Many borrowers are looking to modify their mortgage when there is an easier refinance alternative right in front of them.
Don’t try to modify mortgage just because you owe more than your home is worth. Reuters reported today that the Obama administration is behind on their goals for mortgage modifications and is still seeking alternative ways to help homeowners hang on to their homes. What many people are not aware of is that government sponsored enterprises such as Fannie Mae and Freddie Mac have relaxed some of the mortgage guidelines when it comes to existing homeowners who have lost value in their homes. Many times when I call upon a customer I begin to qualify them for a refinance and they tell me they are in the middle of a loan modification. When I sit down and do the math I end up asking the question “why don’t you just refinance your mortgage?”. If you have a perfect mortgage history, you should be looking at a refinance first before any talk of a modification.
The Home Affordable modification program is running behind on its goals because the pipeline of modifications that was in process had to be looked at all over again based on the new set of rules that came out on April 1st, 2009. There are people out there who have been trying to modify for eight months now. If they succeed their credit will reflect this and their credit scores will be compromised. When a bank does a modification they look at net income (after taxes) and every single expense in the entire budget of the household. This includes food, gas, electricity, car insurance, phone, cable, entertainment, etc. When a lender analyzes a refinance they look at gross income (before taxes), the mortgage payment and the debts that appear on the credit report. A loan modification is quite often granted to someone with a 100% to 110% debt ratio. A mortgage loan is often granted to someone with a debt ratio of 30-50%. (Mortgage and consumer debt compared to gross income.)
Here are some startling facts for borrowers who are thinking of modifying who really fall into the other side of the Home Affordable legislation. (The mortgages refinance side)
Banks are looking at present values and previous values now. In some cases they will take into account the value three years prior and compare. Florida, California did you hear this? If the only issue is that the customer is upside down, we have a legitimate shot at the loan. In some cases we can get an appraisal waiver to completely avoid an appraisal. In other cases we can do a manual underwrite and get a loan up to 125% of the value of the home. Even more, in many cases, we can do the same loan without verifying income.
A loan modification requires that we show the problem, like a layoff or a cut in income, and then we show the fix or some underlying reason why we should give this person a second chance. A mortgage loan looks for continuity in pay and work history. It has been my experience that customers who are current on their mortgage get turned down for loan modifications where customers who are current on their mortgage have a very good chance of getting approved for a refinance. If the only problem is that you are upside on your home you should be looking at the Home Affordable Refinance program through either Fannie Mae or Freddie Mac. Modifications stretch the term of the loan first, lower the interest rate second, lower the balance third, hardly ever. A refinance will lower the rate from say 6.625% to 5.125% and save approximately $130 to $500 a month and the work is done in 3 weeks to a month with no adverse effects on the customer’s credit bureau. Rates are expected to stay low until about the end of the year when the Federal Reserve is expected to stop purchasing American mortgage backed securities.
Written by Preston Ware, First South MortgageTel: 704-542-8057http://www.prestonware.comEmail preston@prestonware.com
Surfing for a Mortgage in Today's Market
Freddie Mac this week released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.04 percent with an average 0.6 point for the week ending September 24, 2009, unchanged from last week when it averaged 5.04 percent. Last year at this time, the 30-year FRM averaged 6.09 percent.
When customers surf for a low mortgage interest rate most of them do not understand that when they are quoting a monthly average like the Freddie Mac average, the number we get usually assumes about .6 tenths of an origination fee. Call it broker fee, origination fee or discount points, they all mean the same thing when it comes to the bottom line for the mortgage person. These fees along with application fee and processing fees are acceptable ways of charging the customer directly for the loan in an effort to keep the interest rate as low as possible. (Be careful if you intend to deduct the “points” you pay on your taxes because I believe “origination fee” is the only one that falls under the category of an acceptable deduction.)
So if you calling up mortgage guy Joe on the internet make sure you are comparing apples to apples. If you are comparing Freddie Macs 30 year fixed average rate, ask mortgage guy Joe to quote you a loan with .6 of 1% origination fee and his typical application fee and or processing fee. It’s unfair to mortgage guy Joe if you call him up and ask for a “no points” loan when you are comparing it to the national average of mortgage interest rates which includes .6 of 1% origination fee.
