Jon's Mortgage News

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2011-08-19T14:03:00.000-07:00

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Step away from 'free' credit reports to the real thing

2010-03-17T17:18:00.000-07:00

By Susan Tompor
Detroit Free Press

When you're shopping for a free credit report — totally free — you can skip that singing pirate in the commercials. Free isn't free with this guy unless you buy something else — but what would you expect from a pirate?
If you're confused by which "Free Credit Report" is really free — and plenty of consumers are — things should soon clear up.

Beginning April 1, some ads for free credit reports will have to include disclosures that you might have to spend money for credit monitoring or other services to get a "free" credit report from that outfit. By Sept. 1, such disclosures will be mandated in all TV and radio ads.

You also have a legal right to get a free report on your credit through www.AnnualCreditReport.com or by calling 877-322-8228. But federal law only provides for free credit reports — not credit scores. So you still might find yourself a bit flustered.

The Federal Trade Commission was required to change its Free Credit Report rules under a section of the Credit CARD Act of 2009, co-authored by U.S. Sen. Carl Levin, D-Mich. In a statement, Levin said it's critical for people to have access to their credit report because so many businesses rely on the information to screen consumers for credit cards, loans, major purchases and interest rates.

This is the first major change in credit-report rules since 2003, when Congress enacted the law giving everyone free access to one report each year. Tim Burns, public affairs director for the Better Business Bureau serving Eastern Michigan, said more than 10,000 consumer complaints were filed nationwide in the past three years against Experian's Consumerinfo.com and FreeCreditReport.com.

Generally, people thought their reports were free, but did not know they were signing up for other costly services. In February, a Wisconsin college student became the lead plaintiff in a class-action suit against Experian charging that the ads for FreeCreditReport.com were deceptive. The suit noted a New York Times report that Experian spent about $54 million on its advertising campaign in 2008. Burns said most consumers who have worked through the BBB have been able to get refunds. And now, if you go to www.freecreditreport.com, you'll see a disclaimer at the top that says: "Free credit reports are available under Federal law at: AnnualCreditReport.com."

An Experian spokesperson said via e-mail recently that "Experian just received the final rules issued by the FTC regarding the marketing of free credit reports, and we are currently reviewing them to determine the appropriate actions to support our business. We remain committed to clearly and conspicuously disclosing to consumers that the free report we offer is not the free annual credit file disclosure provided by federal law." If you order a free credit report at the Experian site, you do get one — when you also begin a free trial membership in Triple Advantage Credit Monitoring. If you don't cancel that membership within the seven-day trial period, you'll be billed $14.95 a month.

"Free credit reports aren't supposed to produce $15-per-month charges on a person's credit card," Sen. Levin said.

New-home sales fall to record-low level

2010-02-24T13:05:00.000-08:00

Tax credit can't halt decline to 309,000 annual pace in January
By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) -- Sales of new U.S. homes plunged 11.2% in January to a seasonally adjusted annual rate of 309,000, the lowest rate on record dating back to 1963, the Commerce Department estimated Wednesday.

The third-straight drop in sales on a month-to-month basis was unexpected. Economists surveyed by MarketWatch forecast sales to rise slightly, to a pace of 355,000, with buyers taking advantage of a new federal tax credit.

"The housing market remains very, very distressed," wrote Dan Greenhaus, chief economist for Miller Tabak & Co.

"There may have been some weather-related issues playing havoc with the sales data but clearly, these results are extremely unnerving," wrote Jennifer Lee, an economist for BMO Capital Markets. "There is nothing positive to glean from this report."

U.S. stock markets fell after release of the report, which coincided with release of congressional testimony by Federal Reserve Chairman Ben Bernanke, who said the economy remains fragile and needs low interest rates for an extended period of time.

Data on sales for December were revised higher to a seasonally adjusted annual rate of 348,000, up from 342,000 previously reported.

Sales of new homes are down 6.1% compared with January 2009's 329,000 units, which was the previous record low.

The number of homes for sale rose 0.4% to 234,000 in January. At the January sales pace, it would take 9.1 months to sell that inventory, up from 8.0 months in December and the highest monthly supply since May.

Government statisticians have low confidence in the monthly report, which is subject to large revisions, and large sampling and other statistical errors.

In most months, the government isn't sure whether sales rose or fell. The standard error in January for instance, was plus or minus 14%.

The government says it can take up to five months to establish a statistically significant trend in sales. Over the past five months, sales have been on a 362,000 seasonally adjusted annual pace, down from 382,000 in the five-month interval through December.

Sales had risen fairly steadily in the first half of 2009 before plateauing last fall. Seasonally adjusted sales have now fallen three months in a row.

With mortgage rates still very low and prices down, most analysts had concluded that the recent decline in sales was due to the impending expiration of the first-time homebuyers' credit in November.

As it happened, Congress extended the tax credit through June and expanded it to include repeat buyers. But the tax credit didn't help sales in January.

Sales of new homes are recorded once a sales contract is signed, not at closing. Some homes are sold before ground is broken on construction.

Details

Home builders had been slashing their inventory of unsold homes for more than a year to a 38-year low before January's 1,000 increase. The number of homes for sale that are under construction fell to a record low of 100,000.

Builders have cut back on production of new homes, but they still face headwinds from unsold existing-homes as foreclosures continue to mount up.

If a home isn't sold before it's finished, it's taking a record 14.2 months to sell it after completion -- a reflection of the mismatch between more expensively priced homes in the inventory and lower-priced homes that have been selling.

The median sales price of a new home sold in January was $203,500, down 2.4% compared with a year earlier. Cheaper homes were selling better than expensive ones: 47% of sales were for less than $200,000, up from 43% in December. Meanwhile, 38% of sales were for $200,000 to $400,000, down from 41% in December.

Sales were down in three of four regions: down 35% in the Northeast, down 12% in the West and down 10% in the South. January's sales were up 2% in the Midwest, the government's data showed.

Seattle Times Misses the Mark... Again

2010-02-21T21:59:00.000-08:00

This Sunday's paper had an article in the real estate section that I was less than impressed with. Of course, the Seattle Times pulled an AP story to fill some space, but you think that they could do better.

The article in question is: "Rates on home loans drop again, but will they soon spike?" written by Alan Zibel. The article makes use of the Freddie Mac interest rate survey that is published weekly. This is a useless number. If you are looking for a mortgage there is nothing to be gained by knowing what rates were. That was then, this is now. Yesterday's rate is just plain not available.

