Published Articles written by Preston Ware
Whenever possible, I try to write about current events that may effect the outcome of your mortgage decision. These mortgage topics include The New Good Faith Estimate, mortgage interest rates, mortgage loan prgrams, first time homebuyers, real estate prices, mortgage modifications and how to know that you are getting a good deal. I made an index to make the search a little easier.
Chairman Ben Bernanke continues his discussion before Congress (2/24/2010)
The FDIC may not be telling us something
Many Homeowners Refinancing are doing "Cash In" mortgages
The New Good Faith Estimate - designed to protect the rights of the client
Mixed Signals in the Mortgage Markets 11/07/2009
According to the Mortgage Association Mortgage applications for refinances are up 18% and purchase applications are up 12%, but will this continue?
Don't oversimplyfy the mortgage brokers job by asking , "what's the rate?" There are about six different variables that go into quoting your rate
Washington is talking about extending the first time homebuyer credit beyond Dec 1, 2009 and even making it available for everyone
There was a piece of legislation that passed this year called the Home Valuation Code of Conduct. (HVCC) It was designed to protect banks from shoddy appraisals. Unfortunately, it is putting honest appraisers out of business.
In some cases it makes sense for the mortgage broker to pay costs for the customer
Give the gift that keeps on giving- a down payment on a house
The Case-Schiller Index is starting to show more positive signs than negative signs
Don't be fooled by rogue mortgage modification companies. Here are some clues to let you know if you fit the profile of someone who can benefit from a mortgage modification.
Federal Reserve Ben Bernanke has mixed signals to study considering the fate of our economy
When you are getting a quote of an interest rate, you really should be getting a quote of a range of interest rates
A good measure of a fair interest rate is to compare the note rate and the annual persentage rate (APR)
A good way to determine if you have a bad good faith estimate is to look for line items that are missing
Learn about positive and negative signs for the economy and how they effect interest rates
Bernanke states that recession could be over
Eight part series that includes video that will help First Time Homebuyers be more prepared
Five part series that includes video of what to expect during my mortgage process
Video of why I have three advantages over a large bank. Speed, Pricing & Service
Refinancing a loan that has private mortgage insurance
Video about the Home Affordable Refinance Program (HARP) which allows some "A paper" borrowers to refinance their home up to 125% of it's value
Don’t Forget to Look at a No Closing Cost Mortgage?
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”. (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. (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.
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.
Look at Refinancing before Modifying
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.
Make First Time Homebuyer Tax Credit Available To Everyone
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.
Getting a Quote of a Mortgage Interest Rate
One of the most loaded questions when I first meet a customer is “What’s the interest rate?” If there is any hesitation or back tracking in my voice the customer’s radar immediately goes up. Whenever I am quoting interest rates in the beginning of the process, I quote a range of interest rates. There are so many factors that can affect the final interest rate for the customer it is better not to mislead them. The purpose of this article is to try to explain some of the variables that can affect the final note rate that appears on the borrower’s final closing documents.
Shopping for the Lowest Mortgage Rate: Study the Good Faith Estimate
It never stops to amaze me what some lenders pass for a good faith estimate. Typically when a customer starts shopping for his or her mortgage lender they will start by calling around to find the lowest mortgage rate. This is a cumbersome process and usually the customer will end up with some lender mentioned by some person to be honorable and trustworthy. It is kind of like finding a car mechanic; you want to hear from somebody that he or she is a “good guy and they will treat you right”.
Study the GFE and get The TIL and Look at the APR By the time you are ready to do your loan, these abbreviations should not sound like "Greek" to you http://www.huliq.com/1/84526/shopping-lowest-mortgage-rates
Learn how to Follow the Financial Markets When You are Considering Locking in Your Interest rate Usually the stock market and the bond market have an inverse relationship so normally a good day on the stock market is a bad day for interest rates. Please see article:
This article posted July 21, 2009 discusses some of the many issues being dealt with by Fed Chairman Ben Bernanke.
Federal Reserve chairman Ben Bernanke testified this morning and didn’t really bring to light any unexpected news about our economy. Labor markets are still weak and he intends to keep interest rates subdued for as long as possible without encouraging inflation. The housing markets need every possible incentive to encourage purchase activity.
Repeal The Home Valuation Code of Conduct legislation This legislation that came out a dispute in New York went into effect as of May 1, 2009. (HVCC) This legislation cripples appraisers who have spent their whole life building a business and providing service in an honorable manner. Please vote to repeal this legislation.
