Crofton MD, Bill Vourazeris-How are the rapidly changing real estate and credit markets are affecting us locally?
I've worked in the mortgage industry for 10 years, and I've funded over 2000 loans in my career - and I've seen this market hit many highs and survive some tough lows. Let me be your resource as you cover this rapidly changing market.
In February, the President signed into law the Economic Stimulus Package in an effort to revive our battered economy. I wanted to be sure you knew that the legislation is about more than just rebate checks; it can also have a positive impact on current and future homeowners.
Many of your readers may not be aware of how this bill could create opportunities to save money on their home financing. Here are some of the questions I believe your readers should consider, and I would be happy to lend my experience and expertise to help explain how our community may be able to take advantage of the temporary rules created by this important legislation:
What impact does the Stimulus Package have on borrowers?
•"The Economic Stimulus Act of 2008 is a $168 billion plan intended to jumpstart the sliding U.S. economy. The new bill is designed to help certain ‘high-cost regions' of the struggling housing market by 1) Temporarily increasing the ‘conforming loan limit' from $417,000 to as high as $729,750 in specified areas; and
2) Temporarily increasing the size of loans the Federal Housing Administration (FHA) can insure from $362,000 to as high as $729,750 in specified areas."
What do these new provisions mean for our community?
•"For those looking to purchase or refinance real estate in a ‘high-cost region,' this is great news. These temporary increases could help consumers avoid the higher interest rates associated with ‘non-conforming' or jumbo, loans - which are currently more than a point higher than rates on conforming loans. This means more consumers will be able to take advantage of great real estate deals and get more home for less money. In fact, many homes that some borrowers could not afford just a few years ago could now be within reach, thanks to this temporary government program.The Stimulus Package is also very good news for homeowners looking to refinance out of their expensive jumbo loan and into a new ‘conforming loan.' While the legislation limits new mortgage contracts to 2008, it does not exclude the refinancing of any past mortgages. This means that, if borrowers qualify, they can take advantage of the new conforming loan limits no matter how many years have passed since they obtained their mortgage - as long as they get it done before the end of 2008."
How is a high-cost region determined? And does our community qualify as one?
•"A high-cost region is typically determined by the median value of its homes. The median value is the specific price that is halfway between the least expensive and most expensive home sold in an area over a given period of time. Not to be confused with the average home price, the median home price is the price at which half of all buyers bought more expensive homes and half of all buyers bought less expensive homes. If that sounds confusing, don't worry. It is the responsibility of the Department of Housing and Urban Development (HUD) to determine and publish what the median home price is for regions across the country. I can easily access and interpret these figures for our local residents, and help them calculate the new conforming and/or FHA loan limits within minutes."
I look forward to hearing from you. My contact information is listed below.
Bill Vourazeris
M-Point Mortgage Services
443-618-2880
Thursday, July 31, 2008
Sunday, July 27, 2008
Getting the Best Interest Rate on Your Home Loan?
Getting the Best Interest Rate on Your Home Loan?
A Qualified Mortgage Consultant Can Help Boost Credit Scores
By Bill Vourazeris, M-Point Mortgage Services
Crofton, MD Bill Vourazeris – Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.
Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.
A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.
Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime” – can range anywhere from A-minus, B-paper, C-paper or D-paper loans.
If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.
A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.
Next, you should obtain free copies of your credit reports from http://www.annualcreditreport.com/ and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.
There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.
Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.
This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a roadmap to follow and a strategy for success in building personal wealth.
A Qualified Mortgage Consultant Can Help Boost Credit Scores
By Bill Vourazeris, M-Point Mortgage Services
Crofton, MD Bill Vourazeris – Consumers interested in purchasing or refinancing a home will pay an interest rate based on current market conditions and their ability to pay back the loan. The borrower’s income and debt ratios are taken into consideration by the lender, as well as the predictability factor provided by credit scoring. It’s important to have a mortgage professional in your corner that has a keen eye for solutions to improving credit scores in an effort to get the best interest rate possible.
Interest rates associated with various loan programs are broken down into schedules based on credit score ratings. While each lender has its own guidelines, it’s safe to assume that as the consumer’s credit score goes down, interest rates will go up.
A borrower with an outstanding credit rating will get what is called an A-paper loan. This type of borrower is rewarded with a lower interest rate because they have a proven track record of using credit sensibly and paying their bills on time.
Loans designed for consumers with less-than-perfect credit – sometimes referred to as “sub-prime” – can range anywhere from A-minus, B-paper, C-paper or D-paper loans.
If you have already taken out a mortgage loan with a higher interest rate because your credit score was a little under par, you will really appreciate the value in doing a little work to improve your credit score. Refinancing from a D-paper loan to a B-paper classification can save literally thousands of dollars in financing fees over time, even though the B-paper loan is still considered sub-prime.
A qualified mortgage consultant will guide you through the nuances of the process of improving your credit score to refinance and save money. First and foremost, he or she will want to review the terms of the existing mortgage loan to determine if you have a pre-payment penalty clause written into your contract. In general terms, that means that if you sell the home or try to refinance before the pre-payment penalty expires and you have not already paid off 20 percent of the original loan amount, you will most likely have to pay a 3 percent fee back to the lender to compensate for the high risk and high costs incurred to provide that financing.
Next, you should obtain free copies of your credit reports from http://www.annualcreditreport.com/ and start working on improving the credit score six months prior to the expiration date on your existing pre-payment penalty.
There are five factors that make up the credit score and your mortgage consultant can coach you through some basic strategies to improve your credit score. This means very conservative use of credit cards, paying off debt as much as possible and not applying for additional credit cards unless you will benefit from such action. You will want to verify that negative items you have paid off are being removed from your credit report, and that good credit history is being reported to all three bureaus. You’ll also want to dispute any errors that appear on your credit reports and seek to have those removed entirely.
Once your credit score improves, it’s time to refinance at a better interest rate. Your mortgage professional should look for a program that carries no more than a two-year prepayment penalty so you can continue to refinance as your credit score increases. You can repeat this process until you reach A-paper status and secure the best interest rate available.
This is a strategy that also works well for first time home buyers who do not have enough credit history under their belt to get an A-paper loan at the time of purchase. The important thing is to work with a mortgage consultant who can give you a roadmap to follow and a strategy for success in building personal wealth.
Tuesday, July 15, 2008
Adjustable Rate Mortgage Holders Prepare for Increase in Interest Rates
By Bill Vourazeris,
M-Point Mortgage Services
Crofton, MD– In 2004, the Federal Reserve made it clear that short-term interest rates would be increased at a “measured pace” because of a fluctuating US Dollar, unstable oil prices and an evaluation of other economic indicators. In an effort to curb inflation, the Federal Reserve has kept its word and continued to raise rates, including one incredible streak of 17 consecutive hike announcements following meetings of the FOMC.
As a result of these interest rate increases, millions of homeowners with adjustable rate mortgages will feel the sting of corresponding increases in their annual adjustments. Consumers with revolving debt accounts tied to the prime rate have already felt the impact, as the prime rate always rides 3% above the current Fed Funds Rate.
And although an increase in the Fed Funds Rate does have a direct impact on financial markets as a whole, mortgage rates are affected rather indirectly, and may go up or down based on the prevailing perception investors have of current economic statistics and their reaction to the Federal Reserve’s after-meeting statements.
In general, when economic data indicates we have a slow-down occurring in our economy, investors tend to sell off stocks and reallocate that money to the safe haven of bonds and mortgage-backed securities. The purchase of mortgage-backed securities drives interest rates down. When economic data indicates growth in the economy, the stock market typically rallies and mortgage-backed securities sell off to fuel that stock market rally. This drives mortgage interest rates up.
