File under…
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
Tags: colorado, denver, home equity, home equity loan, mortgage, rateJD POWER Awards: Mortgage Companies
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
Tags: home equity, mortgage, prime, rate, second mortgage, vaHome Equity Lines are typically the variable rate second mortgages tied to the prime rate. Loan origination companies may or may not service the loan.
FAQ: What exactly do you do?
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.
Tags: home equity, home loan, mortgage, purchase, refinance, vaMortgage Insurance Tax Deductible in 2007
This hit my inbox today:
The 109th Congress closed its session late last week by passing a tax reform bill, which included a new provision that will provide a significant benefit to your consumers in 2007. H.R. 6111 introduces a new, one-year, itemized tax deduction for mortgage insurance premiums. This new legislation will allow taxpayers who itemize their deductions to take an additional deduction for mortgage insurance premiums paid after December 31, 2006.
Section 163(h)(3) of the Internal Revenue Code allows taxpayers to take a deduction for interest paid on acquisition or home equity indebtedness on the taxpayer’s qualified residence. H.R. 6111 amends Section 163(h)(3) to include language that allows taxpayers to treat mortgage insurance premiums as interest during the 2007 tax year. This treatment only applies to mortgage insurance contracts issued between January 1, 2007 and December 31, 2007, and is only available to taxpayers with an adjusted gross income of less than $110,000.
It looks like no one is grandfathered in, it’s only good for mortgages that are issued in 2007, so if you have an existing mortgage with mortgage insurance, you’re out of luck.
Tags: debt, home equity, mortgage, vaA letter from a reader
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.
Tags: colorado, debt, denver, fha, foreclosure, home equity, mortgage, negative amortization, prepayment, property, purchase, rate, real estate, refinance, vaPhil,
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
When banks won’t compete, where do you go?
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.
Tags: credit score, home equity, lending, mortgage, second mortgageNY Times articles explores mortgages and real estate
While reading the Rocky Mountain News, I noticed the main mortgage/real estate article (Housing market shows signs of wear and tear) was by a NY Times writer. So I ventured over to the NY Times and noticed they had a slew of articles on mortgage and real estate that aren’t NY specific. To view these articles you will need a login and password.
- Sales Slow for Homes New and Old
Selling a new home is getting harder and harder: just ask the builders who are being forced these days to entice potential buyers with expensive inducements like free swimming pools and fancy kitchen cabinets.
- Re-Refinancing, and Putting Off Mortgage Pain
It is the latest twist in the gravity-defying world of the high housing prices and exotic low-rate mortgages: As monthly payments on adjustable-rate mortgages are starting to balloon, many Americans have found a way to put off the day of reckoning.
- Cashing In on Home Equity
NEAR-RECORD numbers of owners are still cashing in on the increased value of their homes, and they continue to use that cash for purposes that raise eyebrows among financial advisers. Yet, because the housing market has been so strong in recent years, it is unlikely that the free spending will undermine most borrowers’ long-term financial health.
- Mortgage REIT’s Are Aloft, but Dangers Remain
SOME investors who are new to the market of real estate investment trusts may not know that a small percentage of REIT’s don’t own any real estate. Instead, these companies hold the mortgage debt used to finance property or lend money themselves to owners and developers.
Feds raising rates, again!
The Federal Reserve today raised a key interest rate for the 17th consecutive time and signaled that further rate hikes may still be needed to fight inflation.
For those of you who have a home equity line of credit, Prime rate is going to 8.25%
Tags: home equity, prime, rateDonde Esta mi equidad?
That’s spanish for “Where’s my equity?”
According the Denver Business Journal, Colorado is 2nd to last (Tenneesee is 1st) when it comes to states with the lowest home equity levels. NY is number one when it comes to states with the highest levels of home equity.
In other words, Coloradoans have tappped their equity and/or purchased homes using low to no money down programs.
The article is only in the print edition of the Denver business journal and not available online yet.
Tags: colorado, denver, home equity, purchase, vaIt was bound to happen
The mortgage industry now has another player…
Tags: commercial, home equity, lending, mortgage, shoppingWith Trump Mortgage, you can stop shopping around. Because our clients have direct access to mortgage specialists who are not only smart, seasoned lending professionals, but experienced, knowledgeable and exceptionally visionary individuals. Their personal commitment to customer service, coupled with our state-of-the-art technological capabilities, ensures quick commitments and smooth, on time closings. We offer a wide range of mortgage solutions for residential, luxury, commercial and home equity financing.