Feb
10
File under small victory: Colorado cracks down on mortgage brokers
File under mortgage + home equity loan + checking account : Aussie ARM can pay off
File under conforming loan limits: It’s still $417,000 in Denver and Colorado. California is a different story.
File under money from the Feds: Rebates, What you need to know
File under 16th & Court makeover: Adam’s Mark sale done
File under not a lopsided trade after all: Manning for Rivers
File under an interesting experiment: Due to Top Five Fridays I rank well for Mailman Newman
Sep
18
Fed Funds Rate down .5%
Filed Under mortgage, personal finance, rates | Leave a Comment
Fed Funds Rate down .5%
WASHINGTON (Reuters) - The U.S. Federal Reserve on Tuesday slashed the benchmark federal funds rate by a half-percentage point in a bold bid to buffer the economy from a housing slump and related financial market turbulence.
ADVERTISEMENTThe decision by the central bank’s Federal Open Market Committee took the overnight rate down to 4.75 percent, its lowest level since May of last year. It was the first cut in the interbank rate — the Fed’s main tool to influence the economy — since June 2003 and the first half-point reduction since November 2002.
Financial markets had widely expected the Fed to lower overnight borrowing costs, but were split over whether the move would be a quarter-point or more-aggressive half-point.
In a related move, the Fed also lowered the discount rate it charges for direct loans to banks by a half-point to 5.25 percent.
What does this mean?
According to Marketwatch:
Here’s what consumers can expect:
If a consumer is paying 8.25% interest on a $100,000 loan that is based on the prime rate — such as a home-equity line — a rate reset to 7.75% is likely. That’s the difference of about $500 a year, or roughly $41.66 a month in interest charges. Resets on some adjustable-rate mortgages will be slightly better. Many ARM interest rates are based on an average of Treasury note yields coupled with a fixed margin, now at about 2.75 percentage points. At Tuesday’s 10-year yield of 4.49%, the rate is 7.24%. In July, it was at 7.77%. That makes the monthly payment on a $200,000 mortgage $1,363, about $73 less than it was in July. But Treasurys could head even lower following the Fed action. Rates on credit cards, which have taken on a bigger role in consumer financing in recent months, are likely to dip a bit too, lowering minimum monthly payments. Savings-deposit rates will go down, meaning that your bank balances won’t appreciate at the same rates you’ve seen all year. Ditto on money market rates, hurting those on fixed incomes — generally the elderly — who rely on cash generated from such safe investments. Interest rates on new loans for cars will fall, though it won’t have any effect on loans already in place. But Brian Bethune, the U.S. economist with Global Insight, urges consumers to wait until contract negotiations between autoworkers and their bosses are done this month. “They could pull out all the stops,” he said about automakers’ desire to unload inventory. And if the Fed lowers rates again next month, all the better.
May
24
JD POWER Awards: Mortgage Companies
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Here are some rankings from JD POWER with respect to mortgage companies:
Home Mortgage Service Satisfaction Ratings: USAA FEDERAL SAVINGS BANK
Mortgage Servicers are companies that receive your mortgage payments. They may or may not have originated the loan.
Primary Mortgage Origination Ratings: SUNTRUST MORTGAGE
Mortgage Originators are companies that initially bought the loan from either a mortgage broker or correspondent lender. They may or may not service the loan.
Home Equity Line/Loan Origination Ratings: WACHOVIA
Home Equity Lines are typically the variable rate second mortgages tied to the prime rate. Loan origination companies may or may not service the loan.
Mar
1
FAQ: What exactly do you do?
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I get this question more than any other: What exactly do you do?
A mortgage broker acts as an intermediary who sources mortgages on behalf of individuals or businesses.
My role as a mortgage professional is to “broker” a home loan for a home purchase, home refinance or a home equity loan/line. I interface with borrowers (clients) and companies that buy mortgages.
Before I got into the mortgage business I worked as a systems analyst. I never thought of it this way but my previous life in the software field and my current life as a mortgage professional are one and the same. This clip from Office Space best sums up my previous life.
Sep
26
A letter from a reader
Filed Under mortgage | Leave a Comment
I get a lot of email. Some are linking requests. Some are spam that somehow get through GMAIL’s spam filter. Some are mortgage requests. Some are mortgage questions. Some are mortgage vendors trying to sell me something.