Our current market reflects the reaction of investors having read between the lines on comments made by the Fed. This will continue to have an affect on homeowners with adjustable rate mortgages (ARMs) tied to indexes that are based on short-term interest rates. This includes the 11th District Cost of Funds, 12-Month Treasury Average (MTA), London Inter Bank Offering Rates (LIBOR) and others.
This doesn’t mean that everyone with an adjustable mortgage is in immediate danger. Some indexes are more volatile than others. COFI moves much slower than other adjustable rate indexes, while the LIBOR fluctuates with more volatility. But remember, when an ARM adjusts, the new interest rate is a sum of the borrower’s fixed margin plus the current rate of the index the mortgage is tied to. In addition, slower moving indexes, like COFI and MTA, are still likely to reach the levels of their volatile counterparts in a market where interest rates are rapidly climbing. It may just take them longer to do so.
Consumers who foresee paying an interest rate that is significantly higher may want to consider refinancing to take advantage of the stability of a fixed-rate mortgage.
This is also a good time for borrowers who -- due to a poor credit score -- started out in an adjustable rate loan to transition into a fixed-rate loan if they can. If a positive track record of making mortgage payments on time and in full can been established, there’s a very good chance the borrower may now qualify for a loan with a lower interest rate.
However, as with any decision to refinance, it is important to take the terms of the existing loan, the cost of the new loan, and the borrower’s long-term needs into consideration. A qualified mortgage professional should help weigh out the options by providing a clear assessment of available loan programs for the consumer.
Bill Vourazeris
443-618-2880
M-Point Mortgage Services
Crofton, MD– In 2004, the Federal Reserve made it clear that short-term interest rates would be increased at a “measured pace” because of a fluctuating US Dollar, unstable oil prices and an evaluation of other economic indicators. In an effort to curb inflation, the Federal Reserve has kept its word and continued to raise rates, including one incredible streak of 17 consecutive hike announcements following meetings of the FOMC.
As a result of these interest rate increases, millions of homeowners with adjustable rate mortgages will feel the sting of corresponding increases in their annual adjustments. Consumers with revolving debt accounts tied to the prime rate have already felt the impact, as the prime rate always rides 3% above the current Fed Funds Rate.
And although an increase in the Fed Funds Rate does have a direct impact on financial markets as a whole, mortgage rates are affected rather indirectly, and may go up or down based on the prevailing perception investors have of current economic statistics and their reaction to the Federal Reserve’s after-meeting statements.
In general, when economic data indicates we have a slow-down occurring in our economy, investors tend to sell off stocks and reallocate that money to the safe haven of bonds and mortgage-backed securities. The purchase of mortgage-backed securities drives interest rates down. When economic data indicates growth in the economy, the stock market typically rallies and mortgage-backed securities sell off to fuel that stock market rally. This drives mortgage interest rates up.
Our current market reflects the reaction of investors having read between the lines on comments made by the Fed. This will continue to have an affect on homeowners with adjustable rate mortgages (ARMs) tied to indexes that are based on short-term interest rates. This includes the 11th District Cost of Funds, 12-Month Treasury Average (MTA), London Inter Bank Offering Rates (LIBOR) and others.
This doesn’t mean that everyone with an adjustable mortgage is in immediate danger. Some indexes are more volatile than others. COFI moves much slower than other adjustable rate indexes, while the LIBOR fluctuates with more volatility. But remember, when an ARM adjusts, the new interest rate is a sum of the borrower’s fixed margin plus the current rate of the index the mortgage is tied to. In addition, slower moving indexes, like COFI and MTA, are still likely to reach the levels of their volatile counterparts in a market where interest rates are rapidly climbing. It may just take them longer to do so.
Consumers who foresee paying an interest rate that is significantly higher may want to consider refinancing to take advantage of the stability of a fixed-rate mortgage.
This is also a good time for borrowers who -- due to a poor credit score -- started out in an adjustable rate loan to transition into a fixed-rate loan if they can. If a positive track record of making mortgage payments on time and in full can been established, there’s a very good chance the borrower may now qualify for a loan with a lower interest rate.
However, as with any decision to refinance, it is important to take the terms of the existing loan, the cost of the new loan, and the borrower’s long-term needs into consideration. A qualified mortgage professional should help weigh out the options by providing a clear assessment of available loan programs for the consumer.
Bill Vourazeris
443-618-2880
Monday, July 14, 2008
Life After Bankruptcy
By Bill Vourazeris
M Point Mortgage Services
Crofton, MD – Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.
Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.
One of the worst things people can do in this situation is to borrow more money to try and pay off their debts. On paper, this is clearly an unwise financial decision. In the real world, however, it is very common for individuals to pursue this strategy in an attempt to buy time and hold off on filing for bankruptcy. On the surface, this is certainly a noble notion; however it can often compound the problem and serves only to delay the inevitable.
For many homeowners in the midst of this upside down cash flow, speaking to a qualified mortgage professional is a much better option. An experienced loan officer can objectively look at your finances and help you determine if restructuring your mortgage would not only help, but possibly even alleviate any need for bankruptcy.
If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.
When filing for bankruptcy, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.
Here are some additional steps you can take to make the bankruptcy process as painless as possible:
Save all paperwork regarding your bankruptcy, and keep it organized. This will prove beneficial after your bankruptcy as you now have all of the pertinent information in one place. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.
Establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.
Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.
Tips for Rebuilding Credit:
If you must buy a car, focus on transportation as opposed to style. Buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what your budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Missed payments result in deductions from the account. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.
While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to you within a year or so after a bankruptcy. If you’re in serious financial trouble, the trick is to get the help and advice you need from professionals you trust.
Bill Vourazeris
M-Point Mortgage Services
443-618-2880
M Point Mortgage Services
Crofton, MD – Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.
Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.
One of the worst things people can do in this situation is to borrow more money to try and pay off their debts. On paper, this is clearly an unwise financial decision. In the real world, however, it is very common for individuals to pursue this strategy in an attempt to buy time and hold off on filing for bankruptcy. On the surface, this is certainly a noble notion; however it can often compound the problem and serves only to delay the inevitable.
For many homeowners in the midst of this upside down cash flow, speaking to a qualified mortgage professional is a much better option. An experienced loan officer can objectively look at your finances and help you determine if restructuring your mortgage would not only help, but possibly even alleviate any need for bankruptcy.
If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.
When filing for bankruptcy, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.
Here are some additional steps you can take to make the bankruptcy process as painless as possible:
Save all paperwork regarding your bankruptcy, and keep it organized. This will prove beneficial after your bankruptcy as you now have all of the pertinent information in one place. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.
Establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.
Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.
Tips for Rebuilding Credit:
If you must buy a car, focus on transportation as opposed to style. Buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what your budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Missed payments result in deductions from the account. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.
While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to you within a year or so after a bankruptcy. If you’re in serious financial trouble, the trick is to get the help and advice you need from professionals you trust.
Bill Vourazeris
M-Point Mortgage Services
443-618-2880
Sunday, July 13, 2008
Understanding Credit Scoring & Credit Repair
By Bill Vourazeris,
M-Point Mortgage Services
Crofton, MD Credit remediation is a subject consumers often face with fear and trepidation, and for good reason. With the exception of recognizing that the best score wins, the average home shopper knows very little about the whole credit scoring process. Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to upgrade their credit history. The good news is there are ways to improve less-than-perfect credit scores and obtain a loan for the home you really want.
The first step in the process is making sure that you have a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you’ll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)
It's also important to know just what a good credit score is. Most A-Paper scores generally begin around 680, although this number may differ slightly among lenders. Don't despair if you come up shy, there is always room for improvement. Increasing your score just 5 points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan’s interest rate.
