The Art of Owner Financing – Part 1

Mike: Welcome to the flipnerd.com podcast. This is your host, Mike Hambright. And on this show I will introduce you to VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories and experiences can help you take your business to the next level. We have three new shows each week which are available in the iTunes store or by visiting flipnerd.com. So without further ado, let’s get started.

Mike: Hey. It’s Mike Hambright, with FlipNerd.com. Welcome back for another exciting VIP interview, where I interview some of the most successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.
Today, I’m joined by Mitch Stephen, who’s flipped over 1300 houses, many of which he’s owner financed. Mitch is an investor. He’s a songwriter. He’s an educator. He’s the author of a book, which we’ll talk about, “My Life & 1000 Houses,” which is more than that now. So we’ll get into that.
Owner financing is a very powerful tool, and it’s really shocking how many people aren’t doing it. Mitch is a pro in this space, but there definitely is an art to the whole thing. So today, Mitch is going to talk to us about the art of owner financing. Before we get started though, let’s take a moment to recognize our featured sponsors.

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Hey, Mitch. Welcome to the show.

Mitch: How you doing, Mike?

Mike: Good. Good to see you again.

Mitch: It’s a pleasure to be here. I’m excited.

Mike: Yeah. Yeah, I’m glad you’re here. So before we get started with the topic of the day, owner financing is so powerful. I mean, it’s something that I never do, and I think about it all the time because there’s really no real good reasons as to why I don’t do it. But before we get started, you have a rich history, a ton of experience. Why don’t you give us . . . spend a few minutes giving us a little bit about your bio and your background?

Mitch: Well, I’ve been in San Antonio since 1973. I’ve been self-employed since 1996. You know? A long time. I’ve been in the same exact space, creative real estate owner financing, for all that time. I’m the author of a book called “My Life & 1000 Houses.” That and $5 will almost buy you a cup of coffee at Starbucks.
It’s not a how-to book, by the way, but it’s what happens after the get-rich seminars and what really happens out there. It’s a book about falling down. As a matter of fact, the subtitle is “Failing Forward to Financial Freedom.” I’ve purchased well over 1200, 1300 houses now, and I’ve owner financed almost all of them. I’m an expert at creating notes.
These days, I don’t need to sell those notes, but I’m an expert at selling those notes without a discount to private people. I’m also an expert at raising private money because I buy all my houses with private money, with the possible exception of the cash I have in my IRAs and 401(k)s.
I’ve used flipping houses, owner financing houses, to create my wealth. I bought over 16 mini storage and boat storage facilities with the money that I made, in the name of forever money, because you got notes, and they’re going to have an end.

Mike: Right.

Mitch: That always kind of bothered me. So I have to do something at the end of the day that’ll go on until I die. So I didn’t like landlording or being a landlord until I came upon boat and mini storages, and now I’m a landlord for people who just store their stuff at my place.

Mike: Yeah.

Mitch: I have 1100 doors, and they average about $9200 a door, and they send all their payments to my mailbox at my house.

Mike: That’s great.

Mitch: Can I share a victory with you, Mike?

Mike: Yeah. Yeah, and there’s no toilets, or maybe a few, but not many.

Mitch: There’s none.

Mike: None.

Mitch: I have none. Yeah, my victory . . . The mailman came to my house about two weeks ago, and he said, “Mr. Stephen, you’re going to have to get a bigger mailbox.” I got on my knees and did the . . . I have waited years to hear those words. You have arrived. I have arrived. The whole thing has arrived. So I have to get a bigger mailbox.

Mike: Sounds like a good problem to have.

Mitch: Well, that was the goal. Right?

Mike: Yeah.

Mitch: Was to get money coming to your mailbox.

Mike: Yeah.

Mitch: It only took me 20 years, but it worked.

