Washington Mortgage Planner-straight up mortgage advice and commentary

A friend of mine, Bob Pessemier, just released a great new book that has relevance for us all.  His book "The Top 5 Money Mistakes People Make...And How To Fix Them" is a short but power packed read.  In it, Bob covers off such topics as credit card debt, budgeting, and yes, all about mortgage loans.  If you're a consumer, I would add this to your list.  It's written in clear and concise language and, if you pick up just one valuable tip, it's well worth the $14.95 price.  You can go to www.topfivemistakes.com to order.  You can also order the e-book for $9.95 if you prefer.

If you're a real estate or financial professional, you can order a minimum of fifty with your own foreword.  That's what I did.  I plan on passing these out to financial professionals as this is valuable information for their clients. Plus, I believe it's a great way to continue to grow our business.  So log onto www.top5mistakes.com and check it out.  One tip could save you thousands!  Have a great day!

Paul 

I think the Federal Reserve surprised a lot of us yesterday with the 1/2 point rate cut they chose.  I, for one, thought they might trim the rate by 1/4%.  Obviously, the Federal Reserve is concerned about how the mortgage crisis has affected the overall economy.  And this is a good start.  As we go forward, it's likely the Fed. will reduce rates again.  Possibly with another 1/4 point cut at their next meeting in October followed by a  1/4 point cut by the end of the year.

The good news is for you borrowers who have adjustable rate loans.  For example, if you have a home equity line of credit currently at 8 1/4%, your rate will go to 7 3/4%.  If you have a credit card, the rate will probably go down. And if your home loan is on an adjustable rate, your rate will go down when it is eligible.

This does not mean we're out of the woods yet with all the changes in our industry.  I know.  Some of you may be tired of my somewhat bearish approach to things but I think it's important to be realistic.  Number one, home loan rates are pretty good right now (currently at or near 6% on a 30 year fixed mortgage) so I don't expect to see a lot of improvement.  Two, a refinance boom probably won't happen anytime soon.  The candidates most likely to refinance at this point are the borrowers with adjustable rate mortgages.  Unfortunately, quite a few borrowers probably won't be able to refinance when the time comes.  As we all know, credit has been tightened severely and, with a myriad of mortgages set to adjust through June 2008, I don't see the lenders loosening the pursestrings in the near future. Also, keep in mind that adjustable rate mortgages are typically fixed for the first couple of years at a minimum so any Fed. rate cut doesn't help now.  It will only help when the rate adjusts.

So again, I urge caution in thinking this is the panacea we've all been waiting for.  We need to ride this one out a little longer. Remember this is a long-term game.  Eventually things will improve and real estate will boom again.  In the meantime, keep plugging.  That's all you can do. Have a great day!

Paul

Good morning all:  I received a phone call from a borrower the other day as their Adjustable Rate Mortgage (ARM) was set to change later on this year.  Two years ago, they were first time homebuyers so they were able to get 100% financing with a first and a second mortgage.  My, how times have changed!

The first thing I encouraged the borrower to do was call the company who presently held their mortgage. Sometimes that lender will want to refinance you, often with a better loan than you received the first time.  In this case, it didn't sound like it to me.  In fact, it appeared that the lender was licking its proverbial chops about making a bunch of money at the customer's expense.  When I proceeded to call around, it became apparent that there might be better options out there.

So what should you do?  First of all, don't panic.  Although it's probably not ideal to keep your ARM, especially after it starts adjusting, you need to weigh both sides of the coin and then make a rational decision.  If you want to refinance before your mortgage adjusts, know what kind of loan you have.  Some loans came with prepayment penalties.  And these can be steep.  Often, prepayment penalties are 6 months worth of interest or thousands of dollars.  And the lenders often will not waive these although it never hurts to ask.

On top of the prepayment penalty are the costs to refinance.  Typically, these are going to run up to 3% of the loan amount when you factor in closing costs and prepaid taxes, etc. Once you've done your homework, talk to more than one lender and get a feel for what rates and fees they charge and  how they do business. It's important that you take your time on this.  Don't wait until the last minute-that's where the sharks prey!

If you've decided you definitely need to refinance because you're concerned about affording your new payment, consider FHA.  In fact, President Bush just signed into law a program called FHA Secure that is designed to help you.  It's worth checking into although keep in mind this program was formulated for people who are caught up on their payments and can prove there would be payment shock when their ARM adjusts.  In other words, it's not going to help everyone. If FHA secure doesn't work, consider a regular FHA loan or even a My Community program. 

In closing, good luck in your search.  Again, don't panic and take your time.  Although I would recommend refinancing before your rate adjusts, be realistic.  If you're struggling now, ask yourself what is going to change. Although no one wants to move, if you got yourself in a situation that isn't improving, your best option might be to sell and wait until you can afford to buy again.  Have a great day!

