Archive for the ‘Mortgage News’ Category

The trouble with “I told you so.”

September 30, 2008

Mortgage Meltdown.  Credit-Crisis.  The Bailout Plan.

It has to be someone’s fault (or at least a group of someones).  It can’t possibly be EVERYONE’S fault as the Wall-Streeters would have us to believe.  It just can’t possibly be everyone’s fault.  The CEO’s of large banks and mortgage lending companies who invested heavily in sub-prime, high-risk mortgages, drove their stock values up and then jumped-ship with millions, maybe.  But, my grandmother in Louisiana who’s monthly mortgage payment of $184 per month was paid off some 30 years ago?  Really?  Everyone’s fault?  It’s not everyone’s fault.

Unfortunately, it is everyone’s problem.  Whether you like it or not, we are all in this together, because the ability to access credit and the ability to get a mortgage will ultimately affect you (or your neighbor), which will ultimately affect you (and the value of your property).

So, here is the trouble with “I told you so.”  One, it seems a little childish.  Two, if I DO tell you that I told you so, then I come across as arrogant and aloof.  And C, if I DON’T tell you that I told you so, then how will you ever know that I told you so, SO that the next time I tell you so, you will listen to what I am telling you?

There are two main catalysts for the current US economic problems (as it relates to mortgages).

1 — MTA loans (also called PayFlex loans, Pick-a-Payment was Wachovia’s brand name, Payment Select, Garbage-loan with Negative AM)  Oops.  That last one was my name for the MTA loans.

2 — Sub-prime mortgages (high-risk, high-rate mortgages to borrowers who should have waited to buy a house, but lenders and Wall Street couldn’t resist the idea of big $$).

These two mortgage-vehicles allowed people to buy houses that they could not afford, day one.    

So, here are some revisits on “the Mortgage Blog”:

September 8, 2006 — an MTA loan (sing) “More than meets the eye.”  “The loan and monthly payments start out well-and-good but quickly ‘transform’ into something very different.” ” . . . the usefulness of an MTA loan is pretty slim.” ” . . . and your interest-payment has gone from $662 per month to $1,229 per month, you might just wish you had a 30 year fixed rate loan at 5.25%.”

January 15, 2007 — Finally, the truth about MTA loans.  My question to a wholesale account rep who thought I was insane for not pushing MTA loans with my clients . . . “Why wouldn’t I sell the customer a 5 year interest-only ARM instead?  Why is the MTA loan better than a 5/1 ARM?  Can you even tell me one situation where an MTA loan would be better than any interest-only type mortgage?”  “Well Jeffrey,” he said, “I guess it’s the perfect loan for the customer who wants to buy more house than they can afford.”

March 19, 2007 — The Sub-prime Mortgage Meltdown.  “In the past few years, investors had become more and more aggressive as to their credit and financing guidelines  . . . ”  “And then the interest rate adjusts and the problems get even worse.”

March 30, 2007 — Trickle-down-sub-prime-melt-down-nomics.  “a lot of people who (unfortunately) have been placed into a sub-prime mortgage would have been much better off (and better advised) to have rented for 12 to 24 months, taken the time to get their finances and credit in-order and then moved forward in purchasing a home (at a reasonable rate and program).” 

April 13, 2007 — A Tremor in the market.  “So, what are the chances that all of this sub-prime mortgage debacle stuff will just go away, never to affect the average Joe homeowner.  Probably about the same as “successfully navigating an asteroid field . . . approximately 3,720 to 1.”  – C-3PO ”

August 1, 2007 — “So long, farewell, auf wiedersehen, good night.”  My version of the classic . . . bidding farewell to the subprime mortgage market.  “So, who’s fault is it?  The financially-struggling borrower who bit off more than they can chew?  The loan officer who sold the borrower on the benefits of homeownership now instead of later?  The lender who created the loan in the first place and sold the idea (and off-the-wall credit guidelines) to the investor?  Or the investor, who thought that in one scenario, they would make an 8.5% return and collect a hefty pre-payment penalty (if the borrower somehow managed to refinance the mortgage within the first 24 to 36 months), and in the second scenario, they would make a 12.5% return once the loan hit the adjustable rate feature?  Apparently there is a third scenario.  I can’t tell you who’s fault it is . . . but don’t look at me.”