Do you Fit the Profile of Someone Who needs a Mortgage Modification? Understand the type of borrower profile that qualifies for a mortgage modification. This article also comments on what is a reasonable fee and how to recognize a scab when you are approached by one.
Recent positive signs in the housing market and why this will create upward pressure on interest rates.
Expect the mortgage rates to continue to edge upwards. Today's information regarding sales of new homes showed an 11% increase in units sold after home prices had fallen.
This is the largest increase in eight years and certainly exceeds expectations. Mortgage rates for Monday morning opened higher as a result of this information. Although this is bad news for customers in the middle of a home purchase or mortgage refinance, this is certainly good news for our economy which really has been hurt by this sector. Hopefully we can start talking about the props this will lend to our economy rather than the trickle down mess it has given us.
More discussion on Indexes such as The Standard's and Poor's Schiller Index which is an indication of which direction Home Values are headed.
Mortgage rates continued to rise for the past two weeks as good news about the housing markets continues to trickle in. This week new home sales were reported up with the biggest single month increase in 8 years.
Yesterday, Standard and Poor’s Schiller Index showed that home prices appreciated in eight cities and in parts of 38 states. That is great news for the real estate sector which many believe is turning the corner on this whole mess. The overall picture was described as “flat” or “a plateau” but to me that sounds a lot better than “falling”.
Surfing for a Mortgage
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 Ware
Equity Source Home Loans Tel: 561-329-0075
Email is email@example.com.
According to the Mortgage Bankers Association mortgage rates are officially under 5% with purchase applications jumping 13.2% and refinance applications jumping a whopping 18.2% compared to the previous week’s results. Remember when we are quoting averages of mortgage interest rates, the average usually assumes there is .6 % of an origination point or fee involved. Having historically low mortgage rates is always great news but here are a few things to keep in mind concerning our current marketplace.
The current deadline on the $8000 homebuyer tax credit is Dec 1st, 2009. A spike in purchase applications might be a bubble due to the deadline of the homebuyer tax credit going away. Do I think our government will extend this credit? Yes When do I think they will extend this credit? November 30th. In my mind it wouldn’t make sense to extend the $8000 first time homebuyer tax credit prematurely otherwise it would only encourage buyers to go sit on the fence a little while longer. Personally, I would like to see Washington take this whole idea 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 would have a tremendous effect on places like Florida where for the first time in 60 years the state lost population rather than gained it. Why not provide the tax savings opportunity to other demographics of our population. I am sure many seniors who have owned homes for years would love to go find a bargain condo in Florida or similar places. They also would probably have the 20% necessary to get around some of the tough condo-commando ownership rules.
Refinance applications are back to the levels we had in May. I recall missing a few applications back then on that dreadful Thursday when rates jumped .25% in a day. Needless to say I have called those customers back. FHA customers should be looking at streamline refinances as well. The Home Affordable Refinance loans are still available until June of 2010. These types of mortgage loans help homeowners who put their 20% down when they purchased or had existing equity when they refinanced and saw their values whither away. Customers can still do a rate/term refinance up to 105% of the value of their home without force placed lender mortgage insurance. Restrictions do apply but this is a great loan for good Fannie Mae/Freddie Mac customers. Homeowners who obtained their previous financing in the spring and summer of 2006 and 2007 and the end of 2008 should take a look at the above market pricing that they are paying.
One big difference between May 2009 and now is that we presently have some amazingly low adjustable rate mortgages as well. Adjustable rate mortgages have burst back on to the marketplace. Where you can go get a 30 fixed rate loan under 5% now, you can also go get a 5/1 ARM lower than 4%. This allows mortgage holders to capture huge savings in the short term. These loans are great for customers who are expecting a five year time frame or less in their existing homes. Adjustable rate mortgages can translate into even larger savings for Jumbo and Super Jumbo mortgage customers who typically are not offered a fixed rate. These loans are calculated with low margins so we shouldn’t hear the horror stories associated with the sub-prime adjustable rate loans. When looking at this loan make sure you get a copy of the Federal “CHARM” booklet and study your Truth in Lending disclosure (TIL) to make sure you understand what you are signing. If you are an executive who gets transferred a lot or a senior getting ready to move to a new retirement place, this loan might be a good option for you.
Written by Preston Ware
Equity Source Home Loans
Email is firstname.lastname@example.org.
