This is the year of the ascendancy of the sub-prime mortgage industry. These companies realized that there was a HUGE appetite for AAA rated mortgage backed securities. So they began to package and feed mortgages into these secondary markets (the two biggest of which are known as Fannie Mae and Freddie Mac) created by the investment banking companies on Wall St., who in turn pooled the loans and created high yield bond offerings for pension funds, sovereign funds, endowments etc.

Every step of the way, the loan companies and the investment banks (and the pension funds) are making huge fees and returns and everyone is STOKED! …and they just want MORE MORTGAGES TO BE WRITTEN, right? So the mortgage origination companies began to widen the scope of what would be considered an acceptable lending risk, and loosen the before now standard restrictions that have kept many from buying real estate in the past. They OPEN THE FLOODGATES, and it’s never been easier to get a mortgage. Regular banks get wild too, just to keep up–because like I mentioned, every participant in this system is stacking up tons of cash and getting bonuses and high fives from their bosses and wives and parents, etc.

You’ve all heard the story by now, I’m sure, but eventually, we get too loose, and have packed so many horribly risky mortgages into the system that it begins to crater. Now its late 2006, and real estate appreciation begins to flatten, and decline. Defaults explode, mortgage companies start folding, and the slow motion train wreck that is known as the “foreclosure crisis” comes to pass. In 2007 we actually realize that Fannie Mae is bankrupt, but the government realizes that having them close down is unacceptable for America, so the Bush administration tells Fannie and Freddie to continue operating even though they are losing billions every quarter.

So… now we’re caught up to 2012. Still working within the FNMA/FHLMC (fannie/freddie) system, but now NOBODY is making money or high fiving their bosses. FNMA’s CEO actually just resigned unexpectedly a couple weeks ago. Every loan that gets pushed into this system is now just another THREAT! And the GSE’s continue to lose billions every quarter.

As a result, we are all seeing underwriting guidelines that are just outrageously comprehensive in the level of detail required from borrowers. So I don’t want anyone to be discouraged from attempting the process, but just be prepared to PROVE everything! And the approval process is now completely income driven. If you are hoping to get by on strength of credit and assets, you will be disappointed.

Here’s the key concept for you, dear reader: The job of the underwriter is to organize and document the details of the borrower and the property in such a way that is acceptable to the GSEs, and the GSEs could basically care less if they take on more loan files!  You could even argue that THEY DON’T WANT THEM!  Its a very odd dynamic to say the least.

My main job as a loan originator is to set your expectations properly. So buckle up! Let’s take advantage of some HISTORICALLY LOW MORTGAGE RATES, and grab our opportunity to reduce costs, save money, and build equity together! I always tell my clients: if everything goes perfectly this will only be a minor inconvenience.

HARP 2 is supposed to completely get rid of any value requirements.  We’ll see if lenders jump in on this program.  I know of a dozen people off the top of my head that would benefit greatly from being allowed to lower their payments, get out of an interest only program and start the process of their own debt to equity improvement program.  Early indications are promising that this program will become available to borrowers trying to refinance underwater homes in Portland very soon.

In another area that has been recently restricted, we’re seeing indications that FHA loan limits will return to their former glory in coming days/weeks as well.  FHA loan limits were reduced this fall from $417,000.00 in our market to $362,500.   This is great news for any FHA loan holder who would benefit from an FHA streamline loan.  Right now, if your current loan is greater than this new FHA max allowable, you are stuck with what you’ve got (shy of cutting a big check at close).  With rates being at these amazing low levels, just about all FHA borrowers can be benefiting from a streamline.   Hang in there!  Help is on the way!!

The truth is that just about every borrower in the market could qualify to put less than 20% down if they chose to.  The FHA loan is one of the easiest loans to qualify for and it isn’t just for first time home buyers, nor is there an income cap on this program… and it only requires a 3.5% down payment, but I digress… let me break this down for you in internet-friendly bullet point fashion.

