, I think we've had non-QM long enough now to where it's been tested and sort of like stress tested and it's, it's been great. Like there's been very limited defaults and, occasionally you'll have a weird default, but like, it's, it's very safe lending. And the rates are higher. Right?
Alejandro Szita: Non-QM in my opinion, is safer than W2 employees. Because if you're an employee, you could be fired any minute. How many people have six months' worth of savings to survive?
Jon Maddux: Very little.
Alejandro Szita: Very little. But if you are self-employed, let's say that your business goes down or you have a reverse. You are creating your income. You can, most self-employed people or most entrepreneurs, you know, yes, they could go down, but then they come back up again.
Jon Maddux: Yeah. So they can turn it back around. They did it before. They started from scratch, they can kind of reset and start from scratch again and do it again.
Alejandro Szita: Exactly. They have total control of their income, whereby, in my opinion, an employee does not have total control of their income. So who's safer to bet? The person that can control their income 100% and make the decisions, or the person that even though he or she may be a good employee, you know, show up to their work and be good, they could be fired the next day not because of their doing.
Jon Maddux: And they might have a higher loan to value, and they might have less money in reserves. Where like, non-QM, you, it's a little higher in reserves you typically require, or you'll require more, more down payment. You know, like a minimum of 10%. So whereas like, you know, Fannie and Freddie's 95, 97, you know, 98 or not 98, but, some people can get like, you know, assistance even with that. So the skin in the game is much lower too. And so I'm hoping that non-QM expands a little bit. You know, not to the point where it's too risky, but to where it just makes sense lending and, you know, I think we'll get, hopefully get there. I mean, you know, I hope we're still some time off from whatever that prediction is that you saw. So you said that he said, but you know, I mean, you see it kind of, you, you can kind of sort of extrapolate from kind of what we see right now happening and just say, well, if it keeps going, this is what's going to happen. But, you know, you always hope for that intervention and something to change, you know, throughout and to hopefully stop some of the bad stuff from happening. And I'm an optimist, but I also question a lot too. It's interesting that you got that from your dad when your dad asked you like, well, there was a quote I think from, Denzel Washington. He said something like, if you don't read the newspaper, you're uninformed. If you read the paper, you're misinformed.
Alejandro Szita: That's a good one.
Jon Maddux: So you put them together. And it's like, well, if you can, if you kind of understand things in life, like you can sort of get, well, you know, the paper's saying this, but you know, there's some things that maybe are a little, you know, I don't know. It's a wild ride that we're on now in this, it is in this market, in this economy. What about bank statement seconds? I know you've done some, right?
Alejandro Szita: Yes. I think it's a wonderful idea. And like you said on your podcast, it's a miracle. I don't know why other people have not done it. But, you know, I cease to ask my question before, I always, always ask myself, well, why is someone else not doing it? That's a preposterous question to ask because they're not going to do it.
Jon Maddux: Right. Yeah. They may eventually, you know, once like, you know, there's always the leaders that charge out and go do something, right? And then you have the people that follow or they hear, oh, oh, so-and-so's doing really well at their ABC lending shop or whatever. And it's like, oh, maybe I should do that too. And then, you know, then they're going to follow and then they're going to do it.
Alejandro Szita: I think, I think that that program is wonderful, especially for entrepreneurs and especially like you say, you know, for cash flow needs for business grow needs, and they don't want to touch the first, nobody wants to touch first if it's a two point, I think the lowest that we did was 2.1. The guy qualified for 1.7, but then I did a whole analysis for him showing him that he would be better off at 2.1. In his case, he was better off.
Jon Maddux: With like buy downs or what?
Alejandro Szita: No, no, because, he didn't want to, he, the bank was going to kick in a little bit of credit. And then his closing costs were not going to be that high. And in this whole scheme of things, you know, projecting over years and years, he was better off with a 2.1. That's the lowest that we ever did. If you have a loan at 2.1, of course you don't want to touch it.
Jon Maddux: Free money.
Alejandro Szita: Exactly. Free money. Completely free money. Inflation's going to pay that in double time. So the idea of the second with the bank statement, it's an amazing idea.
Jon Maddux: I keep thinking back to those thoughts of like, why aren't more people doing it? You know, these people have these 25% credit card rates.
Alejandro Szita: You know, you know, one of the reasons that it could be, you're right, you're right. You're so right. Sometimes people say to me, Alejandro, but this thing is 9%. And I go, hey, if Amex came right now on your door, American Express, and said, we're going to give you a charge card for 400,000 and the interest rate it's going to be 9%, what would you say? Visa charges you 24 or 18, 15, whatever. Amex can see 9%. Would you take it? Oh hell, I would. Well, this is the same thing. This is your Amex. But it's not called Amex. It's called fund loans..
Jon Maddux: So true.
Alejandro Szita: It's just a matter of perspective because they go, you see in their minds it's a mortgage. In their minds the mortgage is 3%. And now the mortgage is nine, but this is not how the second works.
Jon Maddux: You can't think of it that way.
Alejandro Szita: The second is not really like that. The second is more like a credit card. So think about 25, 15, 12, 11, I mean 10% for a credit card will be a pretty good rate.