While credit repair is necessary for some, it's not the only way to increase your credit score. Even if you have stellar credit, you can enhance your score through these steps:
· Evenly distribute your credit card debt to change the ratio of debt to available credit. Let's say you have a credit score of 665. If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket.
· Keep your existing accounts open and active. The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit. The bottom line is don't close those old accounts!
· Keep credit inquiries to a minimum. Each inquiry into your credit history can impact your score anywhere from 2-50 points. When it comes to mortgage and auto loans, even though you're only looking for one loan, multiple lenders may request your credit report. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, so try and stay within that time frame.
Remember, credit scores don't change overnight. Improving them requires time and diligent effort on your part, so it's a good idea to get the ball rolling at least three to six months prior to submitting your application for home financing.
If credit repair is what you need, you can either begin the process yourself or seek out a repair service. If you decide to make your own improvements, visit as many websites as possible to get information regarding credit laws and consumer rights. Diligently search through them and educate yourself to ensure that you don’t sustain any self-inflicted wounds. A good place to start would be the Federal Trade Commission's website, which contains a wealth of helpful literature.
If you’re facing severe or complicated credit issues, then you’ll probably want to enlist the assistance of a professional credit repair company. Before you do, be sure to familiarize yourself with the FTC's regulations on credit repair. With over 1100 credit repair companies to choose from, it's important to be certain you are dealing with a reputable firm. Examine the FTC's information on fraudulent practices to avoid falling prey to credit repair scams.
Addressing credit issues can be uncomfortable to say the least. But by taking these steps now, you’ll be that much closer to obtaining the home of your dreams.
Additional Resources:
To order your free credit report, go to:
www.annualcreditreport.com
To read the Fair Credit Reporting Act, go to:
www.ftc.gov/os/statutes/frca.htm
For the Federal Trade Commission's information on consumer credit, go to:
www.ftc.gov/bcp/conline/edcams/credit/index.html
Bill Vourazeris
443-618-2880
M-Point Mortgage Services
Crofton, MD Credit remediation is a subject consumers often face with fear and trepidation, and for good reason. With the exception of recognizing that the best score wins, the average home shopper knows very little about the whole credit scoring process. Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to upgrade their credit history. The good news is there are ways to improve less-than-perfect credit scores and obtain a loan for the home you really want.
The first step in the process is making sure that you have a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you’ll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)
It's also important to know just what a good credit score is. Most A-Paper scores generally begin around 680, although this number may differ slightly among lenders. Don't despair if you come up shy, there is always room for improvement. Increasing your score just 5 points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan’s interest rate.
While credit repair is necessary for some, it's not the only way to increase your credit score. Even if you have stellar credit, you can enhance your score through these steps:
· Evenly distribute your credit card debt to change the ratio of debt to available credit. Let's say you have a credit score of 665. If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket.
· Keep your existing accounts open and active. The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit. The bottom line is don't close those old accounts!
· Keep credit inquiries to a minimum. Each inquiry into your credit history can impact your score anywhere from 2-50 points. When it comes to mortgage and auto loans, even though you're only looking for one loan, multiple lenders may request your credit report. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, so try and stay within that time frame.
Remember, credit scores don't change overnight. Improving them requires time and diligent effort on your part, so it's a good idea to get the ball rolling at least three to six months prior to submitting your application for home financing.
If credit repair is what you need, you can either begin the process yourself or seek out a repair service. If you decide to make your own improvements, visit as many websites as possible to get information regarding credit laws and consumer rights. Diligently search through them and educate yourself to ensure that you don’t sustain any self-inflicted wounds. A good place to start would be the Federal Trade Commission's website, which contains a wealth of helpful literature.
If you’re facing severe or complicated credit issues, then you’ll probably want to enlist the assistance of a professional credit repair company. Before you do, be sure to familiarize yourself with the FTC's regulations on credit repair. With over 1100 credit repair companies to choose from, it's important to be certain you are dealing with a reputable firm. Examine the FTC's information on fraudulent practices to avoid falling prey to credit repair scams.
Addressing credit issues can be uncomfortable to say the least. But by taking these steps now, you’ll be that much closer to obtaining the home of your dreams.
Additional Resources:
To order your free credit report, go to:
www.annualcreditreport.com
To read the Fair Credit Reporting Act, go to:
www.ftc.gov/os/statutes/frca.htm
For the Federal Trade Commission's information on consumer credit, go to:
www.ftc.gov/bcp/conline/edcams/credit/index.html
Bill Vourazeris
443-618-2880
Saturday, July 12, 2008
Should You Leverage Your Home or Pay It Down Rapidly?
By Bill Vourazeris
Crofton, MD – There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.
Leveraging Your Property. In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example: If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity. Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.
As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.
However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.
Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.
It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.
Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.
The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.
Crofton, MD – There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.
Leveraging Your Property. In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example: If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity. Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.
As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.
However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.
Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.
It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.
Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.
The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.
Friday, July 11, 2008
Home Buyers Face Decisions that Affect Their Long-Term Financial Picture
By Bill Vourazeris
Crofton, MD – Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.
First and foremost, you must have a mortgage consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here. Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames. If a lender is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate. It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!
Once you have found a mortgage consultant that you feel comfortable working with, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.Your mortgage consultant should be able to narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.
Moreover, a reputable loan originator will not hesitate to share this information with your tax consultant or financial planner so they may offer additional feedback on your behalf.
Home ownership imparts a rewarding vehicle for building wealth and a strong financial future. The mortgage consultant that you choose should be there not only when your loan closes, but should also provide you with ongoing service to assist you in managing that debt over time.
Crofton, MD – Taking the step into home ownership is one of the most important financial decisions a person will make in their lifetime. There are many factors to consider when embarking on this venture. Literally hundreds of loan programs are available, and it is important to find the one that best fits your personal long-term goals.
First and foremost, you must have a mortgage consultant in your corner that is willing to take the time to know what your long-term goals are. Communication is the key factor here. Curious prospective home buyers sometimes turn to Internet-based services just to see what current interest rates are. But a faceless web site will not take the prospect’s future financial planning into consideration or guide the potential borrower through the many nuances of the loan process. When shopping for a home loan, be wary of web-based services that offer programs to reel prospects in with attractive rates that are based upon unrealistic time frames. If a lender is offering a terrific rate based on a 10-day lock-in period, it is unlikely that the potential home owner would actually be able to find their dream home, get through the negotiation process and win approval from a lender within such a short period of time. This is called short-pricing, and when it comes time to close the transaction, the rate that was originally offered is simply no longer available. As a result, the unfortunate prospect is bulldozed into a loan program with a higher interest rate. It is highly unlikely that a qualified loan originator whose business is based upon referrals will use unscrupulous tactics such as this to get new customers in the door!
Once you have found a mortgage consultant that you feel comfortable working with, lay your goals out on the table because it will have a tremendous impact on choosing a loan program that meets your specific needs. One of the most important factors to consider is how long you wish to borrow the money for. For example, if you know you will only be in the home for five years, it wouldn’t make sense to opt for a 30-year loan program or pay points up front to secure a lower interest rate. You would not be in the home long enough to benefit from such action.Your mortgage consultant should be able to narrow down a selection of programs based on the information that you have provided, and present you with an easy-to-read spreadsheet that clearly defines viable options for your interest rate and amortization schedule, monthly payment and any potential savings you may realize by paying points up front.
Moreover, a reputable loan originator will not hesitate to share this information with your tax consultant or financial planner so they may offer additional feedback on your behalf.
Home ownership imparts a rewarding vehicle for building wealth and a strong financial future. The mortgage consultant that you choose should be there not only when your loan closes, but should also provide you with ongoing service to assist you in managing that debt over time.
Ready to Trade-In Your Home? Perhaps You Should Remodel Instead!