Mortgage Borrowers Should be Happy with the New and Improved Good Faith Estimate
As of 1-1-2010, when they are quoting a mortgage rate, Mortgage Brokers and Mortgage Lenders are required to provide a new and improved version of the Good Faith Estimate . This will make borrowers happy because the risk of a bad estimate has been shifted from the borrower’s shoulders to the mortgage broker and mortgage lenders pockets.
This measure was taken to try to make the document easier to understand for the average customer and also to make it much more binding on the person providing the estimate. I am not sure if it is necessarily easier to understand this quote of a mortgage rate but it certainly does protect the borrower and is a great step against predatory lending.
For those of you who are not familiar with mortgage lending or getting a quote of a mortgage rate, the Good Faith Estimate is a very important document that is disclosed within three days of the initial application. The purpose of the Good Faith Estimate is to provide an accurate measure of final closing costs and out of pocket expenses for the borrowers. A good loan officer will check the fees of the lender, the fees of the title company involved and also take into account escrows for taxes and insurance and transfer fees of the state in which the subject property is located. A good loan officer should be able to come within $200 of the final number. A bad loan officer in the past would employ selective memory by leaving a few fees off to make his estimate appear less expensive then the next guys.
The new Good Faith Estimate for 2010 is better because the customer is protected against a really bad estimate because of tolerance thresholds placed on the lender/broker. For example, lender fees must be 100% correct or quoted higher than necessary or the originator absorbs the difference. Third party fees have a tolerance of 10%. State transfer fees need to be exact. There is tolerance for differences in taxes and insurance but that is understandable because those numbers are determined after the customer makes a decision on which insurance policy they are going to go with.
When it comes time for closing, borrowers will now sign the new HUD closing statement which is compared directly against the New Good Faith Estimate they were provided. Closing agents will simply do the math to see if there are any discrepancies and then the loan officer will write the check if there is a major difference.
Under the new rules, a typical Good Faith Estimate is a quote of a mortgage rate that is good for about 10 days then it expires. If the loan is locked, then it is good for the duration of the lock. Also the originator is not required to provide the estimate unless the customer fulfills all of the requirements of a real deal. The customer will need to provide: name, gross monthly income, social security, number (to obtain a credit report), property address, loan amount sought and estimate of value. So in other words if you are searching for a home and have not found it yet, you will receive an initial disclosure form rather than a good faith estimate.
The initial disclosure form looks a lot like the old good faith estimate but is not nearly as binding. In all fairness to the loan officer, it does take a lot of time to track down each fee on a file with 100% certainty. Also, if a customer wants to play games by getting five good faith estimates, they will have their credit pulled five times now which probably isn’t smart. If a customer is just shopping for the sake of shopping for an interest rate, the initial disclosure form should suffice until they step up to the plate and decide which lender they want to work with and make a commitment.
Written by Preston Ware
Equity Source Home Loans
Email is email@example.com.
Give the Gift that Keeps on Giving- A Down Payment on a House
I am constantly asked by my customers, “what are the gifting guidelines?” It is something that varies from mortgage loan program to mortgage loan program and should be reviewed in detail because families can now pool their kindness together to help out a family member take advantage of a home purchase and the $8000 first time homebuyer tax incentive.
First let us look at the gifting guidelines for a FHA purchase. If a homebuyer wants to go buy a home through FHA he or she typically needs to put down 3.5% of the purchase price from their own funds in order to satisfy the minimum down payment requirement. If Aunt Betty wants to help out nephew John with the gift of down payment, she can gift 5% of the purchase price and lucky John can do 95% financing without digging into his own pocket. Please keep in mind that Aunt Betty will have to show the source of funds of her gift and nephew John will have to properly show receipt of the money. The gift money cannot be from under Aunt Betty’s mattress and she will have to sign a gift letter saying she does not expect any type of repayment. In an ideal world nephew John could now go buy the home and be on his way.
Unfortunately real estate transactions usually are not so simple. Thanks to items called pre-paid escrows and closing costs, the bottom line for the buyer usually will take more than just the 3.5% down payment required by FHA. Two other ways that we can remedy this situation for the buyer is to have seller paid closing costs and lender paid closing costs. If John is out looking for a home that a seller wishes to sell for $200,000 he can offer the seller $205,000 with $5,000 seller paid closing costs. This structures the financing with less money coming out of John’s pocket and still provides the same net proceeds for the seller. Another method less used is for the lender to pay closing costs. If the prevailing interest rate is 5%, the lender can price the loan at 5.25% or 5.5% and use the extra yield spread premium to pay some costs.