PRIMARY RESIDENCE LESS THAN 20% DOWN

• THE FHA MORTGAGE:  The trusty FHA — where would the world be without FHA mortgage insurance?  I hope none of us ever have to find out.  The FHA loan is the easiest of all loans to qualify for: it requires the least amount of cash, the least amount of credit history, allows for the highest debt to income ratios (which means “least amount of income”), etc. etc.  The FHA loan requires a minimum cash contribution from the buyer of 3.5% of the purchase price, has some of the lowest rates in the market, and carries an annual mortgage insurance policy of 1.15% of the loan amount per year/paid monthly.
• 3% DOWN “community” Mortgages: Private mortgage insurance is back in Portland.  We’re on the list of stabilized markets according to the PMI actuary peoples.  This means that if you have a good credit score and some cash reserves (retirement funds qualify for reserves), you can actually buy a house with only 3% of the purchase price required from the buyer.  PMI also allows for 5% down, 10% down and 15% down.  The more you put down, the lower the cost of that MI policy.  For an idea about how much each down payment costs in monthly MI please see my “mortgage calculator reference page“  This is for what is called “Borrower paid MI” which means the borrower pays for the mortgage insurance a little every month embedded into the monthly payment.
• LPMI / Lender Paid Mortgage insurance:  You can finance up to 95% of the value of a property with LPMI- which means that you can have the lender pay for your mortgage insurance.  This is reflected in an above market mortgage rate, but for many this approach makes a TON of sense.  Its better for shorter term holds or for those who might not qualify to deduct the mortgage insurance against their taxes.  The LPMI gives the borrower a better payment than BPMI, and also a better tax deduction.
• Zero Down loans: The USDA loan and the VA loan are the only remaining zero down loans in the marketplace (some credit unions have some very limited zero down offerings but I can’t really speak to that as they aren’t available for me to offer).  See my post on no money down loans for real estate in Oregon and Washington for details on how to qualify.
• The Homepath loan: The homepath loan allows for 3% down, and has NO mortgage insurance!  It also allows for 10% down on second home/vacation homes as well as 10% down for Investment property… all with no mortgage insurance! See my post on foreclosure financing loans for more information on the Homepath Loan.

So, what have we learned today?  Stop renting!  Call your realtor, and apply for a mortgage today!

Its happening again.  Rates are tumbling and tumbling more.  I read recently that avoiding closing costs in a declining rate environment is a wise approach and I completely agree.  By avoiding closing costs two things happen:

1. The net benefit of the improved cash flow is immediately realized, and

2. You are in a position to refinance AGAIN as rates continue to slide.  Because you haven’t paid any of your equity there is not much downside.

I’ve been making loans since 2003, and rates have pretty much always been really attractive with a few exceptions (sorry purchasers of the summer of 2006!  I hope you’ve refinanced out of your 6.625% fixed).

Something else is brewing that I think bodes well for our real estate marketplace: the return of Private Mortgage insurance, aka PMI.  PMI has been on the sidelines in recent years.  This isn’t surprising because when homes default, the banks cash in their PMI policies.  You see — PMI is to protect the BANKS not the borrowers.  PMI is good for borrowers and home owners because it ALLOWS lenders to lend and borrowers to buy, which is obviously critical.

Since 2007, mortgage insurance has been deductible for families with annual incomes less than $105k (DEFINITELY consult a CPA to confirm this — I’m just some jerk mortgage blogger), so there are a lot of reasons why I am very happy that mortgage insurance exists.  Anyway — as property values declined in recent years, MI companies were requiring more equity and charging higher premiums.  That is all reversing now!

This is particularly good in light of the recent increases in FHA mortgage insurance (which is now 1.15% of loan amount annually for ALL FHA’s).  It appears that the PMI companies are jumping back into the market place to provide lower cost options for borrowers.  So even if you only have 5% down — a conforming loan with PMI will likely be a better loan for you than the FHA — but ONLY IF your credit score is high.

Thank god for the FHA loan too — It will ALWAYS be a great loan to consider for a variety of reasons… But now there are some very compelling alternatives that borrowers should be looking at.

I have a target in mind (anywhere between 1% and 2% of the loan amount for the pre-split fee), but depending on what makes the most sense for the borrower, and depending on how aggressively this borrower negotiates what he or she is willing to pay for a loan, we arrive at a fee structure that works for everyone and move forward.  The thing that makes our government uncomfortable is the fact that banks/lenders pay loan originators based on the profitability of each mortgage created.  In other words, the higher the rate offered, the more the originator would be paid (usually).  Our government thinks that this creates the wrong incentive for me as a mortgage lender, and frankly, they might be right.