Increasingly customers are moving to the internet to shop for the lowest mortgage interest rate. They get hooked by an advertisement like “Fixed rate 4.25%” but don’t get a chance to read the fine print because there is no room for it on Google. Surfing for a mortgage understandably makes sense with the price of gas and our busy schedules. We don’t have time to coordinate a meeting with Bob at ABC Mortgage on the corner. The other part of it is that the educated consumer can move on to the next guy a lot easier. If you go sit in Bob’s office for an hour and drink his coffee, admire a picture of his kids and chat with his secretary, you will have a hard time telling him you found a better deal.
The problem with surfing for a mortgage by email is that customers don’t know what they don’t know. Quite often when I am doing the dance with a potential client and they insist on trading emails about the various facets of their loan, I beg them to pick up the phone and have a conversation. They may think they are asking all of the pertinent questions by email but they are not the loan officer. Most times, they are not aware of potential pitfalls and cannot look deep into the file. It is important to have a thorough discussion about each aspect of your loan. Loan program, appraised value, realtor, assets, credit, income, timeline, different lenders, trends in rates, lock time frames, escrow or no escrow, how much to escrow, coordinating the closing, post closing, etc. We will get the loan done right, have a nice conversation, skip the caffeine and still talk about the kids.
Written by Preston WareFirst South MortgageTel: 704-542-8057* http://www.prestonware.comEmail is preston@prestonware.com.
What makes for a valuable mortgage consultant for a realtor?
One way to ascertain what a realtor looks for in a good mortgage guy is to start with what a mortgage guy looks for in a good realtor. Maybe the fundamentals are the same. Looking back over the years, I probably haven’t courted the realtor relationship as much as I should have. Instead, I took the consumer direct approach knowing that I could always stand on my own two feet if I had to. A benefit of this was that I have always been good at providing referrals to the lucky realtor.
Thinking about a realtor buddy of mine whom I recall as the best ever here are a few attributes that he demonstrated on a consistent basis.
1.) He was extremely honest and focused.
2.) He could talk your ear off. Not babble just a lot to say.
3.) He had amazing instincts. Once I remember he made a comment about a listing that had abnormally low homeowner’s association dues. The listing was for a townhome that supposedly had a master insurance policy as well. Money was tight for the borrower so he drove half way across town and asked three random people in the parking lot of the complex and he was right, the listing was wrong and the new borrower would have been forced to find their own insurance making this place not a great value.
4.) When he gave a referral people believed him. In fact we got to the point that he would not work with any customer unless they were working with me as the finance guy. I have another realtor buddy who loves me to death who would tell his customers that I am so good “ I can part the red sea” That is a little bit of an oversell there.
5.) When we communicated it was efficient communication. We didn’t go around and around in circles and we remembered everything that was said.
6.) It was us against the world. There was no throwing each other under the bus. No matter who you work with, there will be set backs. This didn’t necessarily pertain to a customer or a file, but it did pertain to throwing some money at a marketing idea that didn’t work.
7.) We had other things to talk about. This guy happened to be a genius with the stock market so he would discuss a hot stock every now and then and give me a tip.
8.) He had a sense of humor.
9.) We did some co-marketing together. My favorite routine was call capture. I recall certain instances when the customer would call the hotline and then call his # on the sign and then I would be on the other line following up on the call capture. The customer would say, “Wow you guys rock!
10.) We made a bunch of money together.
Sadly my buddy moved from South Florida to upper state New York because his mother was ill and he wanted to help out his family. #11. He had his priorities straight .
So now I turn around and try to perceive what is it that a realtor needs the most from me, the mortgage guy. Hopefully I fit the criteria.
1.) I always thought the most important thing I do is be correct and have the ability to say yes, no or maybe on day one of looking at a potential customer. It is important to have the ability to look deep into the file and spot or avoid any potential pitfalls that can come back to bite the deal in the rear end at the end of the process. For me the worst possible thing that could ever happen would be to have my favorite realtor burn his/her time and gas and parade my borrower around for a month or two and then have the deal die a week before closing. To me that has got to be reason #1. Fortunately that is yet to happen.
2.) I have learned that there are other motivations for realtors. Nowadays many larger realty companies have become large enough where they own the mortgage company and the realtor get a piece of the mortgage pie. That is understandable but not everybody does that and usually those types of arrangement will lead to over charging the customer. I still enjoy working with the moms and pops out there.