Paul

Good morning:  I was thinking yesterday about how important it is to market ourselves, especially now.  In my office, most of my co-workers sit around making phone calls with often increasingly poorer results.  let's face it.  It's a competitive world out there and you might not make it if you're just calling leads.  I was having a conversation with one of them and he was asking me about what I was doing as I'm managing just fine in this turbulent market.  I told him I spend a lot of time out cultivating relationships and spreading the good word about my business.  He said he may have to start doing that.  Unfortunately, I'm not sure a lot of us are used to doing business this way.  And if you don't start now, you may want to consider a career change.

What am I talking about?  I read on Active Rain the other day that a person should spend up to 85% of their time marketing in the first 2 years of their business.  That probably fits me (I've been doing it for almost 1 1/2).  If you're more experienced, you may not need to spend as much time but, obviously, these days you need to do what it takes. 

So what works?  Number one, brand yourself.  Make sure that your business card, website, blog, e-newsletter, mailer, etc. is consistently produced, communicated and the look and feel are the same on each.  Your goal should be the most professional appearance you can achieve.  You say I don't have the money right now.  An e-newsletter is free, it's just your time.  You're welcome to contact me and I'll show you how to create an e-newsletter in word that can be sent to all your Outlook contacts.

After establishing your identity, get out there and beat the streets!  Join a networking club if you can (BNI, Chamber of Commerce, e.g.).  It will take some time for people to get to know you but, in the long run, it will pay huge dividends.  I just got a call to make a presentation to 20 Seniors in my Church about reverse mortgages.  What a great opportunity! I'm a big fan of Brian Buffini.  His system at www.buffiniandcompany.com teaches a person to work exclusively by referral.  Part of Brian's system is to connect with people who you can reciprocate with.  I know this; I've networked with quite a few realtors the last year.

In closing, I've just scratched the surface on ways we can all build our business and thrive in these challenging times. I'm curious as to what works for you.  I realize that marketing involves spending money but a friend eloquently stated yesterday "you have to spend money to make money!"  Have a great day and hang in there!

Paul

Today, Countrywide Home loans announced they are looking for an additional infusion of cash from investment banks.  This is serious stuff, folks.  A little more than 2 weeks ago, Bank of America invested $2 billion in Countrwide which effectively purchased 16% of Countrywide's stock.  Now, Countrywide is asking for billions more which would indicate a serious liquidity crisis.

I was having lunch with a banker friend of mine today and we were musing about how Bank of America might buy the rest of Countrywide if the price were right.  One thing making the rumor mills is if Countrywide is able to secure addtional money, their CEO, Angelo Mozillo, may be asked to leave.  One thing is for certain.  Expect Countrywide to continue to pare its staff to cut costs.  Already reductions of up to 20% have been announced.  Look for more as they fight for survival.  I expect Countrywide to make it although on a much smaller scale than the loan behemoth they were before.

Stay tuned as this wild ride continues.  Remember Adjustable Rate Mortgages will be resetting in large numbers through June of 2008.  It could be a bumpy ride until then!  Have a great day.

Paul

P.S.  If you currently have a loan with Countrywide, rest assured your loan will be taken care of even if Countrywide fails.  I get asked this question frequently.

I read late today that Countrywide Home Loans will be laying off 12,000 people or up to 20% of its workforce.  Their CEO, Angelo Mozilo, stated he had never encountered market forces such as they are now.  The goal is to switch everything over to their bank.  What this probably means is their underwriting and ability to generate new loans will be much more restrictive.  Anything that is Fannie Mae or Freddie Mac approved will be o.k. Anything that is non-conforming (over $417,000 loan amount or "exotic" such as payment option loans) may not happen. 

I feel bad, obviously, for the continued displacement of workers from our business.  I'm not sure there are other mortgage jobs out there right now.  Stay tuned as this saga continues.  Remember that ARM's are still adjusting in record numbers until June of 2008.  In the Pacific Northwest, we've been more fortunate due to strong job growth although I did read that 33% of the loans here did not close in August due to changing loan conditions.

If you're a loan originator, make sure you are doing your homework with your borrower before submitting their loan.  And it might not hurt to submit to more than one lender.  If you're a borrower, choose a lender who is stable (banks are always a good bet as they have multiple streams of income) and can do the plain vanilla (Fannie Mae) type loans.  I'm talking 30 year fixed loans.  Pricing is awfully good right now-6.125% if you have good credit with 80% loan-to-value or better.  Plus , there are serious rumblings that the Federal Reserve will reduce interest rates at their next meeting coming up later on this month.  Although a  Federal Reserve interest rate cut won't impact borrowing rates immediately, it usually does not too long thereafter.

Again, I've said all along this is not a short term fix.  It's obviously going to take some time to sort this mess out.  Eventually, our business will see great times again.  And there are pockets of hope.  I got an email from a realtor in Marin County (San Francisco) and he said business was strong.   Also, if you're an investor with great credit and assets, I believe there are some terrific buys to be had in depressed areas.  Have a nice weekend and I'll talk to you soon!

Paul 

Good morning all:  I was thinking on my drive home last night about how ingrained it is in our borrower's mind that they get the lowest rates and fees on their loan.  Granted this isn't a bad thing.  In fact, I often encourage people to call 2 or 3 lenders when shopping for their loan.