By Bill Vourazeris
Crofton, MD – Each year, millions of Americans move into the home of their dreams. As time goes by, families expand, kids grow older, and suddenly that home isn't quite so perfect anymore. Or perhaps you still love your home, but you really want a gourmet kitchen and a larger master bedroom. Should you start looking for a new house? Or would it be better to stay where you are and remodel instead?
Both options involve a significant investment of time and money, so it's important to take your time and make an informed decision. You'll also want to be sure to consider both the financial and the emotional sides of the equation. Let's begin by examining the financial factors involved.
Moving: A good local real estate agent should be able to assist you with estimates on these numbers.
· How much will it cost to purchase a home that will meet your needs?
· How much could you sell your existing home for? Don't forget to subtract the agent's commission from this total.
· What will it cost to move? According to real estate consultant and best-selling author of Remodel or Move, Dan Fritschen, a typical move costs 10% of the value of your home.
· How much will your property taxes increase as a result of the move?
Remodeling:
· What projects do you want to have done and how much will they cost? An architect or general contractor will be able to assist you with these figures.
· How much will the improvements add to the value of your home, also known as the "payback"? A local real estate agent can assist with this as well.
If the decision about whether to renovate or move were purely a financial one, then it would be quite easy to look at the numbers and come to the right conclusion. However, there are also emotional factors that come into play, and they have a value as well. Let's consider some examples.
Reasons you may want to move:
· If you relocate to a new neighborhood, your children could attend superior schools.
· You would like to reduce your commute or have better access to local amenities, such as restaurants and shopping.
· You're not particularly fond of your current neighborhood.
· Your yard is too small, and you cannot expand it.
Reasons you may want to stay and remodel:
· You're happy with your location. It's convenient, you love your neighbors, and the schools are either excellent or are not a factor.
· You love the layout of your home.
· All you need is a little more space, and your home will be perfect.
Of course only you know what is truly important for your happiness, so try to use these questions as a starting point. Create a list of the pros and cons of each scenario and leave it someplace accessible, so that you and your spouse can add to it as you think of additional factors. You may also want to consider attending open houses and visiting new housing developments to see what is available and how your home compares.
Once you've completed your list and your financial assessment, it's time to draw some conclusions. Are the numbers and the emotional factors pointing you in a clear direction? If you're still feeling unsure and would like some additional assistance, you may want to read Dan Fritschen's book, Remodel or Move, or visit his website at http://www.remodelormove.com/. Both contain a calculator that will assist you with the difficult task of quantifying the ramifications of your decision. In addition, you can learn tips to assist you with the next step, after you've determined what it will be.
If you choose to remodel, then you'll need to have a clear idea of what you want to accomplish before finalizing any details with the contractor or architect. One of the most expensive things you can do is change the project midstream.
If you decide to move, then there are low-cost improvements you can make to your existing home that will help it to sell more quickly. The kitchen and the bathrooms provide the biggest return on investment in this area.
Whether you decide to remodel or buy a new home, it's important to ensure that you have proper financing in place prior to moving forward. If you decide to purchase a home, a mortgage originator will help you to determine how much you can afford, as well as which loan package works best with your overall financial plan. In the case of remodeling, you should meet with a mortgage professional before any construction takes place. Otherwise you may severely limit the type of financing options available to you.
Crofton, MD – Each year, millions of Americans move into the home of their dreams. As time goes by, families expand, kids grow older, and suddenly that home isn't quite so perfect anymore. Or perhaps you still love your home, but you really want a gourmet kitchen and a larger master bedroom. Should you start looking for a new house? Or would it be better to stay where you are and remodel instead?
Both options involve a significant investment of time and money, so it's important to take your time and make an informed decision. You'll also want to be sure to consider both the financial and the emotional sides of the equation. Let's begin by examining the financial factors involved.
Moving: A good local real estate agent should be able to assist you with estimates on these numbers.
· How much will it cost to purchase a home that will meet your needs?
· How much could you sell your existing home for? Don't forget to subtract the agent's commission from this total.
· What will it cost to move? According to real estate consultant and best-selling author of Remodel or Move, Dan Fritschen, a typical move costs 10% of the value of your home.
· How much will your property taxes increase as a result of the move?
Remodeling:
· What projects do you want to have done and how much will they cost? An architect or general contractor will be able to assist you with these figures.
· How much will the improvements add to the value of your home, also known as the "payback"? A local real estate agent can assist with this as well.
If the decision about whether to renovate or move were purely a financial one, then it would be quite easy to look at the numbers and come to the right conclusion. However, there are also emotional factors that come into play, and they have a value as well. Let's consider some examples.
Reasons you may want to move:
· If you relocate to a new neighborhood, your children could attend superior schools.
· You would like to reduce your commute or have better access to local amenities, such as restaurants and shopping.
· You're not particularly fond of your current neighborhood.
· Your yard is too small, and you cannot expand it.
Reasons you may want to stay and remodel:
· You're happy with your location. It's convenient, you love your neighbors, and the schools are either excellent or are not a factor.
· You love the layout of your home.
· All you need is a little more space, and your home will be perfect.
Of course only you know what is truly important for your happiness, so try to use these questions as a starting point. Create a list of the pros and cons of each scenario and leave it someplace accessible, so that you and your spouse can add to it as you think of additional factors. You may also want to consider attending open houses and visiting new housing developments to see what is available and how your home compares.
Once you've completed your list and your financial assessment, it's time to draw some conclusions. Are the numbers and the emotional factors pointing you in a clear direction? If you're still feeling unsure and would like some additional assistance, you may want to read Dan Fritschen's book, Remodel or Move, or visit his website at http://www.remodelormove.com/. Both contain a calculator that will assist you with the difficult task of quantifying the ramifications of your decision. In addition, you can learn tips to assist you with the next step, after you've determined what it will be.
If you choose to remodel, then you'll need to have a clear idea of what you want to accomplish before finalizing any details with the contractor or architect. One of the most expensive things you can do is change the project midstream.
If you decide to move, then there are low-cost improvements you can make to your existing home that will help it to sell more quickly. The kitchen and the bathrooms provide the biggest return on investment in this area.
Whether you decide to remodel or buy a new home, it's important to ensure that you have proper financing in place prior to moving forward. If you decide to purchase a home, a mortgage originator will help you to determine how much you can afford, as well as which loan package works best with your overall financial plan. In the case of remodeling, you should meet with a mortgage professional before any construction takes place. Otherwise you may severely limit the type of financing options available to you.
Thursday, July 10, 2008
Current State of Mortgage financing…..What’s going on?
Anyone watching or reading the financial news over the last few days and weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you? Let's unpack the definitions and details, so that you really understand the truth behind the headlines.
Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.
Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop. The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.
But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.
Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.
In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.
What happens next, and what should you do now? The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.
First, even if you are not presently in the market for a home or a home loan of any type, call me and I will put you with one of my many trusted Loan Consultants to make sure that your credit standing is as solid as possible. Many people I talk to about home loans didn't expect they would have a need, and didn't plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side...why don't we take a few minutes together and just make sure you are prepared, should a need arise down the road?
Next, if you are in the market for a home loan, or know someone who is - know that now is time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. Your home and your financing are just too important, and times have changed. I am here to help and advise during these volatile times - and would welcome calls from you, your friends, family, neighbors or coworkers.
If you have any questions at all, please call or e-mail me or if you have clients that need to be approved give me a call I am here to help.
Bill Vourazeris
Vice-President
443-618-2880
Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.
Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop. The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.
But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.
Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.
In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.
What happens next, and what should you do now? The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.
First, even if you are not presently in the market for a home or a home loan of any type, call me and I will put you with one of my many trusted Loan Consultants to make sure that your credit standing is as solid as possible. Many people I talk to about home loans didn't expect they would have a need, and didn't plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side...why don't we take a few minutes together and just make sure you are prepared, should a need arise down the road?