Also, the published rate does not include information about whether or not points were paid for the rates that are used in the survey. If you want to pay points, you can go way below market. Instead, look at today's rates compared with where they will likely be tomorrow.

Also, the article speaks about the Fed's MBS (mortgage-backed security) purchasing program that has been keeping rates down. Here's two points that I'll make about what is said in the article:

1. The Fed has said in no uncertain terms that it would take a major issue for them to intervene further and buy more bonds. We don't need false hope.

2. The Fed has been phasing out their purchasing for a while now. It's not just ending "Cold turkey."

The real scoop on rates is that they're going up. It's already started and it will continue. The Fed just raised the discount rate by 0.25% which indicates that they see inflation as a possible issue. Inflation is the mortal enemy of mortgage rates. Remember the rates in the 80's?

I don't mean to just complain about the Times' choice for articles- I just get annoyed because they seem to just be filling space with articles that really say nothing. Mortgage rates are complicated. I've made it my career to learn and try to understand the market so that I can properly advise my clients. I think these articles are confusing. The real question is: why did the article open with information about rates in December?

Harney's Article on "Cash-In" Refi's

2010-02-08T17:24:00.000-08:00

The Seattle Times had an article from Ken Harney about "Cash-In" refinancing this Sunday. I thought that the article was great. The article states that there was a major jump in refinances in which borrowers brought money in to the transaction to close. I am seeing this phenomenon and related to the article. They postulated that one of the main reasons for the change was the weak savings rate and the ability for sophisticated borrowers to earn higher rates of interest.

My experience has been that it is more a factor of people that need to refinance for one reason or another that have to bring in cash to bring their LTV (loan-to-value) ratio into the current guidelines. The "New Frontier" that is mortgage lending really has almost no tolerance for high-LTV loans. Many borrowers find that even though they may not be underwater, they just plain don't have the equity required to refinance into the current low rates. The government has made special programs to 'help' people refinance even if their equity has vanished. It's been my experience that the program is mostly ineffectual and that many borrowers are left high and dry.

Particularly hard hit are the condo owners out there. Condo guidelines are particularly restrictive (although they have been loosening a bit lately) and often require lower LTV's then that required for single-family homes.

Long story short- overall, I think it's a good article and recommend anyone out there that is facing this type of situation read it. If nothing else, it will be therapeutic to know that there are others out there that are in the same situation. We're all in it together folks. Things are getting better, it just takes time.

Growing Pains With New GFE

2010-02-04T11:47:00.001-08:00

It's been a little over a month since the new GFE was introduced. I have had the pleasure to present it to several clients and am seeing a lot of bewildered looks. I am doing my best to put this confusing document into plain English, but seriously- HUD really messed up on this one. It wouldn't surprise me if we see another revision of this document in the next year or so.

I see the point for the new GFE- greater disclosure, more transparency, less "hidden fees" and so on. The hope is that dishonest loan officers will no longer be able to change fees during the loan process. Everyone has heard of someone who was shocked at their signing because the fees were much higher than originally quoted. This has been a big problem in the past with shady LO's looking to bilk the unsuspecting.

One of the big problems with the new form is that the fees are not itemized. Sure, you can look at it as being simpler to see consolidated fees, but don't you want to know where the money is going?

Also, on the new form there is no place to put the "Cash to Close" or the "Total Monthly Payment." I've been in the business for a while, and those are the two things that most people care about. The reason for this change is that HUD no longer wants us to quote insurance or property taxes. They only want us to quote things that are directly related to the mortgage- regardless if you are impounding the taxes and insurance or not. Instead of "PITI" (principal, interest, taxes and insurance) we now have "PIMI" (principal, interest and mortgage insurance).

My answer to the two problems that I've listed is adding two forms to my initial meeting- a loan summary and an itemization of fees sheet.

I'm sure that things are going to get smoother and smoother as we all adjust to the changes and more rules are clarified.

More FHA News, and This Is Not So Good...

2010-01-20T11:01:00.000-08:00

So, we've all known that there are some major reforms coming on FHA insured loans this year. The FHA is operating in the red due to the number of foreclosures and needs to make some changes in order to keep things on track.

The changes are planned to roll out either in the spring or summer and include some of the following:

The upfront mortgage insurance premium (MIP) will be raised from 1.75 percent to 2.25

The FHA will also request legislative authority to increase the maximum annual MIP so it can shift some of the cost, as annual premiums are paid over time, proving to be less of a barrier for prospective buyers.

New FHA borrowers will also be required to come in with a 10 percent down payment if their FICO score is below 580; those with scores of 580 and above can still qualify for the 3.5 percent minimum payment.

The FHA will reduce allowable seller concessions from six percent to three percent, in line with industry standards.

FHA Postpones the Flip Rule for 1 Year

2010-01-19T21:17:00.000-08:00

HUD has made the decision to temporarily allow FHA financing on recently acquired properties. The aim of the change is to accelerate the absorption of foreclosed homes that are on the market. Currently, FHA insured loans are not allowed on properties that were sold in the last 90 days. This is called "Title seasoning."

Many distressed properties are bought and fixed up for resale on the market. This ruling is a sensible way to help keep things rolling and hopefully speed the housing market recovery.

The new rule goes into effect beginning February 1st.

Big Changes in Store for FHA Mortgages

2009-12-02T13:51:00.001-08:00

Several reports today have alluded to changes that are likely coming on the FHA mortgage scene. Currently, about 30% of all new purchases in the USA are done with FHA insured loans. The proposed changes could really have a major impact.

This is what I've read so far:

1. Increased minimum FICO requirements
2. Minimum buyer contribution rising from 3.5% to somewhere around 6%
3. Maximum seller contribution for closing costs/pre-paids from 6% to 3%
4. Raising the mortgage insurance premium to offset losses, and
5. Ranking lenders based on their FHA loan performance

If many or all of these items go into effect, there are likely to be some problems. I've been funding lots of FHA insured mortgages in the last couple of years and by far the most important deciding factor for my clients has been the down payment requirement. Currently at only 3.5% it is one of the few "low down payment" options that exist for potential home buyers as well as those that are trying to refinance a crummy loan into a high-LTV fixed rate. Simply stated, the availability for borrowers to get financing is going to be seriously diminished.

