The end is near

5 Minutes to Midnight

I’ll admit that the doomsday clock at about 5 minutes to midnight (meaning the end of the world is upon us) is a little over dramatic – even for me. The point I’m trying to make is simply this… time is running out on the $8,000 tax credit and low interest rates.

Let me explain…

$8,000 tax credit expires on November 30, 2009 - As of this post, there are only 30 business days remaining before the deadline (remember we lose a couple of days because of Thanksgiving). While it may seem like there are 6 weeks to go, there are only 30 working days left.

There is talk of extending the credit and some people are being creative in trying to define what part of the buying process needs to be completed by the 30th… Bottom line, if you want to be sure to get the tax credit, a first time home buyer’s purchase must be closed on or before November 30th.

Historically low interest rates - Last November, the Federal Reserve announced a plan to purchase up to $1.25 Trillion in mortgage back security bonds. This would increase their value and push interest rates down (as bond prices go up, interest rates go down – and vice-versa).

Shortly after the announcement, interest rates dropped about a half of a percentage point — on just the announcement of the plan!!! Once the Feds actually began buying bonds, rates dropped into the 4’s.

Those days are coming to an end as the Feds begin (over the past couple of weeks) to scale back the purchasing of bonds. They plan to be out of the bond buying business at the start of the new year.

What does this mean for interest rates? Well, the past couple of weeks have seen the market trend in the wrong direction pushing mortgage rates slightly higher. One can only expect this trend to continue as the Feds move away from buying bonds.

All hope is not lost. At this moment, it is not too late. If you haven’t taken advantage of these historically low rates to purchase a home or refinance your existing home (if you current rate is over 6%, we need to talk), rates are still historically low. Also, there is enough time to still buy a home and qualify for the tax credit if you start today. Let’s get started by calling or emailing me!

Managing Your Mortgage

When was the last time you reviewed your overall financial picture?  Or reviewed your most recent retirement statement?  Or rearranged your holdings in your investment account?  If you are like most people, despite your best intentions to not look at the (likely) damage done to your finances over the past year or two, you review where you are, because it is the only way to really asses your situation.  Without reviewing things, good or bad, you won’t know where you are, and you won’t know how to get wherever it is you want to get (retirement, debt-free, more cash in reserves, funds for college, weddings, etc, etc.)

While most people spend time each month or each week reviewing their budget and their personal finances, most don’t take the time to review their biggest investment – their home (and the means of purchasing that investment = their mortgage, their biggest debt).  A monthly statement from the loan servicer is a good reminder of some of the highlights of your mortgage: current loan balance, interest rate, monthly payment, escrow balance, escrow disbursements; but it doesn’t really provide the information you need to manage your mortgage well.  It tells you where you are, but it doesn’t tell you where you are going (or if there is a better way to get where you are going).

In addition to watching your finances on a regular basis, you probably use some automated systems to help you manage your finances – online bill-pay, automatic draft from your bank account, and maybe stock buy-sell orders.  Why not take some time to set up something similar for your mortgage?

In order to help my past clients, friends and new referrals manage their mortgage, I offer a refinance monitoring service through myRateTrack.com.  This service is free to use and is exactly specific to each individual customer.  Once an individual’s loan information is setup in the system, he or she will automatically receive a RateTrack refinance report itemizing refinance options available based on that customer’s current mortgage balance and monthly payment and that day’s available rates and closing costs (view sample RateTrack report).  The report is emailed automatically each month and is also available instantly by logging in to the website.  This RateTrack report allows individuals to monitor available refinance options and helps to answer the two main questions that my clients have.  Question number one, “Could I save money (would it make sense) for me to refinance my mortgage?”  And question number two, “If it does make sense, should I call Jeffrey?” 

The system also allows each client to enter a Target Refinance Rate in the system, so if and when that interest rate is available, they receive an email alert letting them know it’s time to take action (the answer to question two, part B, “Should I call Jeffrey today?!?”