Jon Maddux: Doesn't exist.
Alejandro Szita: Doesn't exist. Even if you have the super 800 credit.
Jon Maddux: True. I think it's, it's building and we're doing, we're doing a lot of seconds. So I think people are doing them, it's just, you know, it's, I think also they think of there's, there's no money to be made. You know, mortgage brokers think there's not much money to be made when you can charge a couple points. You know? And you know, I think when you've done points in your history, like when I started in the mortgage business and I did ten and a half rate and six points.
Alejandro Szita: Oh my God, I heard that.
Jon Maddux: Like, like to me, two points is easy to sell. Like you just have to learn how to sell it, you know?
Alejandro Szita: When I started in the mortgage business, we used to make three points and then one back from the lender in the back end. So when I heard your podcast and you said you were making 10, and I go, oh my God, I should have started this business earlier.
Jon Maddux: I mean, and when I was at the, when I first started, I didn't get to, that wasn't my commission, it was to the lender. And then I got my, I think I got 1% of that. I didn't, they didn't even give me six. It was like literally just part of the thing I had to sell. I didn't know better, you know, and that's just what the rate was and that was what the points were. And I just said, you know, I'd compare what they had now and what they had, and this option and this, this was better. So you'd sell that, you'd sell the benefits.
Alejandro Szita: But you know, another thing that we do is because we're licensed by the Department of Real Estate, we have to produce that disclosure of how much money we're getting, how many points. I start my conversation by saying that right away. We make two points or three or whatever the number is. And this is how much money we're going to make. And if they say why? I say this because originating loans is very expensive. To get you to talk to me and do this, through all the people, I have to go through everything I have to pay just to have this conversation. This is really expensive. So this is why it costs this way. And you're going to pay it either to me or to the bank. They said, and they go, how come? Because I can give you a no points loan too. But instead of being this, it's going to be that. But now you're going to pay it to the lender and then the lender is going to pay it to me.
Jon Maddux: So they get their money one way or the other. Always. Any last crazy stories you want to share? Something you haven't shared yet?
Alejandro Szita: There are probably more crazy stories. I think that you have more crazy stories than me because you've been in this business longer. And at a much higher volume.
Jon Maddux: I have, I've had borrowers go to jail before they closed the loan. Like they, and I was still like, couldn't they sign the docs in jail? And they said, no. And they went to try to go sign it and then the notary wouldn't take their prison ID because they got their license taken away because it was a DUI or whatever.
Alejandro Szita: No kidding.
Jon Maddux: I mean, stuff like that. And just, you know, other times when the borrower would sign docs and then, you know, you, they'd never, like, they, they'd sign docs and then they'd disappear and you're like, where's the borrower? Like, they won't answer my calls. I just need one document to find. And they wouldn't, they're gone. And you're like, what happened? You call the morgue and they die. It's just crazy stuff like that. And you know, it came down to us going, what the, what in the world? They wanted this loan so bad and then this was so unlike them. And so it was so out of character, that we were like, well they're not, I mean, we checked the hospitals, they weren't in the hospitals. They didn't have any relatives that we knew of, or his phones were, you know, all shut off and they went, they were going to voicemail. So we were like, the last thought was like, well, you know, we got to check the morgue and sure enough, and we were just blown away. We were like, wow.
Alejandro Szita: That's crazy.
Jon Maddux: I remember that. And you know, you're sad obviously, but you're also bummed that you didn't, you know, you're, you weren't able to make a commission obviously, that you were counting on it. It was already signed and ready to fund. But like, obviously it's just so devastating when, you know, something like that happens.
Alejandro Szita: You know, this is something that I noticed in this business in real estate including loans, if you cannot count your chips until the transaction is done. At the beginning, when I was a rookie, I used to calculate my commission and then I never did it. My wife said years ago, how much are you going to make in this deal? I said, I don't know. She says, how come you don't know? That's impossible. I said, I don't know because on purpose, I don't want to figure it out because if I do, it's going to cloud my judgment. And we might not even get it because if the person doesn't close, then we don't get anything. So that's why I don't calculate my commission anymore.
Jon Maddux: Don't count your eggs before the hatch.
Alejandro Szita: After hearing that about the guy that died. That is so true, man.
Jon Maddux: I remember, someone giving me advice early on there, like never, you know, young and married, just newly married and the mentor, the mortgage guy that was mentoring me, he's like, never tell your wife what you're, what you think you're going to make this month because she'll hold you to it. And if you don't make it, then she's going to be upset. Or not upset, but just disappointed or just, you know, whatever. And, and if you just say, you know, you don't know or like you way underestimate it. And then if you close all the deals then you know, surprise. It's like under-promising, over-delivering. It's like, yes. That was the best advice I think I ever got. Because you know, it's, you get all excited about your pipeline and all these loans are going to close and stuff falls out and then, you know. It's, it's funny. And I think those are the, some of the early lessons that mortgage brokers have to learn is when they're, they get into the business and they get all excited because then they count the money, you know? And then, and then when it doesn't, then it's such a huge disappointment.