To make matters worse, this is on top of the sweeping changes that have already been announced (and delayed twice) regarding condo financing. It feels a bit like being kicked when we're down, eh? I understand that the FHA needs to make sure that they are well capitalized and that funds are available as needed, but ouch.

It seems to me that FHA loans remained a victory for the "little guy." They are loans that first-time home buyers can count on to help them achieve their dreams of home ownership. If that goes away, it has to make one wonder about all of the money that the Treasury has spent on recovery- even the $8k tax credit.

What good is a tax credit if no one can buy? Hmmmm....

House Votes to Extend First-Time Home Buyer Tax Credit for Service Members

2009-10-09T14:23:00.000-07:00

By: Luke Mullins
www.usnews.com
October 8th

Amid mounting speculation over the future of the $8,000 first-time home buyer tax credit, Congress moved today to give American service members another 12 months to claim the popular incentive. The House of Representatives voted 416 to 0 to pass the Service Members Home Ownership Tax Act of 2009, which pushes the credit's current November 30 deadline back an additional year for members of the military, Foreign Service, and intelligence corps who served at least three months of qualified overseas duty in 2009. "This bill makes sure that the brave men and women who put their lives on the line every day get to enjoy the same benefits as every other American who benefits from their service," said Rep. Charles Rangel, the New York Democrat who introduced the bill. "By extending the first-time homebuyer tax credit for service members overseas, we give these families more time to utilize the benefit, while also helping our economy continue its recovery." Here are five things you need to know about the development:

1. Missing out: The $8,000 first-time home buyer tax credit was part of President Barack Obama's $787 billion economic stimulus package, which he signed into law in February. The incentive has since been popular with home buyers; Mark Zandi, the chief economist at Moody's Economy.com, expects the program to generate as many as 400,000 additional new and existing home sales by the end of November, when the program is set to expire. But since many American service members have been living overseas, it has been difficult for them to take advantage of the program. "If you are in a conflict zone, you don't have time to get together with your spouse and family to go house shopping," says Rep. Ron Kind, a Wisconsin Democrat. Rep. Dave Camp, a Republican from Michigan, expressed similar concerns. "A lot of service members get called overseas at a moment's notice," Camp says. "And because of the time limit on the legislation now, they can't always take advantage of it, not because of anything that they did or didn't do but because of the unique nature of serving in our armed forces." The legislation the House passed today provides American service members with additional latitude to take advantage of the credit.

2. Impact: Robert Dietz, the director of tax issues for the National Association of Home Builders, estimates that the new legislation will result in an additional 10,000 home sales. (Kind projected a similar outcome.) And while these additional sales are unlikely to affect the real estate market at the national level, since service members tend to live in clusters—around Army bases, for example—the extension could end up benefiting some individual housing markets more profoundly, Dietz says. "Ordinarily, I would say 10,000 [additional home sales] is not a big deal," Dietz says. "But in this case, in certain communities—since housing is local—it could be a decent [boost]."

3. Costs: The housing tax credit components of the bill are projected to trigger a $77 million loss of federal over the next 10 years. Other parts of the bill, however, generate enough new income—by raising penalties associated with late filings of certain partnership and corporation documents, for example—to ensure that it will not add to the government's yawning budget deficits. "It's revenue neutral," Camp says. "It was fully paid for."

4. Political outlook: From here, the action now moves to the Senate, which must also pass the measure before it can be signed by the president. "I would expect it is going to receive wide bipartisan support," Kind says. "It's the least that our government can do for our service men and women." Scott Talbott, a top lobbyist for the Financial Services Roundtable, agrees. "It probably has even better odds in the Senate," he says. "Service men and women need it as much as anyone."

5. Extension for all first-time buyers: The development comes as lawmakers step up their efforts to extend the tax credit for all first-time homebuyers. The issue was raised yesterday during a meeting at the White House between congressional leaders and President Obama." We need to continue working toward ensuring that more families can stay in their current homes and continue efforts to strengthen the housing market by extending the homebuyer tax credit," Senate Majority Leader Harry Reid, a Democrat from Nevada, said after the meeting. Senator Johnny Isakson, a Republican from Georgia, has introduced legislation that would extend the credit for an additional year. Reid, meanwhile, has endorsed a bill introduced by Maryland Sen. Ben Cardin, a Democrat, pushing the deadline back for six months. Talbott says the six-month extension is "very likely" to become a reality. "It threads the needles of politics and costs," Talbott says. "The U.S. economy and the housing market desperately need it."

New Life for the First-Time Credit?

2009-09-28T13:58:00.000-07:00

By Kenneth R. Harney
Saturday, September 26, 2009

Will Congress extend the wildly popular $8,000 home-buyer tax credit beyond its Nov. 30 expiration date?

That's a question generating huge pressure on Capitol Hill from would-be buyers who haven't found the right house, realty agents, builders, lenders and squads of lobbyists working on their behalf.

Here's the first hint of an answer: On Sept. 17, the leadership of Congress's primary tax-writing committee introduced a tax credit bill that's likely to zip through the House and quickly move to the Senate. House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) sponsored the bipartisan Service Members Homeownership Tax Act (H.R. 3590), which would extend the credit 12 months for thousands of military, Foreign Service and intelligence agency personnel who have been posted abroad in 2009.

Rangel's bill, with 29 co-sponsors, would keep the credit alive through Nov. 30, 2010, for service members who had at least 90 days of overseas duty assignments in 2009 and who otherwise meet the eligibility tests for the credit. The bill would also prohibit the Internal Revenue Service from "recapturing" the $8,000 credit when service members are forced to sell or rent out their houses because they are ordered to deploy to a different duty station.
Under the rules of the program, buyers who obtain the credit must use their houses as a principal residence for 36 months or repay the credit to the IRS. As a result of the 36-month rule, many military and diplomatic employees have been hesitant to buy a house and claim the credit, or are worried that their absence from the country could force them to repay the money.
For example, the spouse of a Foreign Service officer posted to the Philippines this summer for a two-year assignment wrote to Rep. Earl Blumenauer (D-Ore.) to alert him to a flaw in the tax-credit program. The Oregon couple bought their first home earlier this year, encouraged by affordable prices and the $8,000 credit. But having now been posted abroad, they cannot claim to occupy the house as their principal residence. Under current rules, they even face recapture of the full credit.