More to follow . . .

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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100% Financing Gone?!?

April 12, 2008

100% financing, gone?!?

Surely, you can’t be serious?

I am serious.  And don’t call me Shirley.

Yes, it’s true.  100% financing is gone.  The rumor had been circulating around the business over the past few weeks, and at the end of March, the announcement was released by mortgage insurance companies (PMI companies) that they would no longer be writing PMI insurance on loans with 100% loan-to-value (LTV). 

Months ago I blogged and predicted that one of the trickle-down effects of the mortgage meltdown would be that credit-worthy borrowers would be penalized because of a few (ok, more than a few) bad apples.  And now, borrowers who could have once easily qualified for 100% financing are now being forced to change plans.

Can you really blame the mortgage insurance companies, though??

The mortgage business is really pretty straight-forward.  In order for a bank or other lending institution to loan me and you hundreds of thousands of dollars, we should be prepared to invest a little in the process (a downpayment of 3%, for example).  We should be able to prove we can meet our credit obligations (a good credit score).  We should be able to prove that we can afford the monthly payments (capacity and document-able income).  And the collateral (the house) should be a fair asset in case we don’t pay the money we owe (appraisal).  If we put down less than 20% down, there is a chance that if the property goes into default, that the lender will lose money in the foreclosure process.  Mortgage insurance (PMI), insures against those loses.  The less money you put down = the higher the risk of loss = the higher the monthly mortgage insurance premium.  

The problem is this . . . loan guidelines got too loose.  Borrower’s didn’t have to prove an investment in the property (no downpayment).  They didn’t always have to prove excellent credit (middle to low credit scores at 100% financing).  And guidelines could be pushed to stretch a borrower’s capacity (high debt to income ratios allowed with good credit, cash in the bank, etc).

So what happens when home values slump or even worse, go down?  If values go down = less equity in the house = more risk of loss = mortgage insurance companies wished they didn’t have the policy on that house.  And, now you got it . . . 97% financing is now as big of a risk as PMI companies are willing to take.  And with that program, borrowers have to prove they have the credit (680 credit score or higher), the capacity and the collateral (appraisal).

Remind me why people used to say ugly things about PMI being a rip-off?  I never really understood that.  Hmmmmmmmm.  More on that next time.

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

Waiting on the Big Rebound

February 28, 2008

So, it has been almost a month since my last post on “the Mortgage Blog.”  If you have been in mortgage-advice-limbo because of my lack of posting, here is what you missed.

The market (mortgage-backed-securities market) is getting worse, mortgage rates are going up.  The market is getting worse, mortgage rates are going up.  The market is getting worse, mortgage rates are going up.  The market is getting worse, mortgage rates are going up, repeat, repeat, repeat, etc., etc., etc.  That trend continued for the majority of the last two to three weeks.  So, why the rise in mortgage rates?  Didn’t you hear something on the news about rates going DOWN?!??

Yes, you did.  And yes, the Federal Funding rate went down (see previous post), and will likely go down again in the near future; but this almost always has the opposite affect on mortgage rates.   So, the ever-popular million-dollar question, “Do you think mortgage rates will go down?”  My answer, “Yes.  I think mortgage rates will go down . . . especially now that they have gone up 1% over the past few weeks.”  

Mortgage rates hit their low at around 5.125% for a 30 year fixed rate loan — only to stay there for about four hours.  By the end of the day (before most people had a made a decision to lock-in, had done some comparison shopping, etc.), mortgage rates had gone up by more than 0.5% . . . and then over the next couple of weeks, proceeded to go up another 0.5% or more.  So, now with some perspective, looking at 6.25% on a 30 year fixed rate loan — the idea of locking in a rate at even 5.25% (which was available for a day or two), sounds like a pretty fantastic deal.

Lesson:  Know that 5.25% is a great rate on a 30 year debt (I could write a whole bunch here on the idea of a 30 year, tax deductible debt payment at 5.25% trying to compete with an estimated inflation rate of 2.0% to 2.5% at best, but I will save you the economics lecture).  Know that 5.5% is a great rate on a 30 year mortgage — and more importantly know when the numbers make sense for you to lock-in on your refinance.  If the numbers make sense at 5.75%, then the numbers make sense, right??  If rates hit your target, lock-in.  Save some money.  Hug your mortgage broker.