3.) How important is the mortgage guys ability to market. Whether it is holding first time homebuyer seminars or doing some direct mailing together or his ability to refer previous customers, by joining forces we should be doubling our prospects.
4.) For me in today’s internet world I would think it is important to have an active professional web site. Linking up and driving traffic back and forth is easy and makes sense. Someone who can contribute 400 words every now and then helps add content to the web site and keeps the content looking fresh and enhances Google’s opinion of us with higher indexing and rankings.
5.) The ability to give the handoff referral to each other. If a realtor tells me to pre-qualify a guy, I will chase that person for quite a while to may sure the task gets done. It works the other way also. I want to work with someone who gets along with everybody I refer and is on his or her toes. If I refer someone and my future customer doesn’t get the warm fuzzy feeling they are looking for, that reflects on me and the deal may stop.
6.) Creative ideas and marketing ideas are the fun part of our business. Our world is constantly changing and we have to adapt. For a while, my realtor buddies and I had our own hot sauce with our pictures on it. At every lunch and open house customers found out that he had a lot of “hot ideas” or that it was a “hot buyers market”, and that my rates were sizzling, it was fun!
7.) Find a mortgage guy who is doing business now. Not that they were the biggest deal in town in 1990. In my world, you are only good as your last file. I am looking to make customers so happy; they refer to me for the rest of their life! I don’t know what the realtor version of this saying is but I am sure it is out there.
8.) I know something you don’t. On the flip side, this prerequisite pretty much guarantees that every person reading this article is a good candidate to work with me. I would love to hear some ideas.
9.) The ability to give the shameless plug for myself! I read somewhere the other day that 87% of real estate transactions are originating on the internet. I am looking for a few smart people in my service area which includes 17 states that want to try to leverage the power of the internet and other media together. Yes, this could mean you. J
Written by Preston Ware
First South Mortgage
704-542-8057
http://www.prestonware.com
preston@prestonware.com
When I am advising a client as to the best way to price their loan we usually look at three options. The most popular option is a mortgage loan with “no points”. This means there is no broker origination fee. The second most popular option is to price the loan with the lowest interest rate by “buying the rate down” by paying a point. This means inclusion of 1% of loan amount fee.
The third option that is quite often not even considered is the option where I pay closing costs for the customer. This option is typically available on larger loans, usually $200,000 or more. With loans that size, I can pay all of the closing costs if that’s the way the customer wants to price their loan.
Skeptics say to me, “Why would you do that? Don’t you lose money?” The answer is “No, definitely not.” To understand the concept you have to understand the mechanics of how a mortgage guy gets paid. The two ways we are compensated are by charging fees directly to the customer such as a mortgage origination fee or a broker fee or to receive service release premium or yield spread from the lender. It is paid outside of closing. The lender will pay a larger premium for a loan that is locked at a higher interest rate.
For example a loan at a 5% rate might have a yield spread premium of 1% where a loan at an interest rate of 5.5% could have a yield spread premium of 3% to the mortgage broker. Since the average amount of closing costs on a larger loan is about 1.7% - 2%, I can pay all the costs for that customer and still net my one percent earnings.
To answer the question what is the best scenario for me, you have to ask yourself, “How long do I intend to stay in this loan?” The average customer changes their mortgage every five years. For whatever reason, if you feel you may move or change jobs take a loan with no points and reap the benefit of a low interest rate with average costs. If you are buying your dream home and have no intention of moving ever again and rates in general are very low, look at paying a one point origination fee to secure the absolute lowest interest rate. This will keep accumulated interest the lowest of the three options.
Whenever we do the math on a mortgage refinance, we take the difference in cash flow savings between the old and new mortgages, divide it into hard closing costs and that gives us our break-even point. Quite often the paying the point option will have a break-even point of about 48 months. The break-even on the no point loan may be 30 months and the break-even point on the no cost loan is always zero months.
Even if you are bringing your rate down just a little, you reap the benefits on day 1 and it didn’t cost you anything.
Here is a typical scenario. A guy thinking about moving in two years when he retires has a loan of $250,000 at 6.375%. Even though the current prevailing interest rate is 5% with no points, I can take him down to 5.5% and pay all his closing costs. His payment drops by $140 per month and because of the timing of the payoff of the current mortgage and the start of the new mortgage he will skip a payment in the middle. His cash flow savings is about $5000 in two years time and it didn’t cost him a dime.