To sign up for a myRateTrack.com account, simply visit www.myRateTrack.com and use the PROMO code = themortgageblog to access the site for free and to be entered in to my database of clients and referrals.  You will need some general information about your current mortgage (original loan amount, closing date, interest rate, loan type, ARM information), but you do NOT have to enter personal information such as income, assets, or social security number.  Once you are signed up, the system will alert me, I can review your mortgage and make sure you have the information you need to set an appropriate target rate and are on track to managing your mortgage well.

Strategies for Writing Offers in Light of HVCC

With the ongoing challenges presented by the current economy and the new rules associated with the HVCC Guidelines, the strategies used to insure that your interests as a buyer are protected are essential.  One special area of consideration in Georgia is the “Due Diligence Period”.

Prior to the recent decline in real estate values the biggest challenge faced by most buyers was resolving with the sellers any items that came up on the inspections performed.   This was due in part to the fact that loans were readily available for practically any buyer with no money down and very little qualifying.  And, to the fact that prices were pushed up due to overly relaxed lending guidelines which encouraged buyers to pay more for homes because they could finance the entire purchase price.   Consequently there was generally no need to be concerned about getting a loan or the home appraising.  This has all changed.

In the current market although inspections continue to be a major concern when purchasing a foreclosure they may be less critical on homes that have been reasonably maintained and are owner-occupied.  Replacing inspection issues as the major concerns for buyers is the appraisal followed by their ability to secure financing. With this in mind here are a couple of suggestions.

1.  Consider providing at least 40-45 days to close.  This will provide enough time to conclude the appraisal process, complete inspections, and provide enough time for final conditions to be met in order to satisfy underwriting requirements.

2.  Consider including an appraisal contingency in your offer and consider having the appraisal done prior to having the inspection done.  This will limit your out of pocket expense to the cost of the appraisal (usually $350-400).  This also provides you the opportunity to address what could potentially be the largest financial hurdle to clear in the entire process.  Three recent experiences involved sellers faced with having to reduce their price by $25,000; while another seller was required to reduce the price $14,000, while still another needed to reduce it by $12,000.  In these cases as in many others buyers are being asked to contribute to the failure of the property to appraise for the purchase price by paying more that it appraised for or by reducing seller contributions to closing cost.  When these amounts are considered they have the potential of affecting the transactions by thousands of dollars which is typically more than the financial impact of resolving inspection issues.  By addressing this issue early in the “Due Diligence Period” you will address the most critical issue before incurring additional costs associated with inspections.

3. Consider doing your inspections after the appraisal contingency has been satisfied.  By approaching the “Due Diligence Period” in this manner it provides you the buyer the opportunity to address inspection items after you and the sellers have amended the purchase price to the appraised value; if there is a difference between the two. 

4.  Consider splitting the earnest money into two or more separate payments.  For example if the earnest money is $5,000 you might make $2,000 payable upon reaching a binding agreement.  The balance of $3,000 might be remitted in two payments of $1,500 each, one occurring at the time the appraisal contingency is satisfied and the other occurring at the time the inspection issues are resolved.  This will serve as an encouragement to keep the seller involved in the process.

Please remember if you are represented by an agent to discuss your strategy prior to making an offer.  If not you may find yourself putting lots of time, energy and expense into a transaction that may not work.

Now? Yes. Why? Because I said so.

As you probably know, a good portion of my business comes from friends and family and referrals from friends and family.  I realize that some people think that “you just don’t mix business and family” to which I wonder, mainly, how messed up is your family that you can’t trust them to take great care of you in business (shouldn’t they take BETTER care of you, because you are family)??? 

Anyways, my brother and I had been talking about their mortgage over the course of last year and during the holidays, the topic came up again.  We all agreed that it was something that they ”needed” to look in to.  My sister-in-law and I got together over the phone a week or so later and crunched some numbers, went through the specifics, and talked about rates, the refinance process, current trends, and the best-guess future of mortgage rates.  After our conversation (the “looking in to” part), we decided that refinancing the mortgage was the right thing to do.  But when?

