"The Bloomberg Money Show," WBBR AM, New York,
January 24, 2002

Tapping the Equity in Your Home with guest, Michael Moskowitz,
President of Equity Now, Direct Mortgage Lender

MODERATOR: As the Bloomberg Money show continues for a Thursday night, the topic for the hour - we are talking about tapping the equity in your home. Michael Moskowitz with us for the hour to answer your home equity and lending questions. He's the founder and president of Equity Now, a direct mortgage lender that's been around since 1984.

Good evening, nice to have you with us on the Bloomberg Money Show.

MICHAEL MOSKOWITZ: Thank you.

MODERATOR: Let us begin with a look at your business. Tell me a little bit about your client base. When we're talking about direct mortgage lending, just who are your clients?

MM: Our clients are mostly people who are not your plain vanilla borrowers, not cookie-cutter situations. If you are a cookie-cutter borrower, you can walk into Chase, walk into Citibank and argue about whether you should be getting 6-1/4 or 6-3/8 or 7 percent. Our borrowers are people who maybe had some credit difficulties in the past, possibly borrowers who need something out of the ordinary. Maybe they need a $700,000 loan that needs to close in five days and the price for that wouldn't be 6-1/2 but it would be probably 7-1/2 or 8 percent. Somebody who is self-employed, can't verify their income, somebody who doesn't have a long credit history.

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MODERATOR: How is it determined how much equity you have in your home? Can you get your home reappraised to see if your home is worth more than you thought it was before?

MM: Yes. The place to get an appraisal is from our state licensed appraiser, not from a real estate broker, who has their own interests in mind such as trying to possibly get you to sell the house through them.

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MODERATOR: What's the difference between what you do and what a real estate broker does?

MM: Well, we're a lender. We actually lend money to people and we have our own portfolio. We are sort of like a Citibank except probably a thousand times smaller.

MODERATOR: And with a very different client base, as you point out. There is plenty of competition out there among lenders and people who would like to be in your business. Can you just tell us a little bit about the difference between mortgage brokers, mortgage bankers and other direct mortgage lenders?

MM: The main difference between mortgage brokers, mortgage bankers, mainstream banks is that a mortgage broker is just that. They're a financial intermediary, they don't have the ability or the license to lend money. Many people, unfortunately people ... investment bankers, attorneys, don't even know it. They think a mortgage broker is somebody who gets them a loan. Well, they don't. They merely introduce them to a lender.

A mortgage banker is licensed by the state. In the case of New York State, the banking department licenses mortgage bankers to make loans on houses. Depending on the capital they have, the financial strength and their ability in the markets, that is how capable they are to loan, to meet your needs. And of course, the mainstream banks are mostly for, as we said before, people with perfect credit.

MODERATOR: All right. Let's go to the phone lines. Maria from New City, you are on the Bloomberg Money Show. Maria, good evening.

MARIA: Good evening, hi. One question, I was wondering are you an equal opportunity person? Because when you had started the program, you mentioned about you don't give to the ordinary vanilla cookie-cutter type person. What did you mean by vanilla?

MM: I meant by that somebody who has perfect credit, perfect employment history, somebody who is, you know, just a perfect history. Now, we do have the ability to do those loans and we do make those loans but that is not the primary area, that's probably 10 percent of our business.

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MODERATOR: Thank you very much for the call. Let us continue with more of your calls now on the Bloomberg Money Show. We're going now to Ed from Pascataway, New Jersey. Good evening, nice to have you with us on the Bloomberg Money Show.

ED: My question is I'm ... new construction in April and I want to know how soon after I close can I open up a home equity line of credit to use as a security blanket and is that a good idea? Not to borrow against it, and if I do that, how much would that cost on an annual basis if I don't borrow against it?

MM: Ed, I think that's an excellent idea and you can do it the next day. It sounds to me like you have good credit?

ED: Yeah.

MM: You're probably best off shopping around the big banks, looking at the ads and, you know, prime being about 4-3/4 percent, you probably can get some people to do the closing costs at no cost and just have that security blanket, as you said. You could do it the next day after closing, it's a great idea.

ED: Okay, I don't have to wait for my deed to arrive or anything like that?

MM: No, not at all, because the title company is going to have you as the owner. If you use the same title company, it'd be so much simpler.

MODERATOR: Thank you very much for the call, we appreciate it.

MODERATOR: Welcome back to the Bloomberg Money Show. I'm June Grasso here with Charlie Pellet and we're talking with Michael Moskowitz who is the president of Equity Now, he's a direct mortgage lender and we're talking mortgages, home equity, what you should do, what you shouldn't do, what's dangerous to do. Let's go right back to the phones. Yassir from Aberdeen, New Jersey. You're on the Bloomberg Money Show. Good evening.