Mike: Yeah. Yeah. Well, so we’re going to talk about seller financing today and owner financing. You know? It’ll be interesting to kind of hear your take on it. This is something that’s clearly always worked, probably now more so than in a long time, to where there’s just some folks that are never going to qualify to buy a house again, but that doesn’t mean they shouldn’t own one.
But kind of give us just the backdrop on why you got started with owner financing versus . . . Most people don’t specialize like that, if I call that specialize, until they have some experience with wholesaling and rehabbing, and they start to realize, “I can make money on the financing part of this too.” That’s my hunch, but you kind of went right into it. So what got you into it? What kind of got you out of the gate to start doing this?

Mitch: I’m not smart enough to figure all that stuff up . . . to figure it all out upfront. I have to get hit in the head with a bat before my light goes off. What I started out to do was to be a landlord, and I got to about 25 houses, when I realized . . . I was on the road 90 days at a time in a previous life, doing something else. I was trying to get off that road. I told myself, when I had my income coming in from my rent houses, that I’d quit my job.
I got to 25 houses, and on paper I was supposed to be making $7500 a month at the bottom line. You know? $300 a house, times 25 houses, times 12 months. You know?

Mike: Yeah.

Mitch: I really only needed, at the time, about $4500. So I was thinking there’s going to be some expenses. So I was almost double. You know? I had $3500 to handle expenses so I could clear what I was making on the road. Well, it turned out at the end of the year, after I quit my job; I wasn’t making any of that money.

Mike: Yeah.

Mitch: I was making nothing. I mean, I was even losing money because the tenants were just killing me. So I actually wanted out of the business, but no one who lived in the areas where I had houses could qualify for a loan. So I got in a panic, and I went . . . For the first time in my life, I went to seek help from a mentor guru kind of guy in my town. He just said, like he knew I was coming, “Just owner finance them. Take as much down as you can from each one. Keep the payments about the same as the rent. Then you’ll be clearing the money you’re supposed to because you will have dropped all those liabilities.”

Mike: Right.

Mitch: So within about 60 days, I had converted all of my renters to owners. On average . . . Because I didn’t believe I wasn’t asking for much money. On average, they gave me an average $3000 a house that they gave me for a down payment. Well, multiply $3000 times 25 houses. How much did I have in the bank, Mike? $75,000.

Mike: Yep.

Mitch: That was more money than I’d ever seen, and it wasn’t a landlord deposit. It was my money.

Mike: Right.

Mitch: Now, I’m collecting about $300 a house. Now, I’m making that bottom line.

Mike: Yep.

Mitch: I was making what I was supposed to make, and these people were fixing up my houses instead of tearing them down. So instead of getting out of the business, I switched my model.

Mike: Yep.

Mitch: So that one guy that I paid, and I paid him to help me get out of the rent houses without losing my credit or my reputation. What he did was showed me what I was doing wrong, showed me a correction and a different option, and it turned into a 20-year career that I don’t know what I would have done or been without it, because it’s been very lucrative for me, very. I’ve exceeded what I thought I was capable of, many times and over and over again.

Mike: Yeah. Yeah. That’s great. Well, for those that aren’t that familiar with seller financing, I mean, conceptually it’s pretty obvious, just based on the name. Why don’t you just give kind of a couple-minute overview of what that actually means?

Mitch: Let me . . . Well, owner financing . . .

Mike: Or just an example. Yeah.

Mitch: I’ll give you a definition, and then we’ll do a little case study, a hypothetical case study. It’s not so hypothetical. I do it all the time.

Mike: Yep.

Mitch: So owner financing means you buy a house either with your money or with someone else’s money or a combination thereof, and you then mark that house up and finance it to someone else at a higher price, and you do what’s called a wraparound mortgage. They move in the house, and they have a mortgage, and it wraps around your mortgage, where essentially they pay you, and you have to pay who you owe.
Now, the only way that that’s fair and legal is that you disclose that you have a payment to make as well, and that puts them at some kind of risk. Although, there’s ways to mitigate it. So that’s called a wraparound mortgage, where you give those disclosures. Okay? Now, was that a good enough explanation, Mike? I mean . . .