This scenario is not uncommon.  First, people realize that the need to look in to refinancing.  Second, people realize that they really should do something (to save money, consolidate a 1st and 2nd mortgage, to protect themselves from the future adjustement of an ARM).  But the next step is generally where people get stuck.  They know they should do something, but they aren’t sure when they should do that certain something.  Will mortgage rates go even lower?  Should I wait a little longer and ride out my adjustable rate mortgage?  Should I make a few more phone calls and get a few more estimates?  Should I wait to talk to my dad this weekend and see what his advice is?  Or see if my aunt’s boyfriend who use to be in the mortgage business has any ideas?  Or wait until the guy on the radio mentions that it is a good idea . . . the reasons for waiting are endless (and often times fruitless as well).

With family, here is the great thing — since we had already decided it was a wise decision to refinance, and because we had already gone through the details (costs, savings, etc), a week or two later, when mortgage rates dipped to their lowest point in history, I called him — not to “review his current refinance options” (although we could have certainly done that), and not to “remind him how a refinance and a historically low interest rate would prevent his LIBOR based ARM from increasing his payment in the years to come” (although we could have revisited the historical trend of the LIBOR index and talked about payments at an adjusted rate of 6.75% or 7.5%) – I called him to TELL him it was time to lock-in his rate.  “Hey, you need to lock-in your rate, TODAY.  We can get paperwork over the next few days, but today is the day to lock-in.  If rates go lower, it won’t be by much.  You need to lock-in.”

He took my advice.  And he has an amazingly low rate on his mortgage (fixed forever) to prove it.

Today (October 1st, 2009), I would love to be able to pick up the phone and say the same thing to you.  But since we aren’t family, this blog post will have to suffice.  If it makes sense for you to refinance and if you are able to refinance, it’s time to lock-in and move forward.  You need to lock-in.  Why? 

The long answer:  the lowest rates in history; mortgage rates have inched down over the past 7-10 days; Feds are easing purchase of mbs which should make rates slowly go back towards 6.0% between now and March 2010; employment figures are coming out tomorrow and the market seems to have a way of spinning bad news in to good news which is bad for motgage rates; you’d be crazy to wait in hopes of inching out another 0.125% in rate at best because the market has proven that we are at or close to the bottom, with the potential for things to go up 0.5% or more without warning).

The short answer:  because I said so.  : )

The Real(estate) cost of waiting.

Generally speaking, waiting is a good thing.  We teach children to wait and look both ways before crossing the street.  We urge people to wait and “not rush in to something” when giving business or relational advice.  And we applaud those that have waited and persevered through adversity.  In a lot of things, patience pays off.  In 2009, in the mortgage and real estate world, waiting could be a very costly mistake.  

1.  First time home buyers waiting

If you are first time homebuyer, waiting until anytime after November 30^th, 2009 to close on your first home will cause you to miss out on the $8,000 first-time homebuyer’s tax credit.  For more information, visit the IRS website here.  

2.  Waiting to purchase your next home (bigger, better, more expensive)

If you are ready and able to “move up” by purchasing a larger, more expensive home, waiting could be more than just an $8,000 mistake.  Even if your current home value is lower than you might hope, for most people who are moving up in price, the gains far outweigh the losses.  Here are some numbers to help:

Last year, at this time, the 30 year fixed rate was approximately = 6.375%

Last week, the 30 year fixed rate was approximately = 5.0%.

On a $350,000 mortgage, the difference in interest rates translates to a difference of $305 per month ($36,660 over a 10 year period).  This savings could allow you to lower your target monthly payment, or allow you to purchase $30,000 to $45,000 MORE house than you could have purchased for the same monthly payment a year ago.  And if you estimate that property values are down 10-20%, combining the additional purchase power with a decrease in home values, means your purchase power is UP $50,000 to $100,000 compared to one year ago.

