Washington Mortgage Planner-straight up mortgage advice and commentary

Good morning: With the Federal Reserve poised to cut interest rates again this morning by 1/4-1/2%, I wanted to weigh in with my thoughts about how this is going to affect our world this year. First of all, some clarification is needed. When the Federal Reserve Board decides to cut interest rates, it's usually because they're worried about an economic slowdown.  Thus, they're trying to stimulate borrowing. When interest rates are cut, rates for variable, not fixed, loans get better.  This includes credit cards, lines of credit, etc. etc. If you have an adjustable rate mortgage, and it's fixed period is up, it may adjust to your benefit.

Notice that interest rate cuts don't impact mortgage rates directly. Mortgage rates are tied to the ten year treasury note. Generally, mortgage rates are low when the stock market is down as people seek safety in investments such as bonds. That's what is happening as we speak. The stock market is currently off more than 10% from its high as people are worried about a recession. Again, people seek safer investments when they're concerned about the economy.

I was reading a report by an analyst with Wells Fargo yesterday about his prediction for 2008.  His forecast was for a lower Dow (stock market). The economic signs of a slowdown are all around us.  Besides the slowdown in real estate, Starbucks reported flat earnings and slower growth, Federal Express shipments are down, and McDonalds sales were flat. I agree with the Wells Fargo analyst.  Expect the Federal Reserve to keep close tabs on the economy this year by cutting interest rates further. If the stock market continues to fall, I think mortgage interest rates (currently at 5.5% for a 30 year fixed O.A.C.) will stay low.

Currently, I've had a lot of clients interested in refinancing into safer 30 year fixed mortgages from ARMs. I think this makes sense and shows that the public is wanting safety. In closing, I believe an upturn in real estate is possible for either the 2nd half of 2008 or the start of 2009. In the meantime, what a great time to buy!  There's plenty of inventory and prices have moderated quite a bit.  Good luck to all of you.  Onward and upward!

Paul

Good morning!  Are you in an adjustable rate mortgage? Is it set to adjust this year?  Don't panic.  The natural inclination is to want to refinance before your interest rate goes up. But I think it's important to weigh all sides before making your decision.

It can be expensive to refinance. Beyond paying the loan originator's standard origination fee (I charge 1%), there are other costs which may include appraisal fee, title fee, escrow fee, prepaid interest, prepaid property taxes, and prepaid hazard insurance to name just a few.  The bottom line is all the assorted charges can often add 2-3% to your loan. If a lender is saying there are no points and /or fees, you're paying a higher rate. No one works for free.

My message to you is if you want to refinance out of your ARM, choose to work with someone who knows what they're doing.  My profession was recently populated by people who didn't correctly learn the business.  They got in it because of the financial rewards and never bothered to learn the nuances of our business. An experienced loan officer will know what makes sense for you. They will give you both sides of the equation so you can make an intelligent decision.

Today, there are new programs that can help you if you have an ARM and want to refinance.  One program will allow you to stay in your existing mortgage if you can prove that you wouldn't be able to afford your new payment if your rate adjusted. Another program would allow you to refinance into an FHA goverment backed mortgage at a 30 year fixed interest rate. You can also talk to your lender and see what they'll do. Another option is to refinance into a fixed rate loan.  With mortgage rates currently at 5.5% for a 30 year fixed mortgage O.A.C., it might make sense. Again, plan ahead and enlist the help of someone who knows what they're doing.

I hope this helps.  I know what we do is very confusing to you.  With a trusted advisor by your side, it should ease your pain.  Just don't panic!  Have a great day!

Paul

Good morning!  The Bank of America/Countrywide merger announced yesterday didn't surprise me.  In fact, I think it had been in the works for a while now.  I think it's a good thing although there will be quite a bit of pain involved.

Without BofA stepping in, Countrywide probably wouldn't have survived.  They had dug themselves too deep a hole. And I think a Countrywide failure would have really dealt the market a crippling blow. The last time there was a big failure in our business (America's Home Mortgage went under last summer), every other lender reacted and started tightening their lending guidlines.  If Countrywide had failed, I believe the reaction would have been similar to what happened last summer.

With the Bank of America/Countrywide merger, the healing can begin for the mortgage industry.  It's been tough now for several months up here (Seattle area) and I'm aware it's been even  tougher in other parts of the country. It's going to take some time to get back to normal. My prediction is either the second half of this year or the start of 2009. The downside to the merger is people will lose their jobs. I'm sure Countrywide employees will be offered positions with BofA if they exist. Usually mergers involve cost-cutting as there are redundancies.  I was on the phone with a reporter from Inman News yesterday (www.inmannews.com) as he had read my blog last summer about a Bank of America/Countrywide merger. I told him eventually Countrywide will cease to exist. It will all be Bank of America and in five years, unfortunately, the public will have forgotten what Countrywide did.  That's the nature of our world  these days.  Remember Enron? How many people can remember exactly what they did?

I think this merger provides a needed shot in the arm to an ailing industry right now. I'm not sure how good a buy Bank of America got (remember they bought Countrywide stock initially at $18/share and now it's trading at roughly $6) although  they were probably attracted to 1) the loan servicing aspect and 2) the ability to sell their other products to all the new customers they acquired.  Time will tell how this merger plays out. 

If you're a consumer and your loan is presently with Countrywide, don't worry. It's guaranteed and will be serviced. Keep in mind you still need to make your payments. If you're considering Countrywide as a loan provider for your purchase or refinance, it may go smoothly and it may not. Ultimately, it's more about the loan officer you work with.  If they know how to get a loan done and communicate with you throughout the loan process, you should have a good experience. I hope this helps.  You're always welcome to contact me.  Have a great day!

Paul

Hello everyone:  I was driving home this evening and wanted to comment about why our market is the way it is.  Basically, we did it to ourselves.  Today, a co-worker who needs to make a certain high income just to pay his bills, started talking about a loan he's doing where he's making a whole bunch of money. He's essentially making as much as he can so he can maintain his lifestyle. 

This, in and of itself, I understand.  We all have bills to pay.  The problem I have is when we start working in our own best interest rather than the clients'. I see this so often and think it's greedy.  In fact, I would bet that most of my co-workers will be gone by mid-year because they got into the business for the wrong reasons.  They got into mortgage lending mostly because of the money.  They proceeded to sell their customers loans such as Option ARM's that promised the most rebate.  In essence, they're greedy. They'll probably get what they deserve.

I believe the long-term players in our business are in it because they truly are passionate about what they do.  Most experienced people I know have seen the highs and lows and stick to it because of their customers, the freedom their job permits, etc.  Notice not once did I talk about money.  We all know the money can be good and I would wager that top producers are not solely focused on their commission.  They work hard, are extremely professional, and the money follows.

Today I called my rep. from Wells Fargo to ask her about doing an FHA refinance for my client.  Of course she asked me how much I wanted to make in rebate.  I opted for a lesser amount (which gave my client a better interest rate) as I always try and ask myself the question how much do I really need to make.  A lot of us make plenty of money doing what we do.  I've never quite understood anyone wanting to make as much as they can off the client.  To me, that's short term thinking.  

In closing, I challenge all of us to do right by the customer, not ourselves.   I don't know about you but I like to sleep at night!  Have a good one.

Paul