The crux of the new regulation for mortgage lenders is that we can no longer be paid based on the loan’s profitability.  We are now required to be paid a uniform flat fee per loan closed no matter what!  So now, instead of having a slight tension between mortgage lender and borrower around loan fees, the tension will be re-oriented to mortgage lender and the mortgage company for which he or she works.

It just became significantly more risky to own a mortgage operation.  Think about that for a minute.

Now, instead of only dealing with splitting profits or just NOT doing a loan, a company has to pay the mortgage lender for a closed loan, even if the loan was not structured profitably.  Some mortgage companies will be faced with the risk of funding loans that generate less profit than they will be required to pay their loan officers.  In order to alleviate that risk, I predict that lender compensation will be embedded into new rate sheets.

There is a LOT of negativity around this change within the industry.  Personally, I’m just rolling with it… I love what I do, and I don’t feel particularly threatened by this change.  I do think that the ultimate result of this change will have to be upward pressure on the cost of financing (if anything… it could be a whole lot of nothing).

I just got a look at the new compensation plan for my company Mortgage Trust, Inc. and I’m proud to say that our correspondent lending structure, along with our smaller size has created a circumstance where we can retain this flexibility for our clients. Additionally, we are committed to surrounding our clients with value added financial coaching, and long term financial strategy during and after a mortgage process. Our pricing is always competitive, but now when you see a report showing how some simple active debt management can save you tens of thousands of dollars over a 10 year period, all this other stuff starts to matter a lot less!

Regarding bi-weekly payment plans, or making a 13th payment every year, I tend to try and discourage my clients from doing this. Bi-weekly payments accelerate the payoff of a mortgage and dramatically lower the cost in saved interest over time.  However, you can achieve an even better effect for yourself by saving any extra money you have as opposed to giving that money to the mortgage company.  Yes giving that money does bring you closer to that promised land of “free and clear”, but the problem is that the money is GONE!  You are locking it up into your real estate by doing this.  If you ever needed to access that equity you have only two choices:

1. Qualify for a refinance or equity line, or
2. Sell the real estate.

Also, that money you give the bank has zero rate of return.  The mortgage company loves you so much for giving them extra money!! You are “the BEST!” they say.

Try this approach instead:  SAVE YOUR MONEY! A bi-weekly plan has the effect of applying 13 payments to your mortgage every calendar year, and it turns a 30 year mortgage into something close to a 21 year mortgage.  Why don’t you do this instead —  take one mortgage payment and divide it by 12.  This is the dollar amount we want to set aside every month towards our new “mortgage payoff account”.  Open up an online savings account with ING Direct, or HSBC or wherever.  There are no minimums, they usually pay a little return, and they have easy automatic savings transfers you can set up.

So now you set up an automatic sweep from your checking account into this savings account once a month — or even divide it by 4 and do a super small once a week savings sweep.  Guess what, in 21 years this savings account will have a balance that exceeds your mortgage balance JUST LIKE THAT BIWEEKLY PLAN!  But now you have the choice.  You can pay the loan off, or you can access that cash along the way as you go without having to go to the bank with hat in hand asking for a loan.

Call me and I can show you how my approach gives you the most control and the most cash, all while achieving any outcome that you desire!  Don’t give your money to the mortgage bank!  Save it instead! Visit Portland Home Loan for more information.

1. Those who tried to refinance and couldn’t qualify due to an appraisal issue.
2. Those who currently have a Jumbo mortgage and think that Jumbo rates haven’t improved enough to warrant starting the process.

This second group has the potential to create the most savings BY FAR and here’s why: I have recently gained access to a low rate FIXED second mortgage that is creating a lot of added flexibility to what I have been able to offer.

There is a new regional lender that has aggressively entered the SECOND MORTGAGE market place, and is allowing a simultaneous close to a first loan, and they go to 90 LTV in many instances.  This means for those who tried to refinance but the appraisal didn’t quite work now have the ability to fund a low rate fixed first simultaneous to a low rate fixed second one.  This second mortgage has been locked by me as low as 4.99% (APR 5.251%), and this loan has NO Balloon Payment!  This means that it acts exactly like a 30 year fixed first mortgage.

What this also allows current Jumbo loan holders to do is break their mortgage into two, 30 year fixed loans, capping their first at $417,000 (the conforming maximum), and simultaneously closing this second loan to make up the difference.  This works extremely well for loans up to about $760k.