On Sunday, I received a well written argument from a reader who asked me to post his response to the Denver Post article NO MONEY DOWN: A HIGH RISK GAMBLE.
Phil,
I enjoy frequenting your blog, and wanted to be sure to share this with you. I am an independent Mortgage Broker with my own company Source Financial LLC, and I wrote an extended response to The Sunday Denver Post’s lead article from September 17, 2006 entitled “No Money Down: A High-Risk Gamble” [www.denverpost.com/ci_4347686].
I found the Denver Post article to be riddled with misrepresentations, one-sided accountings, and dangerous misinformation, all supporting a traditionalist approach to mortgages that has put two-thirds of all families into home ownership, but yet has led to a situation where the average fifty year-old American is worth negative $7000, only 5% of Americans retire at age 65 in financial dignity, and 9 out of 10 Americans die in debt.
In reference to my 2000 word response, Denver Post Business Editor Stephen Keating indicated that “I will take the time to read it and digest your observations, and discuss it with the rest of the reporting/editing team here.” Article author and Denver Post Business Writer Greg Grifffin wrote “This is a well-reasoned and well-supported argument. I don’t agree with everything you’ve said, but you’ve managed to get me thinking.” Unfortunately, checking today’s (September 24) Sunday Denver Post and www.denverpost.com, my response remained unpublished…
A Response to “No Money Down: A High-Risk Gamble” – The Sunday Denver Post, September 17, 2006 lead article [www.denverpost.com/ci_4347686]
As an independent Mortgage Broker that owns my own company, Source Financial LLC, in addition to being affiliated with a larger mortgage company that handles the processing and servicing of my loans, Lion Financial Corporation, I read the lead article “No Money Down: A High-Risk Gamble” with great interest. Knowing that a lot of folks along the Front Range turn to the Denver Post as an objective source for information, I was shocked and dismayed by much of the information and conclusions that were put forth on a topic that already invokes a fight or flight response among many home owners.
100% financing loans have been an amazing tool that has greatly contributed to the 5% increase over the last twenty years in percentage of homes occupied by the owner. But it is not the lack of equity that is putting these borrowers into jeopardy, it is a lack of a flexible asset base to deal with changes that has been increasing the risk of these folks defaulting. In general, people that utilize 100% financing for home purchases usually are lacking the liquid assets, emergency funds, and overall wiggle room to deal with financial hardship.
Of course lenders usually have guidelines concerning liquid asset reserves that must be held by the borrower in order to qualify for a loan, but often they only require enough to cover two to four months of mortgage payments. When people do face catastrophic events rightfully referenced by the Denver Post, “job loss, medical problems and divorce,” those reserves can often quickly disappear.
But having equity in one’s home when faced with these situations does not “give homeowners options when they face financial problems,” because it is precisely when folks are facing such dilemmas that they are quite often unable to qualify for refinancing, as at that point in time they are too high risk of a borrower for lenders to work with. As a Mortgage Broker I am deeply disturbed by this fact, but unfortunately it is a reality that we all must face when dealing with banks and lenders.
And probably the most misunderstood aspect of homeownership is the fact that equity is a ZERO PERCENT RETURN INVESTMENT. Yet two-thirds of Americans hold the majority of their wealth in home equity, which is a non-liquid asset that gives them absolutely zero return. Many people confuse appreciation, which is the increase in home value due to market trends, with getting some kind of return on their equity, but that is a common misconception. That is why it is so important for homeowners to separate their equity from their home via refinancing, and put those “cashed out” funds into investment vehicles that offer an actual rate of return. In doing so, homeowners increase their overall liquidity, improve their capacity to face emergencies, reduce their financial risk, increase their rate of return, improve their tax deductions, and diversify their investment portfolio.
Instead of spending their liquid asset base (savings) to finish their basement and send money to their parents, such as in the case of Jose Garcia and Maria Vanderhorst, borrowers with 100% financing have to exercise greater financial discipline. And putting money down and getting into a 30-year fixed would not have improved their situation, as then their down payment would be tied up as equity, which is a non-liquid asset, money that can only be accessed through refinancing or by selling their home.