Next, if you are in the market for a home loan, or know someone who is - know that now is time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. Your home and your financing are just too important, and times have changed. I am here to help and advise during these volatile times - and would welcome calls from you, your friends, family, neighbors or coworkers.
If you have any questions at all, please call or e-mail me or if you have clients that need to be approved give me a call I am here to help.
Bill Vourazeris
Vice-President
443-618-2880
Wednesday, July 9, 2008
Buying a Foreclosed Home
With today’s market there are a number of attractive homes in the foreclosure market. However, buying a foreclosed home is much more risky and complicated than the traditional home buying course. There are a few tips that you should know before trying to buy a foreclosed property.
First you can buy a home when it’s in the pre-foreclosure stage, or when the owner of the house has been given a certain amount of time depending on the state to become current with the mortgage or give up the home. Buying a house in this time period often is easier for experienced buyers because you have to deal directly with the homeowner. Not only are they likely upset about losing their home, often homeowners don’t know their properties were made public in a foreclosure listing. Another thing that makes buying homes during this period difficult is the time constraints. Some states give homeowners only 30 days before the bank puts it up for auction. Not a lot of time to make a deal and transfer the mortgage.
If a home does go to auction, the next stage in foreclosure, buying the home then can again be risky. The auction usually happens on the steps of a local courthouse and is difficult because you usually have to pay cash for the home. Homebuyers can’t finance auctioned homes. Additionally you have to buy the house without seeing it. And beyond all of that you can’t get title insurance so if the house has a tax lien attached to it the new owner, you, has to pay it off.
If no bids are high enough to pay for the outstanding loan or no one shows up to the auction then the next step is taken. This means the bank will take ownership of the home and use a real estate broker to sell it. This is the best way to buy foreclosed properties in terms of ease. However, you’re not likely to get a discount any longer because the bank usually tries to sell for right at or close to the market value. Try negotiating though because if a bank has a number of properties they are more willing to chance their asking price.
Another type of foreclosed properties is the homes that were bought with FHA or Department of Veterans Affairs loans. When these homes go into foreclosure they are put up for sale by the government. These listings are updated daily and come with a detailed property report, but can only be bid on by HUD-registered brokers. Better yet, for the first 45 days they are up for sale the listing is only for homeowner occupancy, which means you don’t face competition from foreclosure investors. This means the best chance for the good properties at a reasonable price.
You can find listings of foreclosures at Foreclosure.com, Foreclosures.com and RealtyTrac.com All of these sites list foreclosed properties and charge monthly subscription fees for access to their databases.
Bill Vourazeris
443-618-2880
First you can buy a home when it’s in the pre-foreclosure stage, or when the owner of the house has been given a certain amount of time depending on the state to become current with the mortgage or give up the home. Buying a house in this time period often is easier for experienced buyers because you have to deal directly with the homeowner. Not only are they likely upset about losing their home, often homeowners don’t know their properties were made public in a foreclosure listing. Another thing that makes buying homes during this period difficult is the time constraints. Some states give homeowners only 30 days before the bank puts it up for auction. Not a lot of time to make a deal and transfer the mortgage.
If a home does go to auction, the next stage in foreclosure, buying the home then can again be risky. The auction usually happens on the steps of a local courthouse and is difficult because you usually have to pay cash for the home. Homebuyers can’t finance auctioned homes. Additionally you have to buy the house without seeing it. And beyond all of that you can’t get title insurance so if the house has a tax lien attached to it the new owner, you, has to pay it off.
If no bids are high enough to pay for the outstanding loan or no one shows up to the auction then the next step is taken. This means the bank will take ownership of the home and use a real estate broker to sell it. This is the best way to buy foreclosed properties in terms of ease. However, you’re not likely to get a discount any longer because the bank usually tries to sell for right at or close to the market value. Try negotiating though because if a bank has a number of properties they are more willing to chance their asking price.
Another type of foreclosed properties is the homes that were bought with FHA or Department of Veterans Affairs loans. When these homes go into foreclosure they are put up for sale by the government. These listings are updated daily and come with a detailed property report, but can only be bid on by HUD-registered brokers. Better yet, for the first 45 days they are up for sale the listing is only for homeowner occupancy, which means you don’t face competition from foreclosure investors. This means the best chance for the good properties at a reasonable price.
You can find listings of foreclosures at Foreclosure.com, Foreclosures.com and RealtyTrac.com All of these sites list foreclosed properties and charge monthly subscription fees for access to their databases.
Bill Vourazeris
443-618-2880
A Downpayment On A Home Is Not A Cushion
Posted on June 26, 2006Filed under Mortgage Planning Ideas Read the complete post or link to it
Once more, the major media outlets miss the bigger picture. This time, the story comes from the Chicago Tribune via Money Magazine.
The offending quote:
[New York City financial planner James] Kibler says he likes to see buyers put down at least 10 percent, because they will have a cushion should home prices dip. If you pay $300,000, for example, and need to move after a year, you'll only have to pay off a $270,000 mortgage balance. That gives you the freedom to sell for slightly under what you paid for the house and pay a real estate commission.
I am not trying to pick a fight with a well-known planner, but this is one of the least-informed statements I have read in a long, long time. Here's the problem with Kibler's statement -- it's right out of Homebuyer Psychology 101.
To categorize a downpayment as "a cushion" against falling real estate prices is a farce. The $30,000 is not a cushion -- it's a potential loss.
Here's why.
If you sell your home for less than you paid for it, then you've lost money on your real estate investment. This happens irrespective of your initial downpayment. Making a downpayment to protect yourself against market losses is a broken concept. This is a simple game of Pay Now, or Pay Later.
There is no real protection from falling real estate prices other than to limit your investment in it. That means putting no more principal in your home that you absolutely have to because if you sell your home for a loss in a year, there are two scenarios:
You liquidated savings accounts last year to make an initial downpayment and that downpayment is used to cover your loss
You didn't make a downpayment at all, and you liquidate your savings today to cover your loss
Considering that your savings earn interest in a bank account and your equity earns nothing, Outcome #2 is a better result because Pay Later earns more interest than Pay Now.
The concept of a "cushion" is a pure psychological play, and Kibler should know better. To that end, so should Money Magazine and the Tribune.
Bill Vourazeris
443-618-2880
Once more, the major media outlets miss the bigger picture. This time, the story comes from the Chicago Tribune via Money Magazine.
The offending quote:
[New York City financial planner James] Kibler says he likes to see buyers put down at least 10 percent, because they will have a cushion should home prices dip. If you pay $300,000, for example, and need to move after a year, you'll only have to pay off a $270,000 mortgage balance. That gives you the freedom to sell for slightly under what you paid for the house and pay a real estate commission.
I am not trying to pick a fight with a well-known planner, but this is one of the least-informed statements I have read in a long, long time. Here's the problem with Kibler's statement -- it's right out of Homebuyer Psychology 101.
To categorize a downpayment as "a cushion" against falling real estate prices is a farce. The $30,000 is not a cushion -- it's a potential loss.
Here's why.
If you sell your home for less than you paid for it, then you've lost money on your real estate investment. This happens irrespective of your initial downpayment. Making a downpayment to protect yourself against market losses is a broken concept. This is a simple game of Pay Now, or Pay Later.
There is no real protection from falling real estate prices other than to limit your investment in it. That means putting no more principal in your home that you absolutely have to because if you sell your home for a loss in a year, there are two scenarios:
You liquidated savings accounts last year to make an initial downpayment and that downpayment is used to cover your loss
You didn't make a downpayment at all, and you liquidate your savings today to cover your loss
Considering that your savings earn interest in a bank account and your equity earns nothing, Outcome #2 is a better result because Pay Later earns more interest than Pay Now.