Blumenauer, who is a member of the Ways and Means Committee, said, "It is absurd that thousands of Americans serving our country, away from friends and family, must choose between their service work and homeownership." He wrote corrective legislative language that ultimately was incorporated into Rangel's tax bill.

Though nothing is guaranteed on Capitol Hill, legislation eliminating tax penalties on the military during wartime looks like a good bet for early passage in both houses. Equally significant: It now appears likely that there will be an $8,000 tax credit available a year from now -- at least for some purchasers. That raises the question: Why not leave it in place for all first-time buyers?
There's growing support for that on both sides of the Capitol, but there are also some complicating issues. In the Senate, the most outspoken advocate for months has been a Republican, Sen. Johnny Isakson of Georgia, a former real estate broker. He wants not only to extend the credit to Dec. 1, 2010, but to raise the maximum to $15,000, and make it available to all home buyers next year.

But recently, key Senate Democrats produced their own version of an extension, limited to six months, retaining the ceiling at $8,000 and targeting only first-time purchasers. The bill's primary sponsor is Sen. Benjamin Cardin (D-Md.). Democratic co-sponsors include Majority Leader Harry M. Reid of Nevada and Debbie Stabenow of Michigan. Republicans John Ensign of Nevada and Isakson have signed on as well.

In a statement, Cardin raised what may prove to be the crucial issue affecting the scope and duration of any credit extension: cost. "A six-month extension is a fiscally responsible way to provide adequate time to nudge even more prospective homebuyers off the sidelines," he said.
Estimates of the revenue costs of the current credit vary widely, from $3 billion to $8 billion and higher. How do you pay for any extension without worsening the budget deficit? The new Rangel bill includes an answer: You raise taxes somewhere else -- you "pay as you go." The Rangel bill pays for most of the service members' credit extension by increasing IRS penalties on taxpayers who fail to file partnership or "S" corporation returns.

This would raise an estimated $327 million over the next 10 years. Where and how to raise taxes to cover the far larger cost of a six-month or 12-month extension of the current tax credit could prove much more controversial.

Kenneth R. Harney's e-mail address is kenharney@earthlink.net.

First-Time Home Buyers in Limbo As Congress Weighs Credit Extension

2009-09-03T12:43:00.000-07:00

By Kenneth R. HarneySaturday, August 22, 2009

It's one of the biggest unknowns bugging would-be buyers of houses and condos this summer: Will Congress let this year's $8,000 tax credit for first-time buyers expire as scheduled 14 weeks from now? Or will the credit get a second life and be extended for another six to 12 months, taking pressure off buyers, realty agents and settlement companies?
That's an especially urgent matter if you're a buyer just starting to shop and you see entry-level prices bottoming out or rebounding in many local markets and you want to take advantage of the credit, which is more generous than last year's in that it doesn't have to be repaid. The tax-credit law requires buyers to close on their purchases -- not just be under contract -- no later than Nov. 30. This doesn't leave a lot of leeway for people who haven't yet decided on a house and who haven't nailed down mortgage financing.
The whole process of negotiating offers, signing sales contracts, applying for a loan and completing the closing can easily extend for two months -- or a lot longer if things get off track. Given the rapidly approaching deadline, what's the likelihood that Congress will blow the whistle and allow at least a little extra time? Here's a quick overview: Though Congress technically is on its summer break, most members of the Senate and House use part of the August recess to meet with and listen to constituents in their home districts.
This year, the two biggest housing trade groups -- the 1.2 million-member National Association of Realtors and the National Association of Home Builders -- are spending the month mounting unusually intense grass-roots lobbying campaigns to make the case for extending the credit, and maybe even expanding it. The effort is targeted first at the districts of members of the two tax-writing bodies, the House Ways and Means and Senate Finance committees, but is expected to cover most other members of Congress as well, according to officials of the two groups.

Delegations of home builders and realty brokers already have begun descending on district offices, delivering what Jerry Howard, president and chief executive of the builders association, calls "the hard economic facts." They are the numbers of houses sold in each congressman's district that are attributable to the tax credit; the economic ripple effects on local businesses, manufacturers and service industries; the number of new jobs and income generated; plus the additional tax revenue that all this activity will help produce for local governments.
On a national basis, according to economists at the National Association of Realtors, anywhere from 300,000 to 350,000 additional sales of houses will be stimulated this year by the credit. Each home sale generates about $63,000 in downstream "ripple effects" elsewhere in the economy, they say. That includes sales of furnishings, appliances, lawn mowers, landscaping and renovation materials, plus moving expenses.
If you accept the numbers -- and some analysts consider them a stretch -- this means the housing credit provides a powerful, immediate stimulus bang for the buck. Failure to extend what may be one of the most effective pieces of the Obama administration's 2009 stimulus legislation would cost jobs, economic growth and tax revenues, the housing groups argue.
There are some early signs Congress may be getting their message. Bills already are pending in both houses to extend the credit for another year. Senate Majority Leader Harry M. Reid (D-Nev.), whose state has been among the worst hit by the housing bust, reportedly now favors an extension of the credit. He was quoted to that effect by the Las Vegas Sun on Aug. 5, adding, "It's something we can get done."
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking, Housing and Urban Affairs Committee and in a tight race for reelection next year, is co-sponsor of a bill with Georgia Republican Johnny Isakson that would raise the credit amount to a maximum of $15,000. Meanwhile, the Realtors and the builders are pushing not only for extension of the credit, but for broadening it to cover all home purchases in 2010.
But can any of this happen before the Nov. 30 deadline? The key complicating factor here is Congress's heavy load of higher-profile, pressing issues that will get attention before anything else in September and October. That includes health-care reform, climate change and energy, financial system regulatory reform and a new Consumer Financial Protection Agency, among others. On top of that, a tax-credit extension would cost billions in lost revenue -- a big negative when the federal budget deficit is already wallowing in a record amount of red ink.
In the end, however, given the political economics of the housing credit, the odds favor some sort of extension, probably later rather than sooner. Don't bank on a bigger credit, however, or on a broadening of the concept to cover all buyers next year.
Kenneth R. Harney's e-mail address is kenharney@earthlink.net.