YASSIR: Good evening. I like your show.

MODERATOR: Thank you so much. Do you have a question for us, or just compliments?

YASSIR: I have a question, too. Actually I bought my house two years ago and I'm trying to refinance now because of the low interest rates. But when I bought my house two years ago, it was explained to me that part of the closing fees, that type of insurance, is to insure that this house is not owned or was not owned by anyone. So my question is if I'm doing refinance, which basically means I'm buying the house for myself, why do I have to pay for the title insurance again?

MM: In New Jersey, you can get a refinance rate which will be a 50 percent discount. That's the good news. The bad news, you have to pay it again because the lender that is lending you the money now has not been insured before. If you go to the same company, you should - who's your mortgage holder, do you know off hand?

YASSIR: Cendant Mortgage.

MM: If you talk to Cendant, ask them about doing a modification for you. You should be able to save a lot of fees.

YASSIR: I did that and they only said that they're going to waive the appraisal fee. But that's very much it.

MODERATOR: Yassir, we have a lot of people who have called when we've done other shows on the topic of mortgages and whether you should refinance. Usually the experts say, you know, you have to factor in before you decide to finance, the fact that you're going to have all these fees to pay and whether it's worth it for you to refinance. So that becomes part of it. So you're not alone.

YASSIR: Okay. Well, thank you.

MODERATOR: And thank you for the call, sir. Appreciate it as always.

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Want to go now to Queenie up in New Rochelle and good evening, you're on the Bloomberg Money Show.

QUEENIE: My question is I have about $90,000 equity in my home. I would like to buy another home for investment purposes. Would I be able to use the equity to do that?

MM: How much is your house worth?

QUEENIE: It's worth 240.

MM: Okay, and you have a mortgage for 150?

QUEENIE: Well, no, now my mortgage is 110 but then I took out a second, I refinanced with a different company, an open line credit because I had work done on the house.

MM: That's about 40,000.

QUEENIE: Right. That's exactly.

MM: Depending on your credit, you can go up to as much as 216, which would allow you to take out about 66,000. Is that what you're looking to do?

QUEENIE: Yes. Now, could I use that 66,000 to finance another house for investment purpose?

MM: Yes, just when you go for a mortgage application, just put down purpose of loan, investment.

QUEENIE: Okay, now do they take your salary in consideration when you do that?

MM: Well, you have to go step by step. The first step is you refinance your house, you take out the money. Then the next step is you apply for a mortgage on the new house. They will take into account on the new house the rent coming in and your salary and your current expenses. You need to sit down with somebody in person. This is at least an hour's work that you need to do - look at your credit, look at your income.

MODERATOR: Queenie, good luck. Thank you very much. Hope it works out for you. Queenie from New Rochelle, appreciate the call. We've got the president and founder of Equity Now, Michael Moskowitz, with us. More of your calls coming up.

Thank you for listening to the Bloomberg Money Show on this Thursday evening. June Grasso here with Charlie Pellet. Right now we're talking about home equity, tapping into the equity in your home, getting mortgages and refinancing with Michael Moskowitz of Equity Now.

We are going to go back to the phone lines now. Judith from Queens, you're on the Bloomberg Money Show Judith, good evening.

JUDITH: My question is as follows. I live in a co-op, I bought the apartment on auction. At the time, it was very, very reasonable. Five and a half rooms. I pay $1,100 a month maintenance. The value of the apartment today is about 210, 220. I'm in my early sixties and I'm wondering if at this point in time, I would be best off taking some type mortgage or possibly selling the apartment and moving into a rental. I don't need this large apartment, I'm by myself, and what, Mr. Moskowitz, you would recommend.

MM: The maintenance is high. What I would suggest to you is, do you have a good CPA, a good accountant?

JUDITH: I think so.

MODERATOR: You never know until there's a problem.

MM: I would suggest looking at scaling down your lifestyle, sort of buying something maybe for 100,000. Selling it, reinvesting it, you would have certain tax benefits as opposed to just moving in, putting the money aside.

MODERATOR: Because if you take out a home equity line of credit to be used for the maintenance fees being high, you're losing there and you have to pay that back.

JUDITH: Well, I don't need it for my maintenance. I was thinking in terms of having X number of dollars and possibly investing it, wherever, and get a high rate or a higher rate than what I would have to pay on a loan.