Written by Preston Ware of First South MortgageTel: 704-542-8057http://www.prestonware.comEmail is preston@prestonware.comCharlotte, NCExclusive to HULIQ
Mixed Signals about the Economy Continue
Federal Reserve Chairman Bernanke said today that the recession “Is very likely over” but job losses will continue to rise. Isn’t that like saying, I am in better shape now but I am still getting fatter? Of all the statistics that we hear about there are a few that hit home more than others. For me, being a mortgage broker, the interest rate is still the most important number in my life. Right now, we are enjoying low interest rates very similar to May of this year when we had a nice little refinance boom going on. Mortgage interest rates are low but banks are not backed up and applications levels are flat. That is surprising because purchase units are up and we are in the home stretch for the $8000 First Time Homebuyer Tax Credit that expires On December 1, 2009.
What is the key statistic that affects you the most? (Unemployment? Spending?)
Last week was the first week in a long time when my mortgage rate lock advisory gave me the float signal in both the short term and the long term time frame. Usually bad economic news for the markets improves my rates. Most of the indicators we are seeing are positive and/or exceeding expectations yet nothing has triggered mortgage interest rates to spike up. Does this mean that in spite of a few bright spots we all generally believe things will turn for the worse?
How do we look upon the spike in retail spending? Most of it was due to the cash for clunkers program. Car dealers had record months. Everybody bought their new car and traded in the clunker. The car salesman has some money in his or her pocket for a while. This is certainly a positive for the guys at the dealer and also the environment but what happens in 6 months? There is a perception of prosperity here for a moment but then everybody goes back to saving and being nervous about paying their mortgage and their car loan. It will be interesting to see how many of those loans default and customers are stuck with no car.
The balancing act continues. Earlier this week, Asian markets were lower amid concerns about US and China squabbling about trade disagreements. Obama put a tariff on Chinese made tires and China claims that we are dumping chicken. This doesn’t sound like too much trouble but any friction between our two countries makes the whole world nervous. Tires and chicken doesn’t exactly hit home with me but still enough news story and effect world markets.
On Wednesday information will be released on the consumer price index and industrial production data. Thursday housing starts. Being from Florida and witnessing the frenzy and then the crash, housing starts is one statistic that I can identify with. The trickle down theory when it comes to jobs is greatly affected by new home construction. Every phase of the building process means work for one set of contractors or another. Also consumer confidence about the long term strength of the economy is measured by borrowers willing to go into that 9 month struggle to build the new home the way they want it, ironing out all of the details with the builder.
I recall when I built my home, a good friend of mine said, “How’s your marriage?” Nowadays the saying might be, “How’s the economy?” “Where will my job be in 9 months?” Housing starts takes into account a longer view of forecasts instead of the month to month fluctuations of these other indexes that don’t really mean anything to the average American. Getting back to hard hit Florida where there is a larger percentage of self employed people, this number means a lot. Also implications on my favorite number, mortgage interest rates. Can’t wait for Thursday!
Representative Joe Wilson of South Carolina received criticism for yelling, “You lie!” at the president. More Photos >
By CARL HULSE
WASHINGTON — It was a rare breach of the protocol that governs ritualistic events in the Capitol.
His eruption — in response to Mr. Obama’s statement that Democratic health proposals would not cover illegal immigrants — stunned members of both parties in the House chamber.
Democrats said it showed lack of respect for the office of the presidency and was reminiscent of Republican disruptions at recent public forums on health care.
"I was embarrassed for the chamber and a Congress I love," Vice President Joseph R. Biden Jr. said Thursday on ABC’s "Good Morning America." "It demeaned the institution."
He said that he had not spoken to President Obama since the speech. But, "knowing the president, I’m sure he accepted the apology," The Associated Press reported.
After the speech, Rahm Emanuel, the White House chief of staff who sat a few rows in front of Mr. Wilson, said he immediately approached senior Republican lawmakers to encourage them to identify the heckler and urge him to issue an apology quickly.
“No president has ever been treated like that. Ever,” Mr. Emanuel said.
Other Democrats said they did not want to dwell on the outburst or allow it to overshadow what they saw as an effective address by the president. But they also said it bolstered their contention that some Republicans were not interested in constructive dialogue, and they noted that Democratic plans specifically barred coverage for illegal immigrants.