The concept of a "cushion" is a pure psychological play, and Kibler should know better. To that end, so should Money Magazine and the Tribune.
Bill Vourazeris
443-618-2880
Why Foreclosures Are More Prevalent In Fast Growing Areas
Posted on May 15, 2007Filed under Real Estate Sales Read the complete post or link to it
According to RealtyTrac, one out of every 783 homes in the United States filed for foreclosure in April.
In the Chicagoland area, the breakdown is like this (in order):
Kendall: One home in every 257 entered foreclosure
Will: One home in every 303 entered foreclosure
McHenry: One home in every 320 entered foreclosure
Kane: One home in every 387 entered foreclosure
Cook: One home in every 410 entered foreclosure
Grundy: One home in every 430 entered foreclosure
De Kalb: One home in every 717 entered foreclosure
Du Page: One home in every 758 entered foreclosure
Don't be surprised that Kendall, Will, McHenry and Kane are topping this list; or that Kendall County homes are foreclosing more than three times as fast as Du Page.
It all comes down to growth.
As reported by the Chicago Tribune (and I can't find the original link anywhere), Kendall and Will County were both in the Top 10 counties nationwide for growth between 2000-2006.
McHenry and Kane counties -- while not as explosive -- have seen their share of growth, too. As young families leave the city in search of yards, schools and affordability, they are creating a new problem for themselves that may be a leading cause of foreclosures.
Have you seen the typical tax bill in Will County?
Chicagoland's collar counties until very recently were considered rural. The sudden influx of residents created a need for schools, infrastructure, and public services. It's typical to see a 2% property tax bill in Will and other counties, based on the value of a home.
By comparison, Cook County taxes may be 1.25%.
Another probable factor relating tax bills to foreclosure is that new construction homes don't have tax bills associated with them until 12-18 months after completion. So, homeowners that bought new construction along the I-55 Corridor in 2005 and 2006, for example, are only now getting their first real estate tax bills and -- surprise -- it's $400 per month.
Because so many homeowners are in a state of precarious balance between their monthly expenses and their monthly income, the shift in real estate tax payments can upset that balance and create financial stress, eventually leading to a complete inability to meet their monthly obligations.
If the theory proves true -- explosive growth creates larger-than-normal tax burdens for unprepared homeowners -- expect more foreclosure activity in the collar counties over the next 12-18 months.
Based on that idea, DeKalb should quickly move up the list.
Bill Vourazeris
443-618-2880
According to RealtyTrac, one out of every 783 homes in the United States filed for foreclosure in April.
In the Chicagoland area, the breakdown is like this (in order):
Kendall: One home in every 257 entered foreclosure
Will: One home in every 303 entered foreclosure
McHenry: One home in every 320 entered foreclosure
Kane: One home in every 387 entered foreclosure
Cook: One home in every 410 entered foreclosure
Grundy: One home in every 430 entered foreclosure
De Kalb: One home in every 717 entered foreclosure
Du Page: One home in every 758 entered foreclosure
Don't be surprised that Kendall, Will, McHenry and Kane are topping this list; or that Kendall County homes are foreclosing more than three times as fast as Du Page.
It all comes down to growth.
As reported by the Chicago Tribune (and I can't find the original link anywhere), Kendall and Will County were both in the Top 10 counties nationwide for growth between 2000-2006.
McHenry and Kane counties -- while not as explosive -- have seen their share of growth, too. As young families leave the city in search of yards, schools and affordability, they are creating a new problem for themselves that may be a leading cause of foreclosures.
Have you seen the typical tax bill in Will County?
Chicagoland's collar counties until very recently were considered rural. The sudden influx of residents created a need for schools, infrastructure, and public services. It's typical to see a 2% property tax bill in Will and other counties, based on the value of a home.
By comparison, Cook County taxes may be 1.25%.
Another probable factor relating tax bills to foreclosure is that new construction homes don't have tax bills associated with them until 12-18 months after completion. So, homeowners that bought new construction along the I-55 Corridor in 2005 and 2006, for example, are only now getting their first real estate tax bills and -- surprise -- it's $400 per month.
Because so many homeowners are in a state of precarious balance between their monthly expenses and their monthly income, the shift in real estate tax payments can upset that balance and create financial stress, eventually leading to a complete inability to meet their monthly obligations.
If the theory proves true -- explosive growth creates larger-than-normal tax burdens for unprepared homeowners -- expect more foreclosure activity in the collar counties over the next 12-18 months.
Based on that idea, DeKalb should quickly move up the list.
Bill Vourazeris
443-618-2880
Why Mortgage Rates Don't Look Like They're Coming Back Down Any Time Soon
Posted on February 15, 2008Filed under On Inflation Read the complete post or link to it
If you're shopping for mortgages right now, or are in the process of buying a home, this week was not your buddy.
In early-January -- right up until the surprise 0.750% cut to the Fed Funds Rate January 22 -- mortgage rates were the lowest that they'd been in three years.
At the time, market participants were fearful of an economic recession and mortgage rates moved lower with each added ounce of recessionary conviction.
Since that cut, though, and through every week since, the fears of recession are ceding to economic hope and recovery.
As a result, the recession-fueled drop in rates from early-2008 is getting ever-smaller in the economic rearview mirror.
Author's note: Eddie Vedder just doesn't look the same without those long, 1991 grunge rock bangs.
Here's a brief synopsis of what drove rates higher this week:
The economic stimulus package passes
A Federal Reserve president says recession won't happen
The World's most respected investor implied that the mortgage market is not so bad
Then, most importantly, it turns out that the American consumer is still spending after all.
Each of these four points show more economic health than Wall Street had expected. That has forced investors to reshuffle their investment portfolios.
The biggest loser through all of this is the bond market; over the past five days, 30-year fixed mortgage rates have increased by as much as 0.375%.
With more Fed speakers and key inflation/recession data coming down the pipe (or it is pike?) next week, expect the volatility to continue.
When in doubt about mortgage rates, stop shopping and start locking. There is very little good that can come from "waiting out the market".
Saving $50 a month won't change your life but wasting $50 a month will eat at you forever.
Bill Vourazeris
443-618-2880
If you're shopping for mortgages right now, or are in the process of buying a home, this week was not your buddy.
In early-January -- right up until the surprise 0.750% cut to the Fed Funds Rate January 22 -- mortgage rates were the lowest that they'd been in three years.
At the time, market participants were fearful of an economic recession and mortgage rates moved lower with each added ounce of recessionary conviction.
Since that cut, though, and through every week since, the fears of recession are ceding to economic hope and recovery.
As a result, the recession-fueled drop in rates from early-2008 is getting ever-smaller in the economic rearview mirror.
Author's note: Eddie Vedder just doesn't look the same without those long, 1991 grunge rock bangs.
Here's a brief synopsis of what drove rates higher this week:
The economic stimulus package passes
A Federal Reserve president says recession won't happen
The World's most respected investor implied that the mortgage market is not so bad
Then, most importantly, it turns out that the American consumer is still spending after all.
Each of these four points show more economic health than Wall Street had expected. That has forced investors to reshuffle their investment portfolios.
The biggest loser through all of this is the bond market; over the past five days, 30-year fixed mortgage rates have increased by as much as 0.375%.
With more Fed speakers and key inflation/recession data coming down the pipe (or it is pike?) next week, expect the volatility to continue.
When in doubt about mortgage rates, stop shopping and start locking. There is very little good that can come from "waiting out the market".
Saving $50 a month won't change your life but wasting $50 a month will eat at you forever.
Bill Vourazeris
443-618-2880
FHA Loans May Get Tougher Soon -- Just Like Conforming Loans Did
Posted on June 24, 2008Filed under Conforming Mortgage Guidelines Read the complete post or link to it
There were two news pieces written on FHA home loans today.