3.  Waiting to refinance (or at least look in to refinancing your mortgage)

Assuming that your current mortgage is a $300,000 mortgage at 6.25%, and assuming that you started “thinking” about refinance in January of this year, not only are you at risk of missing out on the best mortgage rates in history, but over the past six months (by waiting) you have lost $1,230 in lost savings ($205 per month in savings x 6 months = $1,230).

If you are one of the many still waiting and would like to review your current mortgage, please let me know.  We can review your current mortgage and get you set up with a free refinance monitoring tool.  You can also visit www.myRateTrack.com and use the PROMO code = themortgageblog to access the site and service for free, courtesy of Dunwoody Mortgage.

4.  Waiting to refinance your ARM (adjustable rate mortgage).

For most people with A-credit and adjustable rate mortgages, if your rate is set to adjust this year, there is a very good chance that your interest rate and your monthly payment will go DOWN.  Because your rate is likely based on the LIBOR index and because the LIBOR index is based on the Federal Funding rate, waiting, and deciding not to refinance, could be a big mistake.  My advice for most clients, is that if you are going to be in your house for at least 2 more years, you are probably going to wish you had taken advantage of today’s historically low, fixed-forever mortgage rates.

So, remember.  Waiting to cross the street – good.  Waiting to buy your first house, or your next (bigger, better) house, or waiting to look in to refinancing your current mortgage – not good.

Waiting and not calling or emailing me when you need some mortgage advice . . . really, really, not good.  : )

How to Determine What to Offer on a Property

 

With foreclosures representing approximately 45% of the homes that are being purchased, how can you insure that the offer you make is a good one?  By following these simple guidelines you can increase the likelihood that the offer you make will represent a good value to you.

First- Have your agent provide you a list of all of the homes like the one you are considering, that are either under contract, or that have sold within the last 3-4 months. 

Second- Upon review you will begin to notice that they can be arranged into three categories.  Let’s call these categories A, B and C.  Now separate each of the properties into one of the three categories.  

 

Category A:  These are the homes that are selling for the higher prices.  In a typical subdivision there will be a small range in this category.  This category will represent those homes that generally have no deferred maintenance and will have been upgraded.  Upgrades in this category will consist of more than just the roof, HVAC and painting, but will also include kitchen renovations, bath renovations, new appliances and generous hardwoods as well as good curb appeal.  The normal reaction to these homes is WOW.

Category B:  These are the homes that are selling for prices in the middle range of the subdivision.  This category will also have a small range in prices.  Inclusive in this category are homes that generally have no deferred maintenance and have been maintained.  In this category of well maintained homes you should not find homes in need of painting, roofs or heating and air.  Additionally the upgrades associated with Category A are usually absent.  The normal reaction to these homes is NICE HOUSE.  

Category C:  These are the homes that that are selling in the low range for the subdivision.  This category will also have a small range of prices.  This category typically consists of homes that have not been upgraded or well maintained, but are in some state of disrepair.  Theses homes generally need interior and exterior painting, flooring, roof, cabinetry, appliances, heating and air and yard work.  Additionally it is not uncommon for small problems to have become big problems; for example plumbing leaks, roof leaks, drainage issues and so on.  The normal reaction for these homes is either NO WAY or THIS LOOKS LIKE A DEAL.

Third- Once this is done you will want to identify specifically those items or features in the homes that sold that are similar to or different from yours.  Once completed you can then estimate the cost associated with these differences and the impact they would have on value if they are missing or present.  With practice or counsel you will be able to determine value on property in any condition, as well as what is necessary to elevate a property from one price category to another.  It will also protect you from sellers of Category B homes that have priced their home as though they were A’s. A COMMON OCCURRENCE.

Lending: the final frontier

Lending: the final frontier. These are the blog posts of a mortgage broker. My continuing mission: to explain strange new federal regulations, to seek out new loan programs and new lending sources, to boldly go where no mortgage broker has gone before.