Fannie Mae Condo Changes

2009-08-21T16:17:00.000-07:00

More tinkering from the mortgage gods are making condos tougher to finance
Fannie is at it again. New condominium financing regulations will now require borrowers to carry a "Walls-in" policy to cover where the condo master policy leaves off. A quick conversation with my personal insurance agent (Patrick Kelly, State Farm) taught me a bit about these policies. I was trying to estimate the coverage amount for a typical purchase, but they assured me that it's not quite that simple. Like everything these days, credit score and other factors will make a difference for the borrower. I was able to determine that the range for a $100k plan could run anywhere from $200 to $400 per year. I promised not to hold them accountable to those numbers exactly, as they are pure estimates. This is important because the cost must be included in qualifying ratios.

Start house-hunting now to qualify for tax credit for first-time home buyers -- latimes.com

2009-08-18T16:05:00.001-07:00

Start house-hunting now to qualify for tax credit for first-time home buyers -- latimes.com

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Making Home Affordable: Response to Seattle Times Article

2009-07-06T15:17:00.000-07:00

This Sunday, July 5th, the front page of the real estate section featured an article that discussed the administration's "Making Home Affordable" program. This program was designed to help struggling homeowners refinance their mortgages even though they have lost some, most or all of their equity. The program sounds good and definitely gives people some hope in these difficult times. Because the program is government sponsored, there are two different variations- both mentioned in the article: one for Fannie Mae and one for Freddie Mac.

The artile does provide some useful (somewhat) information but, as seems to be the norm for the Seattle Times, misses the most important mark. The punchline for this program is that IT DOESN'T WORK. Here are a few reasons that the program that is intended to help those that are struggling isn't really helping:

1. Mortgage Insurance - If your loan has it, chances are this program is NOT going to work for you. Although the agencies (Fannie and Freddie) will refinance up to 125% of your current value, the private mortgage insurance companies are saying "No way." They don't have the capital to write policies for these high-risk loans. PMI companies weren't eligible for TARP funds and have been crushed by the number of claims that have been on their books.

2. The Banks - Do you think banks want to participate in this program? Of course not. Many banks have agreed to participate, but the actual execution has been tough. The implementation of the program from bank to bank is a lot different and many are imposing their own set of rules. Some banks will only allow these types of refinances on loans that they already service.

3. Second Mortgages - Do you have a second mortgage? If the answer is "yes" then you have to remember that the holder of the second mortgage has to allow you to refinance the first. This is called "Subordination." In practice, the second lien-holders out there aren't allowing the subordinations to go through.

Who this Program Really Helps- If you put 20% down and now you've lost a bunch of your equity, you are the target for this program. Don't expect to get a market rate for your loan, because the banks are marking up these rates due to the extra risk, but at least you are eligible for some help.

I looked at the Times website for the article to post, but I couldn't find it. Sorry!

Rates Gone Wild

2009-06-15T14:58:00.000-07:00

Well, it looks as if the days of record-setting low interest rates may be gone. Recently we have seen the average rates climb more than 1.5% from their all-time lows. Historically speaking, the rates are still great but they are a far cry from the “4%” that was the buzz in the media. I and many others in the mortgage industry were baffled when the news was continuously reporting on rates dipping down to 4%. We definitely got close, but the fact is (and is now apparent) that the market just won’t support rates that low. I have been talking with a lot of Realtors as well as clients about why rates are moving so quickly and why they don’t stay low. To answer that, you need to understand a little more about rates and how they are set.

Mortgage rates are a lot like other investments. There is no secret meeting of bank CEO’s that get together and decide how to charge the public. In fact, they move up and down according to market conditions. Although there is no one indicator that can be used to exactly predict the movement of rates, there is one indicator that is most helpful. Nearly all loans funded are currently guaranteed by Fannie Mae or Freddie Mac. These “agencies” package and sell mortgage-backed securities (MBS’s) in the form of FNMA bonds (or FHLMC bonds). These bonds are sold on the open market. Lately, because of the enormous refinance boom that we’ve been experiencing over the last few months there is an oversupply of bonds out there on the market and the investor appetite just isn’t there. You don’t need to have taken economics to understand that when the market is flooded, the prices go down. When prices go down on the bonds, rates go up to cover the difference for the banks that need to sell them to raise capital for more loans. That’s a (very) simplified overview on the basics of mortgage rates- but the question on everyone’s mind is: are rates going to recover?

It’s not likely that we are going to get back down to the levels that we saw a while ago. Thursday and Friday of this week we saw some good gains in the bond market, but they haven’t been fully realized at this point with the lender’s rates. My guess is that they are reluctant to lower the rates to entirely match the market due to the high volatility. It seems that with rates, they taketh quickly and giveth slowly- such is the way of banks.

Finally, a useful article in the Seattle Times...

2009-05-18T22:04:00.000-07:00

The Seattle Times finally took some column inches to print something useful in the real estate section of the Sunday edition. Not to pop off about the Times, but I find most of their articles to be lacking in content.

This article a welcome exception. I get a lot of questions about the first-time home buyer tax credit. This is a nice Q&A- check it out.

Q&A: Tax credit for first-time home buyers

HVCC: Home Valuation Code of Conduct

2009-04-30T22:11:00.000-07:00

Maybe you’ve heard, and maybe not- but either way things are changing. HVCC goes into effect tomorrow. HVCC stands for “Home Valuation Code of Conduct” and it’s definitely going to change things a bit. The basics, as it affects your lives and businesses are that appraisals are likely to be a little slower and more expensive starting tomorrow.

Many appraisers are leaving the business all together because of this new legislation. Because of the coercion of appraisers in New York by WAMU retail. Fannie Mae and Freddie Mac adopted the solution of the NY Attorney General and now it’s the law. NO person involved in the loan production process (loan officers, processors, assistants or anyone else that touches a file) can have any contact with an appraiser. It’s too bad, because many of us have long standing relationships with our business referral partners. Now there is another hand in the proverbial “cookie jar” in the form of appraisal management companies.

These companies have always existed. They were great to use if you needed to order an appraisal that was in an area that you weren’t familiar with; but now we have to use them every time. Also, with another layer of management, there is less money in it for the appraisers.

Alpine Mortgage has a good solution to the issue. We have contracted a company that charges a flat- per appraisal fee and added all of our trusted appraisers to a specific “Alpine Mortgage” list. The appraiser will be randomly selected from this group of tested professionals. We feel like this is a good solution. At least we wont have to worry about someone that we don’t know getting ahold of and possibly hindering a purchase. The flat fee for all appraisals with Alpine Mortgage is now going to be $470 for standard full appraisals. The costs are different on high-end or unique properties, as they’ve always been, but this is the standard.