Looking at conventional financing through Fannie Mae or Freddie Mac, in order for the borrower to qualify with pure gift they must receive 20% in gift! That’s a lot of money. If the buyer has 5% of their own money to show they can receive little gifts here and there that are a much smaller percentage of the total cost. One way of gifting that I often encourage is on a much smaller scale. Whenever we are qualifying a buyer we always have to show a paper trail of source of funds for cash to close. We show the paystub going to the bank account which eventually becomes either escrow deposit or cash to close or reserves. What I say to the borrower is save every dime and let the family help out with things like food and gas and living expenses. This will help the homebuyer save quicker and get into a position of home ownership quicker without fouling up the paper trail for the lender. The family is happy to contribute on a smaller scale without giving nephew John a free ride.
Considering the $8,000 First Time Homebuyer Tax Credit, the grateful new homeowners will be in a good position to reciprocate the joy of gifting by having a few family gatherings over their place next year.
Refinancing a Mortgage Loan that has Private Mortgage Insurance
Everybody hates private mortgage insurance or PMI. Some say it should be illegal. Mortgage insurance is a fee that the customer pays to protect the interest of the lender. Typically any loan that is more than 80% loan to value of the house will have private mortgage insurance attached to it. Witnessing what has occurred in the mortgage world over the last few years it seems more justified that lenders can charge a premium for loans with little or no equity.
A conventional loan with Fannie Mae or Freddie Mac requires a 680 credit score to get mortgage insurance. FHA requires a 620 credit score but in some cases there are programs that will accommodate a lower score. Mortgage insurance on conventional loans can be charged monthly, paid as a lump sum, or lender paid where the mortgage insurance is factored into the interest rate. (Known as tax advantage mortgage insurance or TAMI) FHA charges a lump sum premium financed into the loan as well as a smaller monthly charge.
The most common way to remove conventional mortgage insurance is when the mortgage balance gets to be 78% of the value of the home. The borrower calls up his or her lender, does an appraisal, demonstrates the equity and has the PMI removed.
Quite often I am approached by customers who are looking at the Fannie Mae DU Refi Plus or the Freddie Mac Home Relief refinance programs but are unsure how the PMI affects the picture. These are two excellent programs that allow homeowners to lower their rate even if they have no equity left. If the customer had mortgage insurance previously there is a chance that the new loan will not call for mortgage insurance the second time around. It’s up to the investor and the findings.
Every loan approved nowadays is run through an automated underwriting engine. Fannie Mae calls theirs “DU” and Freddie Mac calls theirs “LP”. In addition, individual lenders have “overlays” to the findings so they can filter out the risky loans they don’t want.
Through my experience I have found that customers who had lender paid insurance or lump sum insurance previously will be required to keep mortgage insurance in place with these programs. That means the maximum financing we can do for them through a conventional program is 90% rate and term refinance or 80% cash out refinance. Customers who initially did 90% financing or less have a chance that the findings will not ask for mortgage insurance the second time around. Mortgage holders who initially financed 90.1% to 100% generally will be required to get PMI again. Since Fannie Mae/Freddie Mae cannot accommodate high loan to values with PMI, we turn to FHA for these customers. FHA can still provide a 97% rate and term refinance or 85% cash out refinance with mortgage insurance.
When in doubt, run the deal on line to check the findings first. On larger loans, the lender can pay closing costs which makes the refinance more attractive even if we are bringing the interest rate down as little as 1% and you are forced to keep your PMI .
Written by Preston Ware
Equity Source Home Loans
Email is firstname.lastname@example.org.
Mixed Signals in the Mortgage World
Yesterday we heard the news that the First Time Homebuyer Tax credit that was slated to expire on November 30th, 2009 is being extended until next spring. Future homeowners need to get under contract before May 1st 2010 to take advantage of the extension. This is great news for realtors, mortgage people and most of all buyers. This is also smart way of phrasing the bill because prior to this we have seen a mad rush to try to get existing loans closed by November 30, 2009.
November was expected to be a stressful one for lenders and customers who were desperately trying to get their deal through the system and closed before the deadline. I have several customers who ran into credit score issues or time saving money time constraints that just made the deal impossible by November 30th, 2009. At least this way, based on the new verbiage of the extension, they just need to sign the contract by May 1st, 2010.
Mortgage Interest rates improved Friday morning amid concerns about unemployment figures. The labor department reported a spike in unemployment to 10.2%, higher than expected estimates of 9.9%. (Bad news for the stock market is typically good news for mortgage rates.) Typically anything that is anti-inflationary will help our mortgage rates. With less people in the work force and therefore less spending there is less chance of run away inflation.