Mike: Yeah. Instead of the buyer going to get a traditional loan, they’re effectively borrowing from you. In many instances, you’re borrowing a portion of that money from somebody else.

Mitch: I’m borrowing money to buy . . . Now, this will become all apparent in the example.

Mike: Yep.

Mitch: But I’m borrowing the money to buy it. I’m cleaning it up, or sometimes you can . . . Well, you can really just mark it up by virtue that you’re offering financing to people who can’t get financing.

Mike: Right.

Mitch: That’s where you can get your margin.

Mike: Right.

Mitch: You don’t have to paint it. You don’t have to pick the dog poop off the carpet if you don’t want to. I mean, you get your margin because you decided to finance these people that are not financeable by the institutions.

Mike: Right.

Mitch: See, the institutions have, these days, have all these different regulations. They have put so many people out of the game. They can’t own a home without people who are willing to owner finance. There’s no way. So the secret is to be able to owner finance to these people at the same level as rent, monthly payments same as rent.
So my buyer will give me a down payment that we agree on, and then we’ll agree on the monthly payments. Then we go about our life for the next 20 years and do what we’re supposed to do. Now, how it really . . . Here’s a model.
I buy a house for $23,000. Now, I’m in San Antonio. Some of you won’t believe that this is . . . these numbers are not true. They’re true numbers. My model breaks down if you start to owner finance houses at a retail price over $120,000. They work best in middle to low.

Mike: Yep.

Mitch: Okay. In some cases, $120,000 is low, like in California or whatever.

Mike: Sure. Yeah.

Mitch: That’s really low. Okay. So I buy a house. Don’t get caught up in the numbers or the minutia. Just listen to the theory, because I can get paid five ways, five times. I buy a house for $23,000. I borrow $25,000 from a private lender at 8%, for five years, interest-only. My payment is $165. I’ve rounded it a little bit, a month. I want a note for double. So I want a note for $50,000 or more. That’s my bar. It doesn’t mean that if I’m a little under or a little . . . You know? It’s just a bar. It’s just a measuring point.
So if I’m going to get a note for double, I have to have a note for $50,000 or greater. So I’ll put the house up for sale for around $57,000. So let’s say I have it for sale for $57,000. I’d love to get $7000 down, but I don’t get $7000 down. I only get $5000 down.
I get $5000 down, and now the man owes me $520 a month, principle and interest, for 20 years. Plus, he’s going to send the taxes and the insurance on top of that, but he’s sending me $520 principle and interest. $520 minus the $165 that I owe is $355. It’s $355 a month, of which I am not a landlord. So when the money hits my hand, and the check clears, I don’t have to give it back to the air conditioning man or the roofer or the plumber or the lawn maintenance guy or the guy who fixes broken windows or doors or locks or air conditioners or anything.

Mike: Right. Right.

Mitch: It’s my money. This is a huge difference from where I came from. So let’s look at what happens. When I bought the house, I borrowed $2000 more than I needed. So I put $2000 in my left-hand pocket. When I sold the house, I sold it for $5000. This is assuming the house . . . You’re selling it as-is, no fix-up. Okay?

Mike: Okay.

Mitch: So when I collected $5000 down, I put that in my right-hand pocket. I netted that too. Then I’m clearing $355 a month. So I paid myself $7000 to create $355 a month coming in, of which I am not a landlord. If I do that two times a month, it’s $14,000 and close to a little over $700 a month. If I do it three times a month, then I’m making $21,000 upfront, and my cash flow is now over $1050. Okay?
How long does it take before you don’t need a job? Or you work yourself out of it? So there’s a couple components here, but I’ll stop and give a pause, in case you have some questions.

Mike: Yeah. Okay.

Mitch: Do you have any questions?