Republicans also said the heckling was out of line. “I think we ought to treat the president with respect,” said Senator Mitch McConnell of Kentucky, the Republican leader, “and anything other than that is not appropriate.”
And the House Republican whip, Eric I. Cantor of Virginia, told ABC on Thursday: "Obviously, the president of the United States is always welcome on Capitol Hill. He deserves respect and decorum.” He said that Mr. Wilson’s apology “was the appropriate thing to do."
But Representative Steny H. Hoyer of Maryland, the House Democratic leader, said Thursday he considered Mr. Wilson’s apology insufficient. "I think, frankly, he ought to apologize to the House as well," he told MSNBC.
Mr. Wilson seemed rattled in the wake of his comment, and quickly left the chamber at the end of the speech.
His office later issued an apology, saying: “This evening I let my emotions get the best of me when listening to the president’s remarks regarding the coverage of illegal immigrants in the health care bill. While I disagree with the president’s statement, my comments were inappropriate and regrettable. I extend sincere apologies to the president for this lack of civility.”
Mr. Wilson also phoned the White House and reached Mr. Emanuel, who accepted an apology on behalf of the president.
Critical body language and murmurs of disapproval are typical at presidential addresses and part of the political theater. But members of both parties were trying to recollect such a pointed attack from an individual lawmaker at a presidential address and noted that a similar remark could draw a formal reprimand if delivered at a routine session of the House.
When President Clinton addressed Congress in 1993 to push his health care plan, “both sides of the aisle received the President warmly,” according to a report in The New York Times at the time.
“But when he began talking about raising taxes on tobacco to pay for the plan, or the need to cut Medicare and Medicaid, many on the Republican side of the aisle began snickering, shaking their heads skeptically and making faces at each other,” the article said.
The national association of Realtors reported Friday that pending home sales rose 3.2% in July. This is great news because expectations were set at 2% and this now makes six months in a row in which pending home contracts have increased. This is the first time we have had such a streak in the eight year history of the Case-Shiller index. Many believe that the enthusiasm is being fueled by the $8000 First Time Homebuyer income tax credit that is set to expire on Dec 1st, 2009.
Washington is already talking about extending the credit, some want to take it one step further. The Home Ownership Moves the Economy (HOME) Act of 2009, introduced by Howard Coble (R-NC) would continue the availability of the credit into 2010 and allow all home buyers to take advantage of the program. This makes sense.
A first time homebuyer is someone who has not owned a home in three years or more. It doesn’t mean that you can be a 1st Time Homebuyer only once in your life. You can be considered a first time home buyer if you owned, then rented for three years and a day, then purchased again. In Florida we talked about real estate tax portability as a way of increasing home sales. This would allow homeowners to hold on to their low real estate tax bill. Residents, who enjoyed low tax bills for many years, could then move around the state, move closer to a job or family members or the beach without getting hit with an enormous increase in payment. Wouldn’t making the $8000 credit available to everyone have somewhat of the same effect in the short term? Our present incentive is mainly helping the younger upwardly mobile customers. Why not open this incentive up to everyone so other demographics can slip into something a little more comfortable.
Last year, for the first time in 60 years the population of Florida dropped. It dropped by approximately 58,000 people due to an ailing economy that misses its construction and tourism industries. Younger demographics are fleeing the state to go find a job. Older demographics are staying put elsewhere, (e.g. New York and New Jersey), afraid to make a move. Why not give an incentive back to seniors from all over the country to move into that condo on the shore which is at historically low prices.
An associate of mine mentioned an interesting thought to me the other day. He said that he thought the banks were watching the supply of foreclosures and holding back their inventory. Instead of flooding the market with a glut of foreclosed homes, they were monitoring the availability so that the ones out there are getting snatched up. Demand goes up for those few homes and eventually price. Others have said that the recent increase in the Case-Shiller Home Price Index is due to the mix of the homes being sold. Less distressed properties and more regular sales help boost the averages.
Expectations are that the first time homebuyer tax incentive will be extended in some shape of form. The most difficult time to sell a home is during the winter. Letting the expiration happen on December 1st, 2009 would throw a huge wrench into all of this momentum we are starting to see. I am banking that someone in Washington knows this. Hope so.
Written by Preston Ware of First South MortgageTel: 704-542-8057http://www.prestonware.comEmail is preston@prestonware.com.
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