I am seeing other mixed signs on the mortgage frontier as the year draws to a close. Many lenders have closed the doors to manufactured home customers. In my own experience, I know of eight who have turned this program off within the last few months, leaving only two available sources for me at the moment. This is another sign of the weakening economy as lenders track performance by borrowers on each segment of their portfolios.
Alternatively, I am seeing a few sources bringing back stated income loans, foreign national loans and home equity lines of credit to 89.99% of loan to value. The stated loans and foreign national loans are at 60% loan to value but at least they are there.
Lastly, the programs that I expect to see further change in the coming months is the Fannie Mae DU Refi Plus and the Freddie Mac Home Relief. These programs typically will lend up to 105% of the value of the home for existing Fannie Mae and Freddie Mac customers who purchased their homes without mortgage insurance and subsequently lost equity. The thresholds of these programs have been expanded to 125% of appraised value due to falling values. The cost of this added feature is expensive. Where the 105% loan is typically around 5%, the 125% alternative is around 5.75%. There is more talk of expanding the guidelines of this program again to allow customers who previously obtained lender paid mortgage insurance or traditional mortgage insurance.
Look for new lending alternatives in 2010 because they are necessary for our economy to rebound. Every time we go save $200 here or $300 there a month for a customer, it acts as a true stimulus for our ailing economy.
Many Homeoners Nowadays are doing "Cash In" Mortgages
Over the last year mortgage interest rates have been relatively flat with the exception of a spike in May and June. What is statistically interesting about mortgage rates is that, according to Freddie Mac, in the fourth quarter of 2009, 33% of people refinancing their mortgage lowered the balance. This is the highest “cash-in” share since Freddie Mac began tracking the characteristics of refinance transactions in 1985.
This phenomenon is probably due the changing collective mindset of the American consumer and dropping home values. For many of us, we no longer can erase revolving or installment debt by simply doing a cash-out refinance because we have lost equity in our homes. Also, in general, Americans have taken steps to reduce debts of all types during these difficult times.
Similarly the Federal Housing Authority (FHA) began to tighten their guidelines on Streamline Refinance Programs without appraisal so many borrowers took advantage of that program just before the guideline change at the end of last year.
In the fourth quarter of 2009 FHA switched to a slightly tougher set of guidelines when it comes to doing a streamline refinance without appraisal. They raised the minimum credit score a little bit and require a little more in the file but relatively speaking it is still an easy “no cash out” option. This program allows the customer to lower their interest rate without the use of an appraisal in a very streamline process just as long as we finance a new loan that is less than the old loan amount. What many borrowers are unaware of is that in many cases the mortgage loan officer can pay closing costs for the customer. In some cases we can pay all of the costs! Also, customers who are upside down may still be able to do a loan and lower their interest rate.
Consumers who are weary about increasing their loan amount can lower their interest rate from the mid sixes to say the low fives and capture a savings per month with little or no out of pocket expense. Also with every FHA Streamline Refinance there are three little pleasant things that happen after closing. The customer has a month before they have to make their first mortgage payment with the new lender. They get their old escrow money back from their current mortgage lender and they get a pro-rated rebate of their previous mortgage insurance premium back from FHA. All of these factors are calculated when setting the new loan amount so the customer can set an even lower loan amount knowing that these items will be rebated after closing.
For homeowners who are looking hard to lower payments without reducing equity in their home, they should seriously consider the no closing cost option when comparing interest rates.
Written by Preston Ware
Equity Source Home Loans
Tel: 561-329-0075* www.prestonware.com
Email is email@example.com.
The FDIC may not be telling us something
This week as I was sitting at my desk doing my best to help some of my mortgage customers, a very interesting video shot across my desk. Two guys who create You Tube videos for TBWS Daily were talking about a seemingly underhanded deal that took place with regards to the sale of the assets of the now defunct IndyMac Bank. These assets were bought by One West bank which was handed a lucrative deal by the FDIC. Today the L.A Times reported that One West bank posted a profit of 1.57 billion from the sale of these assets less than one year after the purchase. A profit greater than the purchase price!
When I first saw the video I was shocked that the government would make such an arrangement. Looking at the many blog comments underneath the video many angry homeowners expressed anger with their dealings with the servicing department of the bank. The allegations are that it so profitable for the bank to allow a short sale or a foreclosure why should they bother trying to work with the existing homeowner and a loan modification. I have heard from friends who modify loans for a living that IndyMac was always difficult to work. Now I understand why. Money!