Mike: Yeah. So one question is . . . I’m following you there. So hopefully everybody else is following as well. As real estate investors, we buy at a discount. That’s largely how this model works. You help somebody sell their house quickly, and you were able to pass a deal along to somebody else that you just happened to buy because you’re a cash buyer, and you can buy quickly.
Now, maybe your . . . So one of the questions I have is . . . For a lot of folks that are doing things like this . . . I’m not a big fan of subject twos, but there’s a lot of people that do them. Are you always using private money or other money and cashing out that person? Or are you trying to get the seller to seller finance to you and/or using sub twos?

Mitch: You know, I do such a volume that I’m not a big fan of the subject twos because if the economic conditions are such that the banks need to call those notes or want to call those notes, they can crush me if I had a whole bunch of them.

Mike: Yeah.

Mitch: So I’m going to my private money. I’m going to borrow private money, non-recourse, meaning the only thing . . . The only retribution they have against me is to take the house away from me. They can’t sue me. They can’t levy a lien against me. They can’t put a judgment on me. It’s either . . .
When I go to get my private money, which, by the way, I’m an expert at getting private money. I have so much private money that I had to start a hard money loan company so I could keep it out so I wouldn’t lose it. But when I go to them, I tell them . . . This is a great big tip for your people. People think that they can’t find private money because they’re not worthy, because their credit is bad, because they don’t have experience, because they’re too fat, because they’re too ugly, because their hair is too long, because they don’t have any hair. Whatever the reason is, they’re thinking it’s them.
The biggest mistake people make when they’re looking for private money is they think it’s about them. It’s not about you. It’s about the deal.

Mike: Right.

Mitch: All you are is a megaphone. You are two feet and a mouth to walk around and let the world know that this deal and opportunity exists. Other than that, it’s the deal. Here’s the deal. Sir, would you like to put $25,000 up as the first lien on my house through a title company, where you get title insurance that you’re guaranteed a first lien? Then I’m going to agree to two things.
I’m going to agree to pay you 8% interest only for five years, or I’m going to give you the keys to this house, and it’s going to be your house. If either one of those things are not good for you, then don’t do this deal.

Mike: Right.

Mitch: You know, I’ve never given a house back in 1300 houses, but I understand, and I’m not dumb enough to think that something can’t happen in the world or in my country or in my state or in my city that would make it impossible for little old Mitch Stephen to do what he’s been doing for 20 years. Don’t you know it can happen?

Mike: Right.

Mitch: You know it could happen. Right?

Mike: Sure.

Mitch: So I wanted to relieve myself because all these people that loan me money become my friends. So I make it very clear. It’s not about me, and it’s not about my credit or anything. It’s about either you’re going to get paid this, or you’re going to get this house. If that house isn’t good enough, then don’t do it.

Mike: Right.

Mitch: So that’s that.

Mike: Tell me this, Mitch. What’s the significance of interest-only? Obviously that helps your cash flow in the short term. Then what’s the significance of five years, if I think I heard you, that you’re financing them for 20 years?

Mitch: Here’s the thing. Private lenders are much different than banks. Banks always want to know when you’re going to pay them off, when you’re going to pay it down, when you’re going to pay it off, when you’re going to pay it down. It’s an endless, endless . . . You know? They’re just constantly beating you up on that. The five years is just because you have to have an end.

Mike: Right. Why not have the term the same as your selling term?

Mitch: Here’s the big reason why. My people are between 65 and 85 years old, and they want to know how much money they can spend and not erode their principle. If I just send them interest-only checks, I can tell them, “You got a check. You can spend it. When it’s time to pay it back, it’s going to be exactly what you loaned me, plus a couple of days’ worth of interest.”

Mike: Yeah. Gotcha.