100% finanacing loans are not dangerous, what is dangerous is borrowers not having a liquid asset base to deal with life’s contingencies. Unfortunately, these are the type of borrowers that tend towards 100% financing, as it really is their only option for home ownership. And tying up their wealth in the straightjacket known as equity is not part of the solution, it is part of the problem. An incredible means to access equity for the purpose of greater fiscal flexbility and all the other goods mentioned above, or “cashing out equity as one goes,” is the Option-ARM loan, which received quite a misguided slamming in the Denver Post article.
The Payment Option Loan gives the borrower four different payment options each and every month: they can make an Interest Only, 30-Year amortized, or 15-Year amortized payment based upon the fully indexed interest rate, or they can make the minimum payment that is based upon a very low “start rate” (usually between 1% and 4%), which involves deferring interest (a.k.a. negative amortization), or adding the difference between the Interest Only payment and the minimum payment onto the principal of the loan. Now while most lenders offer the Payment Option Loan with an adjustable fully indexed rate, one that starts adjusting as early as the first month, some lenders offer the Payment Option Loan with a fixed interest rate for the first five years.
The Payment Option Loan has proven to be a favorite of Real Estate Investors and Real Estate Agents, as it frees up extra cash flow on a monthly basis for much greater investment opportunities. Knowing that equity is a zero percent return investment is some powerful information to have.
The annecdote concerning Louis and India Harts conflated the fixed “start rate” with the adjustable “fully indexed rate”, such that readers were left with the impression that the Harts’ interest rate went from 2.6% to 8.1%. The start rate, which determines how much the minimum payment will be, is not a “teaser rate” that “quickly shoots up”. Some lenders do gradually increase the minimum payment itself (not its determining start rate) on an annual basis, usually somwhere in the range of 7.5% per year, to keep the borrower from deferring too much interest. But the start rates is always otherwise a fixed rate. It is the fully indexed rate, upon which the Interest Only, 30-Year amortized, or 15-Year amortized payments are based, that is adjustable is this case. And this fact is consistent with the numbers quoted in the article: the minimum payment of $919 the Harts are making would be the combination of $721 (2.6% start rate on a $180,000 loan) and $198 of escrowed Property Taxes and Hazard Insurance, which is approximately what they would be for such a home.
In the Harts’ particular case, they are going to have plenty of time to refinance before their loan starts to recast when the principal hits 115% (which would be $207,000 in their situation), as they will be well below that total when their three year prepayment penalty period is up. So the answer to Louis’ “I don’t know how we’re going to do it,” is that when those three years are up, they’ll refinance and get themselves into a loan that they feel more comfortable with and educated about. Though given their situation, if properly understood the Payment Option Loan really is their best option.
My question is how can mortgage products themselves be blamed for foreclosures? At best the article points towards a correlation, but demonstrating causation surely requires more than offhanded references to what some unnamed experts stated the next wave of defaults “may” come from. Beyond unpredictable catastrophic occurences like job loss and overwhelming medical bills, foreclosures occur because borrowers are getting into loans that they do not understand, and often they do not know that they do not understand the mortgage product. It is the responsibility of the Mortgage Broker to completely explain all the details of any mortgage product to the borrower. But it is also the responsibility of the borrower to be certain that they understand the terms of loan before signing off on it at closing. Vehicles and guns both kill in the range of 35,000 Americans each year, but it is the human misuse due to lack of education, ignorance or simple negligance that creates this reality, much like in the mortgage scenario.
Every different mortgage product serves its purpose, and what works for one borrower will not work for another given the specifics of their situation. To label certain categories of loans as “high-risk gambles” or as leaving “no room for slips” ignores the millions of families that are in these loans and find that they very much work for them. It is also a disservice to consumers to mislead them with such one-sided representations.
The true irony of the lead piece in September 17th Sunday Denver Post is that the conclusion that “Option-ARMs… could fuel a surge in foreclosures in the next few years” is the opposite of what we find is actually going on in the mortgage industry, as Payment Option Loans have proven to have the lowest foreclosure rate of any mortgage product currently on the market. World Savings is a bank that specializes in this product, which they refer to as the Pick-A-Pay Loan, as more than 90% of the loans they outfit borrowers with are of the Option-ARM variety. As a lender they have less than a 1% percent foreclosure rate! But World Savings, along with the independent Mortage Brokers like myself that they work with, take on the responsibility of educating the borrowers as to how to properly and smartly manage this incredibly powerful mortgage product.