Alejandro Szita: I know, and that's why coming back to what you were saying at the beginning, the most important thing is the relationship. Because once you have the relationship with the client, you can, you can both navigate all those problems and come to a close. So the time of the borrower and your time are not wasted and they both get what they want. But I do what you say to, even with borrowers, I overestimate, I mean, underestimate and over-deliver. Because there are things that even though you've been in this business a long time, and even though you can more or less forecast where it's going to be, until the deal is closed, you don't have complete certainty. It's better to not promise so much.
Jon Maddux: That's good. Any shoutouts? Anyone's helped you along the way?
Alejandro Szita: Yes. Well, my dad, like, you know my dad instilled the actual habit of critical thinking. I'm very, you know, that was great. My mentor, his name is Ernie Farhad, on the westside of LA, the best broker. Commercial broker. And one of the lessons, one of the many lessons that I learned with him, is to always take the high road even when it doesn't work in your favor. And cultivate relationships because that's how he does business. He does business pretty much through relationships only. And he always takes the high road and he's always very meticulous. He's the one that really taught me how to read. And this is not necessarily for mortgages, this is for commercial real estate transactions, how to really check the escrow statement every single time, line by line, how to read a preliminary title report, what it really means. How to dispute title items when needed. And why, you know, I mean, it sounds a little arcane, but he had crazy clients and he had crazy situations. And I applied the same thing today on my own, on my mortgage practice. You know, when I get a borrower And I get the preliminary title profile. I read it from top to bottom. And I see many times things that I start to immediately correct. Even though technically it's not really my job to do. I do it anyway. You know, I check the escrow statements line by line because mistakes are committed. And so he was invaluable in that experience.
Jon Maddux: I think what I'm getting at, what you're saying is that you just need to be thorough and you, and, and you need to really like to become an expert in your business and learn, never stop learning. You know, really. And then you care about your clients. You know, you're spending, you're taking effort, time to really know your borrower, to really know the transaction, to really know, you know, that way that client, you know, is taken care of. At the end of the day, it's taking care of somebody and making sure that their experience is a good experience and is going to be something that is going to last and close.
Alejandro Szita: And the loan goes well.
Jon Maddux: There's no surprises. When you've already read the title, when you've looked at the appraisal, when you've looked at the credit report thoroughly, and then you've also looked at their income thoroughly. There's you, the underwriter brings something up, you're like, oh I know that. And then, you know, you explain it and you get through it versus like, oh, I didn't know that. Surprise to me.
Alejandro Szita: But it goes even further than that. You want this person to be able to pay the mortgage. You don't want six months of whatever many months to get a call saying, hey, this guy is defaulting.
Jon Maddux: That's a horrible call to get.
Alejandro Szita: It's a horrible call to get. Now I didn't know this until I started to sign all these agreements, like with your company, but many brokers don't know this. You are responsible if the guy can't pay, you have to buy that loan back. You don't want to be in that position.
Jon Maddux: You don't want to be in that position. And unfortunately, it's happened where I personally have had to call a broker and they're like, why is your borrower not paying? And they're like, oh, I didn't know. And then they go in, they have to, to contact them and oh, you know, they were on vacation in Aspen and they just da da da da. They don't, you know, they just didn't know, they didn't get the, they didn't get the statement or whatever. And so then hopefully they pay, but then sometimes still they don't pay. And you're like, and as the CEO it's like, I'll do it. I'll do, I'll call that borrower or the broker. I can't call the borrower because they're not our customer. But I'll call the broker and just be like, come on man, like this is an important deal and I'm not going to, you know, pull your feet to the fire, but if you don't help me, then that's what I have to do. You know? So, and they usually, they've helped, you know, so it's usually, knock on wood, it's been a good, good experience, but you know, sometimes loan officers will leave the company and they'll be gone and you won't be able to find them. And then you have to, you know, escalate it to their broker and, you know. But you know, luckily non-QM, like you said, and we said earlier, is a safe business. I mean, you're seeing what they're, especially on those banks' names, you're seeing every detail that they've got, how they spend their money. You know how many times they go to Chick-fil-A.
Alejandro Szita: Exactly.
Jon Maddux: Like, or whatever it is. You dig in and deeper than you would if you just saw a W2 and a pay stub.
Alejandro Szita: Plus the other thing that I say also to people is if you're self-employed, if you're a business owner, the tax bill, the tax return is a bill. If you are an entrepreneur, what do you try to do with your bills? You try to reduce them. So that's not where you want to see how much money the guy really makes.
Jon Maddux: That's a good point. I like it. Well, this has been fun. I appreciate you coming on the podcast.
Alejandro Szita: Thank you, John. It's a pleasure meeting you.
Jon Maddux: Yes. Absolutely. And thank you for listening. And if you made this far, I would guess that you like this podcast. So tell your friends about it. Come on. Share this podcast. That's the way we grow. Also comment, please let us know if you want to hear any other guests or if there's anything else that you like, that you don't like. We're here to help add value to your business and to you guys as your, you know, in your mortgage career. So thanks for listening and we'll see you on the next one. Cool.
Alejandro Szita: Awesome.
Outro: The Million Dollar Mortgage Experience Podcast.