Mitch: It’s easy for them. Most of my investors are over 70. I mail checks now to seven widows because the men that I dealt with have passed away over the last 20 years. The other thing is whenever I pay them off on one house or two houses or whatever . . . Because houses get paid off. The average mortgage lasts seven years, seven-and-a-half years in the United States of America, so I’ve been told. I think they’re right because they always get paid off.
When I pay them off, they’re screaming because . . . You got to imagine in their shoes. They’re retired. That’s their income. When I pay them back, and the money is in the bank, they’re not making that paycheck anymore. So they effectively get a cut in pay, and their first question is always, “How fast can you get it back out?”

Mike: Yeah.

Mitch: If I get to the end of one, and someone really wants their money back, or they die, and the state wants to settle up, I simply just go to one of my other investors who I’m paying off tomorrow or the next week, and I just say, “I’m going to move you over to these houses.”

Mike: Yep.

Mitch: You know? And another backup plan is if I actually have someone in a house for five years, don’t you think that note is probably pretty salable? The value of the house would have increased over five years’ worth of appreciation in a normal world, if that’s normal.

Mike: Right.

Mitch: Then we’ve paid the debt. Well, this way, the debt would be down, but my debt is only 50% of what I sold it for. So even though they’re amortizing on a 20-year note, it would take them 13 years to catch up to where we were even on what I owed and what they owed.

Mike: Right.

Mitch: At 13 years, you think I could sell my note for par?

Mike: Sure. Yeah.

Mitch: You know? So sometimes when I start to feel a little uncomfortable, I’ll go back to one of my note bars and say, “Hey, we need to amortize this thing for seven years or 10 years or something, because my guy is putting down chunks, and he’s catching up with me. He’s getting too close.”

Mike: Yeah.

Mitch: So I need to start paying down too, but that rarely happens.

Mike: Yeah. And you just pay those . . . You’re just paying those loans back. Sounds like there’s a number of things you could do, but typically you’re just paying them out of cash flow.

Mitch: Yes.

Mike: Yeah. Then that . . .

Mitch: Yeah. Well, I . . .

Mike: Then those houses that you just paid off effectively start cash flowing all that much better for you.

Mitch: Yeah. Well, let’s say that same house that I borrowed $25,000 on . . . Let’s say I was able to buy that house for $15,000. I can still borrow $25,000 because I know that I can owner finance it and get double $25,000.

Mike: Right.

Mitch: So in this time, I don’t borrow just $2000 over, because I’m still at 50%. I borrowed $10,000 over, and now that’s how I pay my houses off. Whenever I really do good on a buy, I’ll borrow up on one, but it’s hardly over-leveraging, Mike.

Mike: Right. Sure. Yeah, you’re still at less than 50%. Yeah.

Mitch: Because how do you get [inaudible 00:21:12]. If I buy a house for a dollar, in my book, I’m allowed to borrow all the way up to 50% of what I can make an owner finance note for. So if I buy a house for a dollar, I can borrow all the money, up to 50% of what I can owner finance it for.

Mike: Yep.

Mitch: So in the example, I bought the house for a dollar. I’m allowed to borrow $24,999 and be fine.

Mike: Yep.

Mitch: So what do I have? I just have cash now because I . . . You know? So I go pay off my debt with it.

Mike: Right. Right.

Mitch: So let’s talk about how you arrive at the owner finance price, because this is very different. We don’t have to have appraisals when we sell houses with owner financing.

Mike: Right.

Mitch: We don’t have to have inspection reports. I can sell you a house that doesn’t even have a roof on it if you agree to the down payment, and we agree to the terms. You know? If you’re going to live in it, then we got to do some Dodd-Frank disclosures and cooling off periods and stuff, but no big deal.
So how do we arrive at the owner financed value? It’s very simple. You can do it within two minutes, sitting in front of a house on your smartphone. It’s as accurate as accurate can be, if you’re anywhere with any data. Certainly in Dallas and San Antonio and bigger cities, you got plenty of data.
You pull up in front of the house, and you go to Rental Meter or Trulia or Zillow, and you put in the address and say, “What are the average rents for a three-bedroom, two-bath in this zip code?” They’re amazingly accurate, $10 plus or minus. So let’s say that the rent is $1000.
So then you get on the [inaudible 00:22:53] the taxing authority. Go to the taxing thing on your phone, and you find out what the taxes are. You subtract that. So for the sake of argument, let’s say the taxes on this house are $100. Then going to be $50 for insurance, for the sake of argument.