A lot of mortgage brokers I know will not touch Payment Option loans, but I believe that is primarily because they are not all that interested in educating the consumer. Why not just throw them into a 30-year fixed APR mortgage? Everyone pretty much knows how that works. But that is also how banks make of the most money off of borrowers! The “list of higher-risk, alternative mortgages” the article refers to are not only not necessarily higher risk (Payment Option loan has the lowest risk, as discussed above), but they also provide the borrower the opportunity to increase their monthly cash flow by lowering their monthly mortgage payments by as much as 40%. In this way consumers are empowered to “become the bank” and grow their own investment portfolio, rather than falling into the trap of handing over their hard earned capital to the banks in the form of a large down payment or paying down principal so that they can have more of a zero percent return investment, equity.
Affiliates of Lion Financial Corporation, like myself through my company Source Financial LLC, do not shy away from the privilege or responsibility of educating our clients how to properly utilize alternative mortgage packages. And why is this? Because when families are taught smart mortgage product and equity management, they learn to utilize their mortgage as a financial tool for building wealth, which easily makes a $500,000 to $1,000,000 difference for the borrower over the next fifteen to twenty years. The affluent have always understood how to leverage their mortgage, pay as little down as possible, and keep very low monthly payments in order to increase cash flow for investment purposes. The American middle class is being transformed by engaging in these very same concepts and increasing their fiscal discipline, and I absolutely would not have it any other way.
Brent Ritzel
President/CEO, Source Financial LLC
Denver, Colorado, USA
An affiliate of Lion Financial Corporation
303-590-8999
Brent.Ritzel@lionfinance.com
Aug
23
Everyone has heard the line, ‘When banks compete, you win!” Well, not really when it comes to a second mortgage or home equity loan. These loans rely on credit score and equity. If you have bad credit, you better have equity. If you have no equity, you better have good credit to get a 115% or 125% loan. If you have bad credit and no equity, sayonara.
So where do you go when banks won’t compete. Enter person to person lending at www.prosper.com. Featured in Inc, Newsweek, Business Week, Entrepreneur, et. al. prosper has grown exponentially.
The premise is simple: People who need money request it, and other people bid for the privilege of lending it to them. Prosper makes sure everything is safe, fair and easy. You can borrow anywhere from $50 to $25,000. Seems like an interesting lending alternative when no else is willing.
Mar
8
Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages.
Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment.
The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up!
However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down.
In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf.
To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.
There are many different types of loan programs available, including “low†and “no†down payment mortgage programs. These types of programs require the borrower to provide less than 3 percent of the loan amount as down payment. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income.
Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home†is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.
Jan
2
Mortgage Refinance
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A mortgage refinance is done by applying and qualifying for a new mortgage loan and then using the proceeds from the new home loan to pay off the old home mortgage loan. You can refinance for many reasons: to take cash out of the equity in your home, to lower your interest rate, to lower your mortgage payment, to simply switch mortgage companies because you are not pleased with your current mortgage company, to consolidate debt, to pay off high rate credit cards, to lower the term of your mortgage, to increase the term of your mortgage, to combine a first and a second mortgage, to switch from a fixed rate to an adjustable rate, or to switch from an adjustable rate to a fixed rate, and for many, many other reasons
When refinancing in order to payoff credit card debt, keep in mind that credit cards are unsecured debts. When you refinance, you are transferring unsecured debt into debt secured by your home. Make sure you are financially savvy enough not to continue the patterns that resulted in the credit card debt or your could be putting your home at risk.
One of the most popular reasons for doing a mortgage refinance would be to obtain funds for improvements on the home. Since the money spend on such improvements often directly increases the value of the home, it is a very sensible way to obtain such funds. Some of the most popular improvements include new kitchens and bathrooms, new windows, landscaping and swimming pools.
Jan
1
Zero down home loan
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Editors Note: Due to the mortgage and credit crunchy, zero down home loans are no longer available. If you’re in need Denver Home Mortgage, we can discuss your mortgage situation.]