MODERATOR: You know Judith, a lot depends on you and how happy you are in that apartment and whether you're willing to move to a different apartment or not. It sounds like you got a great deal on it and you can probably do well on it if you sell it.

JUDITH: The question is, you know, nobody knows. Is this the high time or is it worth holding on to perhaps a little bit longer?

MODERATOR: That's the question that no one can answer for you.

I just want to say that we frequently do shows on real estate here on the Bloomberg Money Show and I would invite you to both listen and call in the next time that we have somebody from the brokerage industry on here, specifically to talk about home valuations and perhaps they can help you a little bit further with your dilemma. We've got to move along, but thank you very much for the call tonight. We do appreciate it. Judith from Queens, but she raises an interesting point that I just want to have you address, Michael, and that has to do with the fact that she is in a co-op. Does that in any way become more of a consideration, co-ops and condos, when people come to your trying to get home equity loans?

MM: It does become more of a consideration.

MODERATOR: Because the co-op board gets involved?

MM: Five different reasons. Condos are pretty much like houses - 90 percent is easy to finance. As you said, the co-op board gets involved and they need to give permission for the owner of the shares to borrow money, which to me is kind of -

MODERATOR: I can understand that, though, from the co-op's, from the building's perspective. I do understand that. Maybe you have an issue with it, but I understand the reasons for that.

MM: Okay, well, the borrower owns the apartment and they need somebody else's permission to borrow against their own property - almost un-American. But it's just my personal opinion.

MODERATOR: All right. But I understand the reasons.

MM: But co-ops are much more difficult to lend on because most of the loans that are made are sold into the secondary market. Co-ops is basically a New York phenomenon, Maryland phenomenon. The secondary market for it is much smaller, it's much more difficult to make a loan. If we make a loan at 90 percent loan to value on a condo or a house, the co-op will be probably be 80 percent. We're much more conservative on co-ops.

MODERATOR: I would think that most people - I know when I owned an apartment in New York, I owned a condo - I would think that most people would prefer a condo to a co-op but unfortunately, in Manhattan a lot of times you don't have that choice. You don't have a huge range of options if you want to have a condo.

Part of the reason we don't have a choice of options is because the prices on condos tend to be a lot more than the prices on co-ops for a number of reasons and one is, you don't have to deal with the co-op board. But anyway, let us continue with more of your calls. We go now to Frank from Staten Island. Frank, good evening. Nice to have you with us on the Bloomberg Money Show.

FRANK: A question for you. What is the difference between a home equity loan and I guess you call it a home equity line of credit? And what are the advantages and disadvantages of each, if there are any?

MM: The difference between a home equity line and a home equity loan is a home equity loan is basically a second mortgage on your house with a fixed amount that you take out in the beginning and a fixed monthly payment for 15 or 30 years. So let's say you borrow 50,000, that's what you have. A home equity line is a credit card with a checkbook attached to it. So let's say it's a $50,000 line, you will have five or 10 years to draw on it and pay back. If you are self-employed or if you have varying needs for money - let's say you need to pay college tuition but then you think you'll pay it back - I would recommend the home equity line.

FRANK: On the home equity line of credit, I was told that if you draw on it, you only pay back the interest in the first couple of years. Or you can wait like the 10 years that you have the loan and then pay the principal, stop paying the principal after the 10 years?

MM: That's correct. Usually you have a five- or 10-year drawdown period and then you have 20 years or 25 years to pay it back.

FRANK: Wouldn't that make the payments extremely high if you wait the 10 years, just basically paying interest the first 10 years?

MM: No. Usually you have a 20-year payback period after the 10 years. But you enjoy 10 years of borrowing. Let's say you have a $50,000 line, you only borrow 30,000, you don't have to pay the interest on the other 20.

FRANK: Right. Just one more question if I could - would you suggest if I currently have a home equity loan outstanding right now and I have another seven years to pay on that, we wanted to borrow some more money from the equity in our home to do some things around the house. This person that I was talking to suggested that I take a home equity line rather than refinance my current home equity loan. What would you suggest?

MM: Well, you have a first mortgage and a second mortgage?

FRANK: Yes, I do.

MM: And how big is your second mortgage?

FRANK: The second mortgage is 15,000.

MM: Okay. So it's not that big. How much do you need to borrow now to do things around the house?

FRANK: We want to borrow another 15,000.

MM: I would say get a home equity line. Now, you see the home equity line is an adjustable mortgage, so you really have to sit down with your wife I guess and look at it if you're comfortable to pay. See what the caps are, see how high it could go up and compare it to a fixed-rate second mortgage and see what are the payments on that and see what you're comfortable with. The decision is yours and whatever you're comfortable, that's what you should go with. You should sort of sit down, sleep on it for a day or two and then make a decision. Don't let anybody tell you, what you and your wife decide, that's what it is.