It really does seem like science fiction with all the changes that have occurred over the past two to three years. Think about it: in 2006, if I said that 100% financing would be nonexistent, conventional loans would require at least 10% down (3.5% for FHA), and defaults on subprime loans would lead to a crippling of our financial system that would help usher in the worst recession since the Great Depression… would anyone have believed me?

These changes have been so unexpected and unbelievable, they border on fantasy. Sadly, it has been all to real for us!

The latest unforseen example: The federal raid and subsequent shutting down of Taylor, Bean & Whitaker shocked the mortgage world, leaving thousands of borrowers in a bind as they were in the process of buying or refinancing a home, but now facing the prospects of starting over.

These events only reinforce the importance of working for a mortgage broker with multiple lending sources. My clients never have to worry about being stuck without a source for their loan. If one lender decides to only offer loans to borrowers with 20% down, or like TB&W, shuts their doors, I’m able to offer additional options to ensure my clients close on their home.

It’s a scary universe out there. You never know when a Romulan warship will decloak, putting your life in danger (new Federal guidelines) OR when the Borg show up threatening to wipe out human civilization (TB&W’s sudden closing). It’s best to work with a professional who is up-to-date on guideline changes and has a plan for action if disaster strikes. I may just have a great referral for you as you look to buy or refinance a home.

It is about working smarter AND harder.

Last week at a Dunwoody Mortgage education event, I had the pleasure of hearing from Dan Ervin, a national speaker and sales trainer to the real estate and mortgage industries.  Dan is a salesman, and seemingly quite a good one at that.  His approach to real estate and mortgage sales was a great reminder, especially in this current market, that in order to win the business of clients, we have to work and to work hard. 

I have never fully believed the sales guys that talk about NOT working harder, but working smarter.  They claim that “it’s about working smarter, not harder.”  I disagree.  In the current mortgage market, where loans are more difficult to process because of changing and increasing government regulations (HVCC appraisal rules, MDIA disclosure rules, and more to come, I am sure), where loans are more difficult to get approved because underwriting restrictions are more stringent (even the best loans raise questions from underwriters), and where transactions are more difficult to find because of the decrease in home sales and increased credit standards, in this business, it’s about working smarter AND harder. 

The “working smarter” idea is important.  And really, it’s more than just important; it’s critical.  If you are not working smarter (database management, past-client contact, email marketing, web and blog presence, automation, established customer service standards, predictable sale processes, lead follow-up, etc.), to be honest, I am surprised that you have survived the past two years in the mortgage and real estate business.  On that same note, if you one of the many people who are “thinking about getting a database set up this year”, why not put a to-be-completed date on the calendar, and give me a call.  I’d love to help (my first business-love is database and customer service systems).

If you are in the market for a mortgage — whether it be to refinance your existing mortgage or to purchase your next home, please know that the mortgage business is not the same as it was last year or the year before or the year before that.  To say that it is tougher to get a mortgage now than it was a few years ago, implies an idea that most people can’t get a mortgage and that is simply NOT true (FHA allows 3.5% down with a 620 credit score).  The biggest change is that it is now more difficult (more tedious) to get through the mortgage process — more questions from underwriters, more guidelines and rules, more t’s to cross and more i’s to dot.  It is tougher and it takes more work to get to the finish.  And it takes quite a bit of work (and know-how) to get to the finish well (happy clients, smiling Realtors, etc.)  Now, more than ever, it’s important to be working with a mortgage professional who is going to work harder (and smarter) for you.

What is going on in the mortgage business??