With this in mind, I can't stress enough how important it is to compare the same with the same. Right now I'm working on a jumbo loan (over $1 million) for a borrower whom I have known for a while.  I was not discouraged when they decided to shop around.  What is maddening is the rate and fee quote they got from one of my competitors.  A Good Faith Estimate was sent that not only charged them a great rate but also had $3,000 in closing costs as a part of the loan.  if you do your math, and include everyday legitimate charges such as title insurance, escrow fees, etc., there's virtually nothing left for the company originating the loan.  Furthermore, the property tax and hazard insurance information was woefully low.  And this quote (I won't name names) was from a big-name lender!

Loan officers:  If you're going to quote a borrower, do your homework.  Do not throw a Good Faith Estimate out there that is inaccurate.  It does the rest of us a disservice.  It makes us look unprofessional and the borrower probably won't do business with you again.  Borrowers:  If you're going to shop for the best rate, make sure you give every bit of information you can to the loan officer.  In my case, the borrower called the lender, gave them their high credit score (not the mid-score which is the one almost all lenders use) and got the quote.  When I called back to check on the quote with the accurate credit score, the rate was much higher due to the borrower's lower credit score.  Another thing is there can be significant interest rate adds for larger loans.  In other words, again do your due diligence.

In closing, go with someone you can trust.  A real estate transaction is a large one.  There's a lot of communication that needs to be done to get a loan done.  If you're not being communicated with often during your loan, your loan officer is not doing their job.  Have a nice weekend!

Paul

Yesterday, my colleague, Jennifer Graves, and myself appeared on Coach Steve Toth's radio show, www.realcoachingradio.com.  Thanks, Steve, for allowing us the opportunity to appear!  In the show, both Jennifer and I talked about how the Paicific Northwest has so far emerged relatively unscathed from the rest of the nation.

Why is this?  Number one, job growth due to employers such as Boeing and Microsoft still hiring means there are still plenty of buyers and borrowers out there.  Two, the Pacific Northwest has high paying jobs and often educated borrowers which are two great criteria to borrow money.  Still, the market has slowed here.  In several areas, housing inventory is at a 9 month supply and many homes for sale have had their prices reduced.  An argument could be made that we here lag the rest of the nation.  I think that's accurate although we never had the rampant speculation that Las Vegas did, for example.

Moving forward, I would expect the market to continue to slow here.  It was so robust for so long that it stands to reason that eventually it would start to slow down.  Perhaps next year we'll start to see some unsold inventory sell.  A Federal Reserve rate cut may eventually help. If you're a consumer this is a great time to be looking as there are plenty of choices, often at reduced prices. Make sure your financial house is in order before you go shopping, though.  

In closing, our market up here is challenging but still strong.  I'll keep you posted.  Have a great day!

Paul

I'm back after taking a few days away from Active Rain.  I find this site fascinating and it is my source for the most up-to-date information available on the mortgage market.  But I needed to take a break and found that I didn't feel the need to log on.  It helped that  I got pretty busy with multiple loan opportunities including my first call from a borrower who read my blog!  Exciting stuff!  What's my point to all this?

Number one, although this site is often great for our collective psyches, we still need to work our plan. We also need to occasionally take a break from the daily grind.  Our business chews people up and spits them out.  It can become a 24/7 endeavor and I would argue that there's more to life than the almighty job or dollar.  I was just on the phone with an attorney who failed to take a summer vacation.  I sensed his burnout and suggested he and his wife get away for some time alone.

Of course here I am blogging again but I promise I won't wear out my welcome.  Be sure to take some time away from your career; rumor has it it will keep you sane and alive!  Have a great day!

Paul

P.S.  If you're interested in philosophy, read "what will matter".  I'm not sure who wrote it but you can probably google the saying.

I was reading this morning that the government estimates that at least 2/3 of the adjustable rate mortgages (ARM's) in this nation set to readjust are exotic loans with low teaser rates.  Further, a lot of these loans are above the FHA limit of $367,000. One statistic I read was even higher; 81% of loans set to readjust are exotic or "low teaser rate" loans.

What does this all mean?  It means that there is relief for approximately 20-30% of the homeowners with ARM's set to adjust.  Obviously, that's the good news.  The sobering news is for the rest of you.  If you have an ARM set to readjust in the next year, don't wait until the last minute.  Start doing your homework now!  If the government can't help, call your lender.  They may be willing to work with you and reset your mortgage.  Keep in mind, though, that you want to be current on all your payments.  It's all about risk these days.

If you're in a tough situation right now, take action or someone else will.  And I would argue no one wants to get foreclosed on.  Not only is it embarassing but it will ruin your credit score (typically a 250 point drop).  If you need to sell, admit it and get your home on the market today.  Remember it's a soft market out there and homes are often taking months to sell.

Long term, I believe it means we're still in for a rough ride.  Obviously, the market is contracting and probably will continue to do so into the next year.  Good luck to all of you!  Things will eventually turn around; it's just going to take a little time.  Enjoy your weekend.

Paul