Separately, they're interesting but uneventful. Together, they could be a harbinger of tougher times ahead for two groups:
Home buyers that use FHA financing
American taxpayers that fund the FHA
The first FHA story was front page in the Wall Street Journal. It shouldn't surprise anyone that FHA loans using downpayment assistance programs default at much faster rates than non-DPA loans.
The second story wasn't so obvious.
Originally run in Bloomberg, Dawn Kopecki writes that Fannie and Freddie are cherry-picking good loans, leaving spoiled fruit for the FHA's balance sheet.
I was a source for this article, quoted about Fannie and Freddie's loan-level pricing adjustments and how it's encouraging American homebuyers with below-average borrowing profiles in weak real estate markets to shack up with the FHA.
You can guess how this story could end for the taxpayer-funded FHA. Not only should the government group's loan portfolio deteriorate over the next few years, its guidelines will likely tighten and its fees may increase.
We've seen this happen before. On video.
So, consider today's FHA stories your fair warning. If you're planning to use the FHA for your next home loan, the approval process should be much easier for you today than even just a few weeks from now.
This is because -- sooner or later -- the FHA's loan problems are going to become a mainstream political issue and that's when the hammer would fall. For as little as the lenders like holding the bag on defaulted loans, the taxpayers like it even less.
(Image courtesy: Wall Street Journal Online)
There were two news pieces written on FHA home loans today.
Separately, they're interesting but uneventful. Together, they could be a harbinger of tougher times ahead for two groups:
Home buyers that use FHA financing
American taxpayers that fund the FHA
The first FHA story was front page in the Wall Street Journal. It shouldn't surprise anyone that FHA loans using downpayment assistance programs default at much faster rates than non-DPA loans.
The second story wasn't so obvious.
Originally run in Bloomberg, Dawn Kopecki writes that Fannie and Freddie are cherry-picking good loans, leaving spoiled fruit for the FHA's balance sheet.
I was a source for this article, quoted about Fannie and Freddie's loan-level pricing adjustments and how it's encouraging American homebuyers with below-average borrowing profiles in weak real estate markets to shack up with the FHA.
You can guess how this story could end for the taxpayer-funded FHA. Not only should the government group's loan portfolio deteriorate over the next few years, its guidelines will likely tighten and its fees may increase.
We've seen this happen before. On video.
So, consider today's FHA stories your fair warning. If you're planning to use the FHA for your next home loan, the approval process should be much easier for you today than even just a few weeks from now.
This is because -- sooner or later -- the FHA's loan problems are going to become a mainstream political issue and that's when the hammer would fall. For as little as the lenders like holding the bag on defaulted loans, the taxpayers like it even less.
(Image courtesy: Wall Street Journal Online)
The Media Could Be Spreading Hope For Housing, But It's Choosing To Sell Fear Instead (Case-Shiller Home Price Index Version)
Posted on June 25, 2008Filed under Real Estate Sales Read the complete post or link to it
Look, if you want to highlight the negatives, here it is:
Since last year, home prices are down.
Duh. But, if you want to look at the positives, take a close look at this chart. It's doctored up a bit, but taken directly from the S&P/Case-Shiller Home Price Index report. April is the second straight month we've seen improvement like this.
The papers want to tell you that the housing market is dismal, but talk to any real estate agent you know and they'll tell you the same thing: The market just feels different right now. Homes are selling and the media's got it wrong.
Look, if you want to highlight the negatives, here it is:
Since last year, home prices are down.
Duh. But, if you want to look at the positives, take a close look at this chart. It's doctored up a bit, but taken directly from the S&P/Case-Shiller Home Price Index report. April is the second straight month we've seen improvement like this.
The papers want to tell you that the housing market is dismal, but talk to any real estate agent you know and they'll tell you the same thing: The market just feels different right now. Homes are selling and the media's got it wrong.
Why Short-Term Trends In Housing Are Super-Important To Home Buyers
Posted on June 27, 2008Filed under Real Estate Sales Read the complete post or link to it
Consumer confidence is registering all-time lows and it's no surprise why. Americans are bombarded by bad economic news day after day.
Oil prices reach new highs
Stock prices reach new lows
Lenders are getting sued
The weight of the gloom drags down the economy and the press is quick to report on all of it.
When there's good news, though, the stories get brushed aside. And that's why a housing recovery is not getting the coverage it deserves.
On Wednesday, we looked at charts from April showing improvement in most major real estate markets. And we saw the same improvement looking back at March.
So now today, with the Existing Home Sales data showed improvement, we can infer that the trend of improving home prices continued through May 2008.
It reminds of Lou Brown's famous quote:
Now, we won a ball game yesterday. If we win one today, that's two in a row. We win one tomorrow, that's called a winning streak. It has happened before.
Calling this a housing winning streak may be premature, but there's a bevy of anecodal evidence that points to one.
For example, real estate agents in previously beat-down cities like Phoenix and San Diego are reporting an alarming rate of multiple-offer home sales.
I can back that up for Chicago and Cincinnati based on my clients' experiences. If a home is priced right, real estate professionals will tell you, buyers are swooping in.
Unfortunately, this sort of on-the-street reporting doesn't make its way to the papers because economists are most concerned with year-over-year growth. As in, how does this year compare to last year?
The press approach is well-suited for long-term trend analysis but home buyers rarely operate on long-term buying cycles. Generally, they're looking for a home for few months and then make their purchase.
This is short-term and is why month-over-month data may be more appropriate for the average homebuyer. As in, how do home prices this month compare to home prices last month?
Lately, all signs point to improvement and that means that homes will likely be more expensive to buy in July than they were here in June. The long-term charts won't make that conclusion for you but the short-term charts certainly can.
Consumer confidence is registering all-time lows and it's no surprise why. Americans are bombarded by bad economic news day after day.
Oil prices reach new highs
Stock prices reach new lows
Lenders are getting sued
The weight of the gloom drags down the economy and the press is quick to report on all of it.
When there's good news, though, the stories get brushed aside. And that's why a housing recovery is not getting the coverage it deserves.
On Wednesday, we looked at charts from April showing improvement in most major real estate markets. And we saw the same improvement looking back at March.
So now today, with the Existing Home Sales data showed improvement, we can infer that the trend of improving home prices continued through May 2008.
It reminds of Lou Brown's famous quote:
Now, we won a ball game yesterday. If we win one today, that's two in a row. We win one tomorrow, that's called a winning streak. It has happened before.
Calling this a housing winning streak may be premature, but there's a bevy of anecodal evidence that points to one.
For example, real estate agents in previously beat-down cities like Phoenix and San Diego are reporting an alarming rate of multiple-offer home sales.
I can back that up for Chicago and Cincinnati based on my clients' experiences. If a home is priced right, real estate professionals will tell you, buyers are swooping in.
Unfortunately, this sort of on-the-street reporting doesn't make its way to the papers because economists are most concerned with year-over-year growth. As in, how does this year compare to last year?
The press approach is well-suited for long-term trend analysis but home buyers rarely operate on long-term buying cycles. Generally, they're looking for a home for few months and then make their purchase.
This is short-term and is why month-over-month data may be more appropriate for the average homebuyer. As in, how do home prices this month compare to home prices last month?
Lately, all signs point to improvement and that means that homes will likely be more expensive to buy in July than they were here in June. The long-term charts won't make that conclusion for you but the short-term charts certainly can.
Getting Mortgage Rates Clues From The Stock Market
Posted on July 2, 2008Filed under Mortgage-Backed Securities Read the complete post or link to it
The trend is still holding, so to hammer the point home: to know what mortgage rates are doing lately, just check the stock market.