When the Obama administration passed the Home Affordable Program half of the legislation was designed make a set of standardized guidelines for banks to follow when dealing with distressed homeowners in need of modifications. This was good news because up to then one bank had one policy, then a different bank would have a different approach etc. Perhaps One West isn’t following those guidelines as tightly as they should if they stand to make $100,000 on each short sale or foreclosed home.
The larger part of this story is the FDIC. Are they in trouble or maybe do they see trouble on the horizon? What motivated them to give such a sweet deal to this privately held bank with ties to Goldman Sachs. Whenever you are dealing in bad debts, due to the distressed situation the guy with the deep pockets is usually able to buy the assets for 50 cents on the dollar. In this case it seems that One West did better than that.
Last year September I was talking with a very savvy borrower who changed my views on where interest rates were headed. He pointed out to me that many banks were tightening up their balance sheets and saving in hopes of riding out the third phase of the mortgage meltdown, the commercial property meltdown. This would in turn slow the velocity of money and keep interest rates low. He pointed me towards a couple of sources discussing the health of our banking system one of which was called institutional risk analytics. In this information the experts pointed out that the FDIC had 400 banks in the “F” category of stability where other analysts had 2256 in the “F” category and projected that approximately 1000 banks would go under in the next year. Also back in September the reserve accounts at the FDIC had already been depleted to 10 billion from 60 billion. What scared me the most was that these analysts were predicting 400 billion in losses in the next year.
Perhaps the FDIC had these figures in mind when they unloaded such a colossal mess over to One West bank. Supposedly 67 bids were made for the failed IndyMac assets and the FDIC chose a well experienced, well funded group to take on the first test of how to deal with a failed bank. Based on projections there most likely will be many more opportunities for other players to get a chance in the coming year. Also, at that time, our banking system was seemingly in much more turmoil than it is today. We will see as a few more banks go under, if the FDIC takes it time selling the assets and has an open house first before going to the garage sale.
Chairman Ben Bernanke Continues his Discussion before Congress
As Fed chairman Ben Bernanke continues his discussion before Congress today and tomorrow, we hear more of the same talk about slow gradual recovery, keeping interest rates low and the hard to solve situation with unemployment. Mortgage interest rates have been puttering along sideways since the first of the year but now we are nearing the 1.25 trillion dollar target of the Fed’s mortgage backed securities purchase program. Normally if the fed were to stop purchasing this would cause interest rates to go up.
Typically the month of February is where the mortgage world gets back down to business after a little hiatus in late December and early January. This year February has been slow due to few factors. Consumer confidence is down. We have had uncommonly bad weather preventing house hunters and realtors from getting any work done and in my opinion; we are starting to see a lack of qualified borrowers. One third of the country is underwater on their home values ruling out mortgage refinance programs except for the Home Affordable Refinance Program (105% or 125% rate and term financing) or the FHA Streamline Refinance without appraisal.
Unemployment is still around 10%, so there are limited borrowers in a position to take advantage of the $8000 or $6500 tax credit available until 4-30-2010. Many of the customers I speak with assume the credit is used as down payment money which is not the case. Few first time home buyers have substantial savings, so once they hear there are no federal funds available for down payment, the conversation goes on hold.
It will be interesting to see how the Fed reacts as they reach the 1.25 trillion dollar target of their Mortgage Backed Securities purchase program. Bernanke hinted today that the Fed will continue to purchase mortgage backed securities. I suspect this purchasing will continue along with a hint of innovation. Perhaps Fannie Mae and Freddie Mac will once again encourage private investors to start purchasing American mortgage backed securities for their portfolios. Also Fannie/Freddie and the Federal Housing Authority will continue to pursue some aggressive loan programs for homeowners who wish to purchase Fannie Mae owned and Hud owned inventory of homes or any home.
Programs like the HUD foreclosure purchase program which allows for $100 down, to purchase a HUD owned foreclosed home. Fannie Mae still allows 97% financing without mortgage insurance on purchases of Fannie Mae owned foreclosures. USDA still allows 100% financing in rural areas. I suspect more programs like these will emerge because the powers that be still need to keep putting a positive spin on our road to recovery while at the same time making options available for emerging borrowers with little or no savings. Mildly aggressive programs will continue to boost consumer confidence and expansion hopefully without going overboard and back into the madness of stated income programs or the pay select option adjustable.