So, why the post after 30 days of silence?  Good news could be coming . . . just waiting on the (hopeful) big rebound.

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Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

the Feds cut rate by 0.5%

January 30, 2008

Today, in a widely anticipated move, the Feds cut the Federal Funding rate by 0.5%.  Unfortunately, the news media and folks around the water cooler will translate this news into . . . “Hey, the Feds cut rates by 0.5%, have you thought about refinancing?”  or “I heard the Feds cut rates, you should not have locked-in last week.”  These two statements (and many, many, many others like them) could not be further from the truth.

As expected (and repeated through history), when the Feds cut the Federal Funding rate, mortgage rates go up.  Yes, crazy but true.  No, I am not new to the mortgage business and yes, I do know what I am talking about, and yes, I know that it sounds counter-intuitive.  But if you decided to take a gamble on your mortgage, because you “heard the Feds were going to be cutting rates this week [today],” in hopes that 0.5% cut would translate to 0.5% drop in mortgage rates, you will likely be dissappointed to see that the cut in “rates” has actually caused “rates” to go up.  note:  first “rates” = Federal Funding Rate; second “rates” = mortgage rates.

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And here is why . . . cutting the Federal Funding rate is good for the economy, that’s good news for the stock market and good news for future growth.  Future growth is bad news for inflation and fuels the fear of future inflation, and inflation is bad for long-term debt, like mortgage rates.  Inflation will eat away at the return of investors on long-term debts, so in order to preserve their future returns (versus inflation) their rate of return (and mortgage rates) have to go up.

The good news is this — today’s Fed rate cut (although causing mortgage rates to go up in the short term) may be more an indicator than an instigator.  In other words, although today’s rate cut may cause tomorrow’s mortgage rates to be 0.125% higher; the need for the rate cut (and the possible need for future rate cuts) could be an indicator that things in the US economy will get worse still before getting better . . . and while that’s bad news for your 401K and your portfolio account, it may be good news for your mortgage.  I am sure that there is some combination or words, mortgage terms and lyrics that I could create, with the whole, knowin’ when to hold em’ and knowin’ when to fold em’, etc.  But, I think with the picture above . . . you get the idea. 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

Mortgage rates DOWN, then UP in a hurry.

January 26, 2008

Wednesday of this week, was quite possibly the most bazaar day in my 10 year mortgage career.  First, following the Fed’s surprise 0.75% rate cut (which should have caused mortgage rates to go up), mortgage rates actually dipped to their lowest levels in 2.5 years — reaching 5.0% and 5.125% for a 30 year fixed, depending on the loan size, credit score etc.  15 year rates dipped as low as 4.75%.  The anticipated jump in mortgage rates (that usually follows a Fed cut) was a day delayed . . . and Wednesday saw mortgage rates starting the day in the low 5’s, and as the stock market came back to life early in the afternoon, the mortgage market took a dive, and mortgage rates shot up 0.375% to 0.5% by the end of the day.  Investors (wholesale mortgage investors) changed their rate-sheets four and five times from noon until the end of the day, and my email inbox was filled with email notices, “ATTENTION, re-price for the worse, previous rate-sheet is no longer valid.” 

A lot of consumers missed out on the lowest rates (Wednesday morning), because they were either “thinking about things,” crunching the numbers to see what might make sense, they couldn’t get in touch with their mortgage broker, or were trying to get competing bids and good faith estimates to make sure they were “getting the best deal.”  Sadly, in an effort of good-consumerism and in an attempt to save a $100 or so in closing costs, some people missed out.

So here is my advice.  Find out WHEN you should refinance.  Spend 15 or 20 minutes on the phone with your favorite mortgage broker (for my readers in Georgia, I would narcissistically assume that would be ME), and figure out your target refi rate.  At what rate does it make sense for you to refinance — 5.25%, 5.125%, 4.75%??  Once you determine what that target rate is, now you are ready to refinance . . . maybe not Monday, or Tuesday . . . but rates may dip down again sooner than you think. 

And I hope — for me and you both — that we will see those lows again.   I leave you with this . . .

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.