MODERATOR: Okay Frank, thank you very much for the call. We will continue with more of your calls.

We are talking about the equity in your home with the president of Equity Now, Michael Moskowitz. More on what you should do with the equity in your home, if anything.

Welcome back as the Bloomberg Money Show continues. Right now we continue to take your calls having to do with tapping the equity in your home or co-op or condo. Now, for our guest Michael Moskowitz and let us go to Joe from North Plainfield, New Jersey. Joe, nice to have you with us this evening on the Bloomberg Money Show.

JOE: My question is, I have a discharged Chapter 7 bankruptcy six years ago and my scores are in the low 600s. My house is worth 345 and I owe 275 on it. How much of my house can I borrow a loan to value? Or a home equity line?

MM: When you say your score's in the low 600s, is it 620 or below that?

JOE: It's right around that, I think it hovers a little below, maybe 615.

MM: Well, depending on the lender that you go to, I know we would extend depending on your income and job stability, we would extend 90 percent.

JOE: If I wanted to get a lender that will give 100 percent?

MM: A hundred percent you would need at least a 640 score in my opinion. It depends, you know, some lenders would go more aggressive. But at least 620 and more likely 640.

JOE: Okay. So basically 90 percent is what you're looking at in terms of lending in that situation.

MM: Yes.

MODERATOR: Michael, can you explain the differences - you know, it seems like 615, 620, 630 - what the differences. The numbers seem not that far apart. But obviously they are quite different.

MM: Yes. Firstly, the credit score is a numerical analysis and prediction by the companies that produce is, ... Isaacson and others, of your ability to repay the loan. So as a lender, you're looking and saying - it's on a scale from 1 to 1,000 but most people are between 500 and 800. We had a caller before who had 800. That's excellent credit. Fannie Mae and Freddie Mac, their official limit is 620. So the industry goes with that standard of 620 and that's where 620 comes in, Fannie Mae and Freddie Mac.

MODERATOR: So that's why 620 is the in the ballpark you're looking for.

MM: The next break is 640 and 660. Based on hundreds of thousands of mortgages, that is the ability to repay at those rates.

MODERATOR: All right, thanks so much. Thank you for your call, Joe. Our next caller is Greg from Port Jefferson, New York. You're on the Bloomberg Money Show.

GREG: My question is this. I have some credit card debt I'm looking to get rid of and I own a home, I have a fixed-rate mortgage, 30-year at 8-1/8. Now everybody's telling me I should refinance my mortgage. However, I was considering a home equity line of credit. But I was wondering what do you suggest I do. Do you suggest I refinance the mortgage and reduce my mortgage costs and try to pay off some of this credit? Or should I try to get an equity line of credit?

MM: Greg, can I ask you a few questions. How much is your house worth?

GREG: 230.

MM: And how much is your mortgage outstanding?

GREG: 172.

MM: And your credit cards outstanding?

GREG: My credit card debt is around 15, 16,000. It's making it difficult for me to pay my bills, you know what I mean?

MM: Yes. Well, what I would suggest to you is you should be able to get right now - do you know how your credit is? How is your credit?

GREG: My credit is very good.

MM: Okay. If your credit is very good, you should be able to get a 30-year fixed, probably in the 7, 6-7/8, 7-1/8.

GREG: What does that shave off my mortgage?

MM: That's 1 percent, it would shave off probably -

MODERATOR: All right, we're going to make you do the math, Greg.

There are mortgage calculators on the Internet where you can get that information.

MM: Probably 140 bucks a month. That will help you. Of course you're going to need to borrow more to pay off the 15,000. But I think if you sit down with two or three different people, so you get the right thing done. But you should be able to make out well.

MODERATOR: Just one quick question for you before we go to the next call, though. It may sound obvious you've good credit. Did you go ahead and at least try to call the credit card companies, trying to get a lower rate on those credit cards?

GREG: They're pretty low right now.

MODERATOR: Okay. Enough said on the topic, then. Thank you very much for the call. We welcome your calls. The Bloomberg Money Show with Charlie Pellet and June Grasso and our guest for the hour, Michael Moskowitz and he is with Equity Now. A quick question for our listeners who want more information, is there an 800 number that we can call where we can do business with you or call and ask our questions.

MM: Yes, you can call 1-800-692-LEND, which is 1-800-692-5363.

MODERATOR: All right. Well, thank you very much for being with us tonight on the Bloomberg Money Show. Appreciate it as always.