Zero down mortgage financing is available to many people. It is very possible for a large number of consumers to qualify for a home purchase without putting any money down. This has become a very competitive market for lenders competing for this business and the number of homeowners who obtain loans with no money down is growing each year.
It is important to realize that while it may be the only way a borrower can purchase a home, a zero down mortgage does carry a higher interest rate. Ultimately the borrower’s goal should be to refinance when there is enough equity to achieve an 80% Loan to Value (LTV).
One option for high credit score borrowers who have minimal disposable cash is to use a 103% loan. This loan allows you to borrow up to 3% in addition to the purchase price to help with closing costs. Ask your preferred mortgage professional if you qualify for a 103 LTV program.
Some conforming zero down programs do require you to contribute at least $500 to the purchase. Your earnest money counts as money towards purchase. You may also be required to pay your hazard insurance out of closing so that will be another out of pocket cost. Ask your mortgage broker for details on the programs they offer.
The most common way mortgage brokers structure “Zero Down” financing is to break the loan amount into a first and a second mortgage, with the first mortgage consisting of 80% of the loan amount needed and the second mortgage being 20%.
Zero down mortgages are a great tool to use, even if you have saved up for a down payment. By choosing the zero down mortgage, your down payment money can now be used for closing costs associated with the loan, moving expenses, new furniture, or any other expenses that you may have when you move into your new home.
If you cannot afford a down payment for your home, there are many down payment assistance programs and grants that may be able to help you purchase your new home. Often these programs are limited to first time home buyers or those with low income. However, there are often no limitations. Call me at and I may be able to find a program that will work for you.
Obtaining a true zero down mortgage is when you will not have to come to closing with any funds of your own. In order to achieve this you will need to either have a no closing cost mortgage which can get expensive, or you can have the sellers pay closing costs. Traditional conforming lenders will generally let the sellers pay up to 3% of your closing costs, while most Alt A and subprime lenders will allow up to 6% in closing costs paid by the seller.
Often times zero down payment programs are available to first time homebuyers. If you need a stated income program you may be able to obtain a stated zero down program with an Alt A or subprime lender.
In 2005, 43% of first time home buyers used zero down programs. You may qualify for one of these programs. Call me now!
Jan
1
Why should I use a mortgage broker
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A mortgage broker should be used because of the product availability that they have. They can be your one stop shop for all of your home financing needs. They work with hundreds, and sometimes thousands, of different banks and lenders to find the program that is right for you. A mortgage broker, also called a loan officer, can generally assist with all credit types, all income types and all available loan programs types. Having one person or team of people taking care of and familiarizing themselves with all of your financial needs and your specific situation is much more beneficial than utilizing someone to buy your home, then someone else to refinance your home and then someone new to obtain a home equity line of credit. A mortgage broker should be your trusted advisor, an excellent source of information and a link to finding other qualified and trustworthy referral partners such as realtors, homeowners insurance agents, home improvement contractors, etc… Use of a mortgage broker obviously has tons of benefits. Over 75% of all mortgages originated over the past couple of years have been handled by mortgage brokers.
Your mortgage broker can provide you with many more options than a banker in most cases. Having access to all types of banks gives brokers more options. While a banker has to do business based on their specific bank rules.
Using a mortgage broker gives you flexibility in regards to how you can have your mortgage structured. A mortgage broker is no different than a banker in the terms of providing a service, however the difference is what service they can be provided. To go into your local bank and apply for a loan will generally cause you to miss out on some value added programs that are not available to you through that banks product line. The overall time of closing is no different with a broker or a banker, and there is not an approval advantage with going with a bank, and can most times go quicker and smoother with a broker. There are many lenders out there that do not lend directly to the general public and that is where a broker can help you find those programs and terms that will benefit you most.
Mortgage lending is not like it was twenty or even ten years ago. Lenders have split up into niches. Will the bank that you apply at cater to your niche? Maybe or maybe not. Wouldn’t it be better to apply with a full service mortgage broker who can find the bank or lender that has the best program and rates for your situation?
A mortgage broker has to disclose the amount of money that they are making in Yield Spread Premium (also called rebate). Bankers do not have to do this. Would you like to know how much your mortgage professional is making off of your loan, or would you like to be left in the dark?