It’s unfortunate that we have to raise the fees, but this way our designated appraisers aren’t taking the full lump on the head and we can keep the solid professionals in the business.

Thanks for reading.

Long Time Without a Post

2009-04-27T22:26:00.000-07:00

Wow, I just realized that I haven't posted in a loooooong time. The good news is that I've been busy working with a lot of refinances as well as some purchases. Also, I just attended an all-day class from the Washington State Housing Finance Commission. This was a great class and I learned a lot about financing for first-time home buyers of low to moderate means. There's a bunch to say about that, so stay tuned for a full post just about that!

Talk to you soon.

MUST WATCH

2009-04-07T12:09:00.000-07:00

This episode of Frontline on PBS was excellent. My good friend Zach who is an MBA grad student at WWU with a finance background emailed it to me and I HAVE to share it. I think that it is fair to both parties and illustrates some of the problems with the economy.

FRONTLINE: Ten Trillion and counting

Credit Tips and Information

2009-03-17T22:09:00.000-07:00

I spoke today at my office meeting about the importance of having a good credit score. The difference between having a 740 and 620 score is about 1.325% and a discount point added to your closing costs.

There is a TON of misinformation out there, so getting straight answers is tough. I've taken classes offered by credit reporting companies and have the advance of looking at many credit reports which gives me a certain level of expertise over most. Here are a few websites that I use and recommend to all of my clients and business partners. Check them out.

www.annualcreditreport.com

This site is a portal to the 3 major credit bureaus and gives you access to one free report from each bureau once annually.

www.myFICO.com

This is the consumer site for the Fair Issac corporation which creates the FICO scoring models and is by far the most widely used by banks and other financial institutions.

www.OptOutPreScreen.com

This site gives you the ability to opt-out of all preapproved offers of credit. I recommend this site to EVERYONE. Just think- a world without preapporoved credit card offers in the mail...

Call or email me if you have any questions or want to talk!

Jon

A Bowling Ball in a Garden Hose...

2009-03-13T10:30:00.000-07:00

I am a little frustrated with the mortgage industry right now. Underwriting turn-times are getting out of control with MANY lenders. There are many lenders quoting 20 plus days to underwrite both purchases and refinances. That needs to change, but it probably won't be able to for a while.

The entire industry has had to adjust to the new lending climate- less loans funding, smaller profit margins and greater losses on the servicing end. This leads to, you guessed it, downsizing. When rates were higher and the flood of money slowed to a trickle, banks responded by "right-sizing" their operations and laying off underwriters, funders and other necessary personnel. You can't blame them, they did what they had to do. Underwriters didn't have loans to underwrite and I would suspect that many were getting pretty good at minesweeper (if you know what I mean).

Fast forward to today- rates are low and the number of new loan submissions is sky-high. You may have seen on the news or read that the number of loan submissions has increased and that the industry is busy. That would be great if all of the submitted loans were closing. There are a huge number of junk loans clogging the pipelines at lenders. There are a lot of crummy loan officers that have no problem taking ten loan application a day and submitting them all to banks. I don't look at loans as darts that are thrown at a giant dartboard. LO's are an opportunistic bunch and will try to make money however they can. Not all of the blame can go to the LO's though- many times the loan companies are pressuring the loan officers to get the apps and get them in. I think that's just stupid. Why should I (or any other responsible LO) try to coerce out clients into refinancing if we don't honestly see a reason to do so or if the scenario doesn't pass the sniff test? Crazy.

I'd rather have a smaller number of MAKE SENSE files in that have a CHANCE OF CLOSING than a ton of crappy apps that die. If everyone thought like me, maybe the pipelines would clear and the good loans could find in a timely manor.

Ugh...

Making Home Affordable: New Plan to Help Struggling Home Owners

2009-03-09T21:46:00.000-07:00

I'm a little late writing about this, but better late than never right?

Finally, there is a plan in place with some details on how the US Treasury is going to try to help as many of the estimated 9 million or so troubled home owners as possible. In a Treasury Department press release the details were summarized. It is yet unclear to me whether or not loan originators (like me) are going to be involved in the process, or if it will just be the loan servicers. To clarify, a loan servicer is the person you write the check to every month. Once they take your money, they take their cut and distribute the money to the investors who own your loan. Until now, many servicers have been unwilling to help struggling families until they were severely late on their mortgages, or even in foreclosure. Now, the government is adding a cash incentive for banks to help consumers work it out. Banks really have yet to embrace the new program and put it in motion, but help is on the way.

Apparently, all banks that are receiving federal assistance are going to be required to participate in the program. I guess that's the power that hundreds of billions of dollars buys you, right? I read today that Fannie and Freddie are outlining the details in their selling guides now and the refinances should start somewhere around April 4th (my birthday) or so.

I will keep all of you posted on details as I read and digest them. There is a lot of information flying around out there, but the reality is, only a very small percentage of it really matters. There are countless programs and changes that have been proposed and even enacted- but unless the banks hopped on board, they just didn't matter.

On a positive note- I think all of this is very exciting and think that we are definitely headed in the right direction and will see some good news soon!

Maybe the Most Significant Government Site in History

2009-02-26T23:13:00.000-08:00

I just caught wind of the site recovery.gov. You are immediately greeted by a message from President Obama explaining the purpose of the site. Now, I don't want to get political- this just isn't the correct venue, but this is exciting. The government has spent a lot of our hard earned (and apparently easily lost) money already with TARP and various bail-out's of different institutions. Now we are going to foot the bill for the new recovery plan which has a hefty $780 Billion price tag. Ouch! Obama has the right idea- American people are smart. Give us the opportunity to know what is going on and participate in the process, and we'll surprise you. There are only 583 (don't quote me, I'm going off memory here) Senators and Representatives, a Vice President and a President. There are around 300 million of us. I think it's safe to say that they're spending our money and we have a right to know where it's going. Now we'll know. I love that the administration is embracing technology and making the government more accessible for the people. Yes, I know that many will argue that the elderly are disenfranchised by the inclusion of technology, but seriously, give me a break. The Internet is the greatest tool humankind has ever built. Let's use it.