Mike: Okay.

Mitch: So $1000 minus $150 is $850. If I used the terms 10.5% for 20 years, then I can sell that house with a finance amount of $85,000. $850 equals $85,000. You see? I don’t need a calculator. I’ll be within a few dollars. It won’t be perfect, but good enough for what we’re doing.

Mike: Yeah.

Mitch: So if the owner finance price is $85,000, what is the sales price? Well, as a general rule, let’s add 10% on top. So we’re going to be around $94,000.

Mike: Okay.

Mitch: I don’t care what the broker’s opinion says. I don’t care what the MAI appraiser says. I don’t care what the CMA, current market analysis, says. I don’t care, because to believe in this business, you have to believe in two things, Mike. Tell me if you believe this.

Mike: Yeah.

Mitch: A man paying $1000 in rent would rather pay $1000 to own. Do you believe that?

Mike: Yeah, I do.

Mitch: Okay. Now, you have to believe one other thing, and we’re good. If he dies, there’s a line outside the door, waiting to replace him. Do you believe that?

Mike: Yep.

Mitch: Okay. We’re in.

Mike: Yeah.

Mitch: It works. I know it works. I’ve been doing it for 20 years. I can sell my houses. In the recession, I was buying houses in neighborhoods where only cash buyers were at, because the people that were living in those houses couldn’t qualify at the new credit scores and the new regulations and everything. So there are some neighborhoods that were only getting purchased by cash investors. What do you think the prices of those houses look like on a CMA?

Mike: Yeah, they’re driven way down. Right.

Mitch: You know? They’re plummeted down.

Mike: Yeah.

Mitch: So I’m selling $30,000 over the current market analysis in any appraiser you could get. I’m selling $30,000 over. Why? Because what happens, Mike, to rent when they can’t buy houses? What happens to rents when no one can buy a house?

Mike: They’re driven up.

Mitch: If I’m owner financing, and my bar is what is the rent, what’s happening to my houses in a recession when the rents are going up? What’s happening to my owner financed house price?

Mike: Yeah, you’re driving those values up.

Mitch: Yeah, because the rent is now $1050. Well, now I can owner finance for this much.

Mike: Right.

Mitch: Well, now the rent is $1100. Well, now I can owner finance for this much. So this is what I love about this business, Mike. In the good times, I do good. In the bad times, I boom. Where does that leave to fail? There’s no area to fail in, except for cataclysmic or catastrophic.

Mike: Right.

Mitch: Which you can’t . . . You’re going to lose, no matter what.

Mike: Yeah.

Mitch: So look at it this way. In the recession, because the banks weren’t loaning, the prices of houses were plummeting. I was buying those houses with other people’s money like the wind and selling them for higher than I’d ever sold them before because the rents were being driven up, because no one could buy a house. So they had to rent. It was a perfect storm. So that’s why I love this business.

Mike: Yeah. Plus, there’s so many people now that are never going to be able to, from their perspective or probably from the institution’s perspective, never be able to buy a house again, to own a house, unless they use seller financing.

Mitch: Well, it’s absolutely true because . . . It’s very typical. When the legislators pass law, and they pass legislation in the name of consumer protection, nine times out of 10, it devastates the consumer.

Mike: Sure. Yeah.

Mitch: So what do they do? They wanted to protect this consumer. They put all this stipulation, and they raised credit scores, and they did all this regulation. Now, my pool of buyers is so much bigger than it used to be, and they’re so much better quality than they used to be. It used to be owner . . . Back when you could get a loan because you could fog a mirror . . .

Mike: Right.