I am sure by now everyone has heard about the suspension by FHA and subsequent closing of Taylor Bean & Whitaker (TBW).  The question everyone is asking is “what does this mean to me?”  Aside from the train-wreck this has and will create with anyone dealing with any transaction involved with Taylor Bean & Whitaker, the implications will be even bigger than thousands of delayed closings.  This is a MAJOR event.  This is not a case of “another sub-prime mortgage company closing their doors.”  Taylor, Bean and Whitaker is (was) the 3^rd largest FHA loan originator in the country.  The only two bigger originators of FHA mortgages are Bank of America and Wells Fargo.  TBW underwrote and closed loans for small banks, correspondent lenders, and brokers across the country and now these companies must find a new place to send their business.  Simple supply and demand economics will tell us this will mostly likely cause rates to move up in the short term, independent of the bond market.  We would all agree that competition is a good thing; so when a large competitor is removed from the market, the result of less competition has never been good for the consumer in the marketplace.  (Not to mention the short-term implications and cost to consumers in terms of TBW refinances that won’t fund, closings that won’t be taking place, interest rate lock-in’s presumably lost, HVCC appraisals that will need to be re-ordered and closings that will need to be postponed and rescheduled).  

In addition, Colonial Bank — one of the largest warehouse lenders in the country – was a major source of financing for TB&W.  The ramifications of this relationship in light of the collapse of TB&W, if any, have yet to be determined.  However, it is important to note that any negative impact on Colonial Bank would likely exacerbate this situation.

Everyone will agree we are in very uncertain times.  For those of you on the fence on whether or not to refinance or buy a home, rates are still good and home values have dropped significantly over the last year.  As a consumer, it would be great if a bell went off to indicated when we were at the bottom of the market, but unfortunately that is not the way it works.  If we look at interest rates over the last 15 years we are pretty close to the bottom on this chart, so anytime you can get an interest rate under 6% for your mortgage in the big picture it is pretty good.   If you don’t believe me, ask the people who bought homes in the late 70’s and early 80’s when rates were 12-15%. 

A change will do you good??

 

The world is changed. I feel it in the water.  I feel it in the earth. I smell it in the air. Much that once was is lost, for none now live who remember it.  It did not begin with the forging of the Great Rings, but with the creation of subprime loans and 100% financing.

Galadriel, relax! Not all change is bad.

Change can be a good thing, but going through the process of change may not be too pleasant. This is a timely reminder because on July 30, 2009, the Mortgage Disclosure Improvement Act (MDIA) goes into affect. This changes the way in which borrowers are disclosed information regarding their loan AND the time frame in which a loan can close (based on the disclosure of that information).

Some examples of the new guidelines:

• Lenders will no longer be allowed to collect any application fees, appraisal fees, etc. until the borrower receives the truth-in-lending statement.
• “Received” is when the borrower signs and dates the disclosure OR three business days after loan disclosures have been mailed to the borrower.
• During the loan process, if the APR on the loan changes by more than 0.125% for any reason, the borrower must receive an updated set of disclosures and given time to review them.
• On a redisclosure, a home closing cannot occur until 3 business days after the lender sends the updated disclosures to the borrower.
• Redisclosure is required even when the borrower’s APR goes down (better rate, lower closing costs, etc).

The idea behind MDIA is great because it is designed to protect consumers. It will cut down on predatory lending and ensure borrowers know about any changes taking place on their loan. The days of shady lenders saying at the closing table “by the way, your rate is actually 5.5%, not 5%. Now sign here” are over.

The downside in all of this will be MDIA’s implementation. There may be delays in ordering appraisals (waiting to collect up-front fees), and possible delays in closings for changes in loan amounts, rate, closing costs, etc.

As we all adjust to the new guidelines, here are some practical steps to ensure a smooth closing.

• Plan ahead: Always a good idea, but now even more important to close on time.
• Schedule closings wisely: Quick closings will become very difficult under the new Act. Before putting down a quick closing date on a contract, call me so we can schedule a realistic closing date.
• Be patient: As with any change, there will be an adjustment period. Remember, this is not only new for borrowers and mortgage professionals, but also for realtors, appraisers, and closing attorneys.

As cumbersome as these changes may be, it is actually a good thing. There will be some frustration involved as we all adjust to the new guidelines. That said, it will be worth the trouble in order to provide more transparency and protection for borrowers.