Take the time and check out the site. It's your money.

recovery.gov

Interesting Info on FHA and VA Loans

2009-02-23T11:43:00.000-08:00

With all of the news about Fannie and Freddie, it seems like we are all becoming experts on the secondary mortgage market. Less known is the not-so-distant cousin of the mortgage giants- Ginnie Mae. FHA and VA loans are both possible because of Ginnie Mae. I was thinking about how to best write about who they are and what they do, but why re-invent the wheel? The best information is on their website. It is clearly written and easy to understand. Here is a link to their "About US" page take a look for yourself...

http://ginniemae.gov

First-Time Home Buyer Tax Credit

2009-02-20T13:51:00.000-08:00

Okay, you want some free money from the government? All you have to do is go out and buy a house! -and hopefully use me for your financing :)

Here are the basics:

The tax credit is for first-time home buyers only.
The tax credit does not have to be repaid.
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

There you go! I've gotten a lot of questions about this one, so feel free to comment with yours and I'll respond in the blog so that everyone can see the answers.

Obama Housing Plan

2009-02-20T13:33:00.000-08:00

There's been a lot going on lately (as I'm sure you know) so I haven't been writing as much as I'd like. President Obama signed in to law the American Recovery and Reinvestment Act of 2009 and there are some major changes on the horizon for the housing industry. A few days ago a document was released on the US Treasury web site that outlines the administration's plan to help/save the housing market. It's definitely worth looking at and reading for yourself. Click here to view the document.

There are three main ways the govt. is planning on helping out.

First, they are going to try to help people refinance in to lower interest loans. Many people are having trouble refinancing now because the values of their house has gone down and they no longer qualify with the stringent requirements laid out by the banks. Big brother is going to try to help you out.

Second, the govt. is going to try to get your servicer to work with you if your drowning by incentivizing them to modify your loan. They are not going to use any of the $75M earmarked for this to help out investors or speculators- this is just for the people that live in their homes and can't make their payments. I think that this is the most noble part of the plan. Now they are going to talk to you and try to work something out BEFORE you default on your loan. I think this could really save our butts if they roll it out right.

Third, they are going to strengthen Fannnie and Freddie (FNMA, FHLMC) by increasing the total amount of loans they can fund be $50B to $900B. That's a lot of money. There are other parts of this- including the rumor of possibly nationalizing the agencies, but we'll see.

If you read the full document (3 pages) you will notice that there aren't really any details. They are slated to release the plan details on or around March 4th. I'll know more then!

Big News!

2009-02-08T17:07:00.001-08:00

I wanted to post a quick note to let everyone know that I am changing mortgage companies. I know that it was only five months ago that many of you were alerted of my switch to Homestead Mortgage, but the time has come for me to move again. I am moving my business to a closer local company that has a long standing good reputation in the community: Alpine Mortgage. I invite you to check them out on the web by clicking their name above.

I think this is a good move for me and my business. I have been meeting with the president of the company as well as their head of development for a while now and am ready to make the move. As of Monday the 9th of Feb, I am going to be brokered with my new company. My phone number remains unchanged, as will all other methods of contact except for my company email address. Only a few people use it, but jwagher@homestead-mortgage.com will no doubt start bouncing emails soon. Instead, use my Gmail account if you need to send me a mail. Click Here to email me and save my address.

I would love to discuss why I left with all of you if you are curious, and I'm sure that I'll talk to many of you in the coming days and weeks. Feel free to give me a call or watch for a letter in the mailbox from me that will tell you all more about the switch.

I know that there are several of you that currently have applications in with me and are definitely wondering what is going to happen to your file. Please understand that I have everything under control and have taken a lot of time to make sure that this transition will go smoothly. The only detail that you may notice is that if we are currently working on a loan together I will need to meet with you and have you sign a new set of disclosures specific to my new company. All terms of your loan are not going to change and everything will hum along just fine.

Thanks so much for reading,

Jon

Q&A: Are There Still Zero-Down Loan Options?

2009-01-30T13:42:00.000-08:00

Question: Are there still options for zero-down loans?

Answer: YES!

You can still obtain a mortgage with no down payment. It's not as easy as it used to be, but there are still a few programs out there. Loans that are insured by the VA are still funding with LTV's (loan-to-value ratios) of up to 100%. Also available but not as well known are USDA insured loans. These loans aren't just for farms! USDA loans can be used to fund single family homes in rural areas. Believe it or not- most of Snohomish and a bunch of King County qualifies! There are (as you can guess) a lot of restrictions of both VA and USDA loans, so if you would like to know more, email or give me a call and I can go over a scenario with you.

Some non-government-backed options are out there, but the rates are TERRIBLE and they are nearly impossible to qualify for.

The State of Washington also has a bond program called the "House Key Program" which can allow first-time home buyers who fit a certain set of criteria to purchase with no down payment. I'm not currently able to do these loans, but am working on it. It is directly contrary to my self-interest to mention these loans, as I can not fund them, but hey, you deserve the answers. :)

Q&A: No Fee Mortgage

2009-01-26T10:02:00.000-08:00

Question: My coworker got a no-fee refinance? Can you do a no fee mortgage?

Answer: The simple answer is yes.

It is possible for me to give someone a no-fee mortgage. In practice, however, I have funded very few because for most people it's just not a good deal. That's a bold statement, so I'll go a little further to explain my position... Have you ever heard the expression, "There's no free lunch?" That about sums up the situation. The simple fact is that no one works for free. Every person that looks at a piece of paper that you sign has to be paid to read it. That money is going to come from somewhere.

There are two places that it comes from- you directly, or the bank. Banks are smart about this and don't mind paying your fees for you. You might think that you're getting a great deal because you don't pay a bunch out of pocket, but there's a catch- you have to pay a premium interest rate. The banks will give you a higher-than-market rate in exchange for the lack of fees. In the long run it never pays off.

Here is a comparison of a mortgage with fees and without:

	With Fees	No Fees
Loan Amount	$250,000	$250,000
Rate	4.875%	5.5%
APR	5.021%	5.683%
Payment	$1,323/mo.	$1,420/mo.
Due at Closing (estimated)	$4,800	$0 (depending on what is included)

As you can see, there are significant savings in your monthly payment. After fifty months, you come out ahead by paying the fees up front and not financing them. This is good information, but the real story is what happens if you keep the loan for a long, long time. After thirty years the difference in interest that you pay is $30,000. That's a lot of cash.