As stocks go down, mortgage rates go down
As stocks go up, mortgage rates go up
This is not a long-term, direct relationship by any means but it's holding true this week.
The interplay between stocks and mortgage rates is a welcome development for home buyers because it's simpler for laypersons to follow the stock market than it is to follow the mortgage-backed securities market. When you know what to expect with rates, after all, the mortgage shopping "experience" can be a little bit less stressful.
So, enjoy it while you can -- by next week, we could back to watching esoteric data like Balance of Trade figures.
(Image courtesy: Google Finance)
The trend is still holding, so to hammer the point home: to know what mortgage rates are doing lately, just check the stock market.
As stocks go down, mortgage rates go down
As stocks go up, mortgage rates go up
This is not a long-term, direct relationship by any means but it's holding true this week.
The interplay between stocks and mortgage rates is a welcome development for home buyers because it's simpler for laypersons to follow the stock market than it is to follow the mortgage-backed securities market. When you know what to expect with rates, after all, the mortgage shopping "experience" can be a little bit less stressful.
So, enjoy it while you can -- by next week, we could back to watching esoteric data like Balance of Trade figures.
(Image courtesy: Google Finance)
12 Bullet Points That Matter To Every Home Buyer In America
Posted on July 8, 2008Filed under On Mortgage Approvals Read the complete post or link to it
Let's Start With The Conclusion
If you plan to buy a new home in 2008 or 2009, give a lot of thought to moving up your timeframe.
Mortgage approvals are about to get more scarce and more expensive for everyone.
The Supporting Evidence From The News
FHA is increasing its mortgage insurance premiums and up-front loan fees for a lot of borrowers
With IndyMac's demise, other banks should follow and Alt-A loans may go the way of Sub-Prime
Fannie and Freddie are in financial crisis again and may be forced to add mandatory loan fees for everyone
Banks are doing the unthinkable just to get suspect loans off their books
Wall Street is losing its appetite for "guaranteed" mortgage bonds
The Anecdotal Evidence From The Street
Lenders have slowed "common sense" exceptions. Meet the guidelines or else.
The new Fannie Mae guidelines are much tougher on high debt ratios
Wall Street is scared and rumors are floating about more bank failures
The Fed is laying the groundwork for another market intervention.
The Relevant Thoughts From A Guy Who Lives, Eats, And Breathes This Stuff
It's an election year so all we're going to hear from now until November is bad news about housing, and bad news about oil prices. That will weigh on Consumer Confidence and should negatively impact mortgage rates.
The purge of the Alt-A mortgage market has been a long time coming and now the window is closing. Don't get caught watching the paint dry.
It doesn't matter how good mortgage rates get if products keep disappearing.
Parting Wisdom
One reason why the markets have been so volatile is because -- about a year ago -- the financial models being used by the banks failed them. Losses followed and swaths of people got fired, but, in the end, lenders still have to lend -- it's what they do. The show must go on, after all.
So, despite the missing roadmap, the banks have still been trying to make it work. They're still issuing new loans to mortgage applicants and they're changing their business rules on-the-fly as market conditions warrant.
However, it's dangerous to drive without a roadmap. Every now and again, one of the mortgage lenders drives right off a cliff. And each time it happens, everybody else on the road slows down, and that trickles down from Wall Street all the way to Main Street.
Therefore, until the path gets more clear for the banks, life as a mortgage applicant should continue to toughen. It won't be easier to get a loan in 6 months than it is today so if you plan to buy "sometime soon", maybe "sometime soon" should be upgraded to "sometime sooner".
(Image courtesy: The Wall Street Journal)
Let's Start With The Conclusion
If you plan to buy a new home in 2008 or 2009, give a lot of thought to moving up your timeframe.
Mortgage approvals are about to get more scarce and more expensive for everyone.
The Supporting Evidence From The News
FHA is increasing its mortgage insurance premiums and up-front loan fees for a lot of borrowers
With IndyMac's demise, other banks should follow and Alt-A loans may go the way of Sub-Prime
Fannie and Freddie are in financial crisis again and may be forced to add mandatory loan fees for everyone
Banks are doing the unthinkable just to get suspect loans off their books
Wall Street is losing its appetite for "guaranteed" mortgage bonds
The Anecdotal Evidence From The Street
Lenders have slowed "common sense" exceptions. Meet the guidelines or else.
The new Fannie Mae guidelines are much tougher on high debt ratios
Wall Street is scared and rumors are floating about more bank failures
The Fed is laying the groundwork for another market intervention.
The Relevant Thoughts From A Guy Who Lives, Eats, And Breathes This Stuff
It's an election year so all we're going to hear from now until November is bad news about housing, and bad news about oil prices. That will weigh on Consumer Confidence and should negatively impact mortgage rates.
The purge of the Alt-A mortgage market has been a long time coming and now the window is closing. Don't get caught watching the paint dry.
It doesn't matter how good mortgage rates get if products keep disappearing.
Parting Wisdom
One reason why the markets have been so volatile is because -- about a year ago -- the financial models being used by the banks failed them. Losses followed and swaths of people got fired, but, in the end, lenders still have to lend -- it's what they do. The show must go on, after all.
So, despite the missing roadmap, the banks have still been trying to make it work. They're still issuing new loans to mortgage applicants and they're changing their business rules on-the-fly as market conditions warrant.
However, it's dangerous to drive without a roadmap. Every now and again, one of the mortgage lenders drives right off a cliff. And each time it happens, everybody else on the road slows down, and that trickles down from Wall Street all the way to Main Street.
Therefore, until the path gets more clear for the banks, life as a mortgage applicant should continue to toughen. It won't be easier to get a loan in 6 months than it is today so if you plan to buy "sometime soon", maybe "sometime soon" should be upgraded to "sometime sooner".
(Image courtesy: The Wall Street Journal)
Bankrate.com Mortgage Trend Index (July 3, 2008)
Posted on July 3, 2008Filed under Market Direction Surveys Read the complete post or link to it
I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey is now available.
As a reminder:
The survey is for conforming loans only.
You're welcome to email me about your pending plans to purchase or refinance.
I twitter market updates a few times daily. Follow me, if you want.
Anyway, on to the group's predictions for the next 30 days:
21% of participants predict rates will increase
43% of participants predict rates will decrease
I am predicting that rates will decrease over the next 30 days, but that doesn't mean you should necessarily follow my advice when choosing whether to lock a rate, or float it. My advice may not be appropriate for your individual situation.
From the Bankrate.com survey:
"So long as growth stays steady, money should flow into the mortgage bond market. This drops rates."
I've been using Twitter to communicate the mid-day market shifts to clients. My tweets tell them when rates are likely to change so they can be more pro-active about their finances.
Twitter's simple to set up and it's non-intrusive. You're welcome to follow me if you'd like the updates, too.
Technorati Tags: Bankrate.com
I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey is now available.
As a reminder:
The survey is for conforming loans only.
You're welcome to email me about your pending plans to purchase or refinance.
I twitter market updates a few times daily. Follow me, if you want.
Anyway, on to the group's predictions for the next 30 days:
21% of participants predict rates will increase
43% of participants predict rates will decrease
I am predicting that rates will decrease over the next 30 days, but that doesn't mean you should necessarily follow my advice when choosing whether to lock a rate, or float it. My advice may not be appropriate for your individual situation.
From the Bankrate.com survey:
"So long as growth stays steady, money should flow into the mortgage bond market. This drops rates."
I've been using Twitter to communicate the mid-day market shifts to clients. My tweets tell them when rates are likely to change so they can be more pro-active about their finances.
Twitter's simple to set up and it's non-intrusive. You're welcome to follow me if you'd like the updates, too.
Technorati Tags: Bankrate.com
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