Mitch: I was getting the bottom of the bottom of the bottom of people who were trying to owner finance a house. Now, I got great people, good people that I’m owner financing houses to, and they have much bigger and better down payments these days. Mike: Yeah, it’s definitely a myth that because somebody doesn’t have good credit or maybe established credit at all that they’re risky. You and I both know there’s plenty of people that have cash and cash flow and access to cash, but they don’t necessarily have a good credit score as defined by the credit bureaus.

Mitch: Well, there’s a lot of good people that have bad things happen to them.

Mike: Sure. Sure.

Mitch: And they could happen to me right now, or they could happen to you. Don’t be laughing at those people because . . .

Mike: No, no, no.

Mitch: You know what I’m saying? It could happen to you. For example, what we’re looking for when we’re finding owner finance buyers, I’m looking for someone that there was some event that caused them to have bad credit, but it’s been resolved.

Mike: Yeah.

Mitch: They’re not in the middle of their debacle right now. I don’t want to be another piece of the debacle. I’m waiting to look and to see. For example, I’ll use a real exaggerated example. It’s true. This happened to me.
I found this lady, and she had like a 480 credit score, maybe a 430. I don’t remember, but it was horrible. But I’m looking at in the last two years, she’s been really good on the credit report. This thing happened about four years ago. Something happened. The credit report wasn’t forgiving her, but she had obviously turned the corner, and everything was going fine for the last two years.
I said, “Mrs. Smith, what happened right here when all your credit and everything just went to hell in a hand basket?” She said, “My husband got killed, and he was the breadwinner, and I stayed at home with the three kids.” I said, “Okay. I could understand that. It changed right about here, this year. What happened then? What changed?” She said, “I married a man that made a lot more money than he did, than my previous husband who got killed.” Okay. You know? So we sold the house to her.

Mike: Yeah. So are you looking at people’s credit scores? What are you looking at when you are seller financing to folks? What are the criteria of them being worthy?

Mitch: Well, we have a lot more criteria than we used to because of the Dodd-Frank, but you don’t have to get tied up in the middle of that because you hire a loan originator to sit between you and that liability. They’re licensed to essentially make sure that you comply. So I hire one. Actually it’s made my life pretty easy. Actually I’m finding better quality people because of it.

Mike: Yeah.

Mitch: I don’t like the regulation, over-regulation, but it’s . . . There’s two ways to look at it, and I’m choosing to look at it the best way, I mean, the way that allows me to keep going forward. So what we’re looking for is . . . I’m personally looking for what their credit score is. If it’s bad, where was the debacle? And is the debacle over? We have the new job now, or we have a better job now, or you just got out of college finally, and you got the job that you were looking for. All that stuff behind you was because you were a starving student. Now, you got the job as a speech therapist or whatever.

Mike: Yeah.

Mitch: You know? What the licensed loan originator is looking for is to make sure that we can prove that they have enough income or some reason to believe that they’ll be able to make the payments, that we can’t just sell a house to someone who won $20,000 in the lottery, but he makes $600 a month at a part-time job, and that’s all his income is. He goes out and buys $100,000 house with a $1000 payment, with $20,000 down. We already know he’s going to fail.

Mike: Right.

Mitch: We’re looking at the . . . Some people would look at the $20,000 and say, “I’ll get my hands on that $20,000. I’ll evict him for $800 or $2000, and I’ll keep $18,000.” So they’re trying to stop that plan. In the midst of trying to stop that plan, they’ve damn near killed an industry.

Mike: Yeah.

Mitch: You know?

Mike: Yeah.

Mitch: So that’s what I’m looking for. I’m looking for time on the job. I’m looking for the income to actually be able to pay, which means I’m also looking at their bills. I’m looking at their history and their credit score. A really big part of it is their rent history. How long have they been some place? And have they at least taken care of that?

Mike: Right.

Mitch: Because that says a lot. Did you put your home as a priority? This is all pretty basic stuff.

Mike: Yeah.

Mitch: I mean, it’s not rocket science.

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