The moral of the story is that each consumer needs to decide for themselves what the best deal is and how their mortgage is going to incorporate in their greater financial and life plans. My job is to coherently present all options to my clients so that they can make an informed decision.

A Call for Questions

2009-01-18T21:54:00.000-08:00

I need help writing my blog from time and you're just the person to help me out! Email me your questions or ideas for my writing and I'll answer them (anonymously, unless you otherwise specify) in my blog.

Also, this will help me better understand what questions are out there and make sure I'm communicating relevant information.

Email Me

Float or Lock: Part 2

2009-01-18T13:53:00.000-08:00

As promised, I'll write a little about what happens when you lock your loan...

There's a little more involved with locking than just faxing a piece of paper with a bunch of numbers and loan details. Before I offer you (or any client) a lock I have to do my research. There's a lot more to finding the right loan than just checking the interest rates. Not all banks are created equal when it comes to service. If they aren't going to be able to underwrite the loan in a reasonable amount of time, then that definitely affects the lock period that is required. If you go beyond your lock period, it typically costs money to extend- therefore, choosing the right bank for each client and their unique needs is essential.

There are also other considerations with locks. For instance, there is the concept of "pull-through." This term relates to the ratio of loans locked with a particular lender or investor versus the number of loans closed. This is a very important concept because it has a direct impact on the interest rates that I am able to offer to my clients. It is important to lenders that their locks perform because when a loan is locked a process begins. When a lock is registered with a particular lender, their secondary marketing department begins the packaging process and bundles the loan into blocks with other mortgages to sell to investors. It the locks are blown, the block of mortgages lose value and that chips into the bank's yield. With little exception, your loan is packaged and awaiting delivery soon after registration. Who's buying these loans anyways, you ask? Typically it's either going to be a bigger bank with more money to lend or Fannie/Freddie themselves.

At this point you may be seeing the problem. If it is a falling interest rate environment, this is where my job can become a lot more stressful. It is no easy task figuring out when the right time for my clients to lock is, or answering the calls if the rates fall lower after they do lock. It's important for me to always make sure that my clients are getting a good interest rate and don't feel like they can do better anywhere else.

Lenders aren't unreasonable though, they understand that if interest rates are falling, lenders are going to want to move their locks to different banks to capitalize on lower rates. As a result, many offer "float-down's" or other incentives to keep the loans right where they are. It nearly always costs some money, around .125-.5% (of the loan amount) depending on the lender, but it's nearly always worth it for me to pay to preserve the relationship with the lender and to get my client a great rate.

If I have a large number of locked loans fall through or don't properly manage my pipeline then I risk not having access to competitive rates and losing business (not good). Pipeline management and market analysis is key. With the volitility that we are seeing in the market these days it's more important than ever to be a full-time mortgage professional and pay attention to what's happening in the market.

Mortgage Bonds Dropping Sends Rates Higher

2009-01-16T15:56:00.000-08:00

Fixed rate loans rose by about .25% today as mortgage bonds were hit. There was some bad news in financial sector (again) with Citi and Bank of America both posting major losses.

Citi reported $8.29 billion in losses for the fourth quarter. They are on the record stating 2008 as their worst year ever. It's worth qualifying that by saying that they've been around since 1812; I'd say that's a while...

Bank of America lost a mere $1.79 billion in the fourth quarter to round out one of their worst years. They stated that this is their first yearly loss in seven years. Please excuse me if I don't congratulate them for their stellar performance. I own some B of A stock and, let me tell you, it's a dog (and not even a cute dog). On the positive side- they did bail out Countrywide and Merrill Lynch. Word has it that they are going to get a bunch more money from the government (read: Joe the Tax Payer).

Back on point:
Today saw money shift from the bond market back into the stock market which drove the 4.0% FNMA bond down 44 bps (basis points: 100bp = 1%). Rates are up across the board as a result. This is totally lame for people that had to lock today but if you didn't hear from me about locking your loan, there's a reason.

I think this is a temporary dip in the market and suggest waiting it out. The government is busy spending their $500 billion on mortgage-backed securities which definitely is, and will further help bond prices. To date they have only spent about $33 billion, so there's a long way to go. Also, we are seeing some of the lowest inflation since 1957. In 2008 the inflation rate was about 0.7%. When you consider that mortgages are long-term loans, inflation is VERY important. Historically rates rise when inflation rises- just look at the 1980's.

Float or Lock: Part 1

2009-01-13T22:28:00.000-08:00

In today's market it can be very tough to know when to lock and when to float. In case you're not familiar with the terminology, here's a quick explanation...

Locking simply means that you are in essence "reserving" your interest rate with a lender with a specific loan program selected. Once you lock, you have done just that- you're locked in.

Floating is just like it sounds- you are following the market and will make your decision when you are good and ready. Floating can be beneficial, but also risky. If the market gets worse and you get to the point that you have to lock, then you are subject to whatever rate the market dictates.

The market has been holding steady below 5% lately, so there's no pressure to lock right now. Mortgage bonds lost a little today but are up a smidge on the week so far. Mortgage bonds are the primary indicator of interest rates, so they are always the largest focus when I'm looking at the market. Remember, rising bonds mean falling rates. I'll probably write more about that in another post some time...

In part 2 I'll go into what actually happens when you lock your loan. You'll be shocked! (probably not, but it is pretty interesting)

My First Post: Welcome to my Blog

2009-01-12T23:35:00.000-08:00

Thanks for checking out my first blog. My hope in writing is to better keep you, my friends, clients, business partners and family informed about what I am doing with work and what is happening in the mortgage universe.

There is of course no shortage of information available to all of you about what is happening in the economy. My hope is to add perspective when I can so that you can know what I know and hear what I have to say about things. There is an inherent bias that I will try to keep under control due to the fact that I originate mortgages. This will likely be mitigated by the obsessive media bias towards the doomsday and sensational. I assume that most of you who are reading my posts will have spoken with me from time to time about mortgages and will appreciate hearing what I have to say; often to be responses to articles and things that I read in the paper.

I am your humble mortgage advisor and I hope that you enjoy reading this blog and find it to be a useful and informative way for you to spend a few minutes every now and then. I welcome comments and questions. If you post questions publicly, I will do my best to answer them publicly so that everyone has the opportunity to read the answer. If you have a question that you would rather not share or would like a private response, call or email me.

Thanks so much,

Jon