So, the best Jumbo Refinance in Portland is to get OUT of your Jumbo loan entirely.  Access the super low rates of current non-jumbo mortgages and close with this low rate fixed second.  My most recent client who qualified for this will save over $1200 per MONTH.

This works great with a refinance, but also works for a purchase, too.

Lets get started! Visit Portland Home Loan for more information.

*INCOME REQUIREMENTS TO QUALIFY:

- Families of 1-2 must make less than $71,200/year
- Families of 3 or more must make less than $81,880/year

Here is how it works:

If you are reading this and you didn’t already know — the interest paid on your primary residence is a tax deduction.  This means if you pay 10k in interest per year, the deduction would equal 10k of your income that you wouldn’t have to pay taxes on — it becomes TAX FREE INCOME.  If you are in a 25% marginal tax bracket, this translates into $2,500 in real dollars to you.  The MCC converts the first 20% of this deduction to a a tax credit. This means a dollar for dollar refund to you!  So for the same homeowner with 10k in interest to work with, the MCC would translate into $2k cash back PLUS the remaining 80% as a deduction, or $1600 totaling an annual refund of $3,600, an almost 50% increase in tax benefit.

This benefit lasts for the ENTIRE LIFE OF THE MORTGAGE.

Only if you sell or refinance, would this benefit end.

There are some things to consider as well:  There is a potential “recapture tax” for those who SELL the property in the first 9 years.  If your income exceeds the maximum threshold at the time of sale (during the first 9 years), you could be forced to repay the city for the benefits received from your home’s profit.  Please call me for details, and for more analysis about how this special first time home buyer program in Portland, OR could work for you.

Mortgage Trust, Inc. has been allowed to offer this MCC program in partnership with the city of Portland, and I have taken the class certifying me to consult with home buyers about it.

Also — Please refer to Portland Housing Bureau for more details about this program.  Please also note that there are two designated “target areas” in NE Portland that qualify home buyers for the MCC even if you ARE NOT a first time home buyer.

The Oregonian just published an article about this MCC first time home buyer program in Portland.

Read more about first time buyer programs in Oregon.

- 5% down conforming

- 10% down conforming, and

- 2 FHA options

One FHA option is the current FHA cost structure, which has been in place since April of 2009.  The other option is the new FHA cost structure, which becomes unavoidable after October 4th of 2010.  FHA mortgage insurance has always been paid in two places on the loan:

1. The monthly premium (which is discounted based on a large upfront lump sum), and
2. The Upfront Mortgage insurance Premium (which is 2.25% of the loan amount and automatically added to, and financed into the life of the FHA mortgage.

The major change starting Oct 4th 2010  is a shift of the mortgage insurance cost away from that  “financed upfront premium” and more towards the monthly premium.

In short — FHA loans are about to become a little bit more expensive.

I have prepared an interactive FHA loan report that shows the breakdown more clearly.

The new Upfront FHA mortgage insurance premium will be reduced from 2.25% to 1% of the loan amount.  However, the monthly mortgage insurance cost will almost double — being increased from 0.55% annually to 0.90% annually.  In my example above, this shows up as a jump in payment of $69 per month on the same $300k mortgage.

Ultimately, FHA loans are still going to be amazingly popular, and continue to make a lot of sense for borrowers as we move forward.  They still have the smallest available down payment requirement (at 3.5%) as well as the most flexibility around borrower credit history.

But I do think that this change will make a loan with 5% down and private mortgage insurance more attractive to borrowers with top credit scores.  Additionally, the FHA streamline refinance will become much less attractive for many borrowers.  I am scouring my client list and the wider community for last minute FHA streamline refinances! Last call for the good stuff!

Certain things are verified and then re-verified at different points in the process, and here is a list of common bugaboo’s  that uninformed mortgage borrowers can sometimes find themselves in.

1. Do not stop paying your current mortgage:  Your credit can be re-examined prior to funding, and a late payment can disqualify a borrower from getting funded.
2. Do not pay down or pay off any debts: Let us advise you if it is necessary to pay down or pay off debts in order to qualify.  Sometimes paying off old collections can drastically lower your credit score, or impact your borrowing profile in counter-intuitive ways.
3. Avoid multiple credit inquiries: Multiple credit inquiries will have to be explained by the borrower in writing, and can sometimes negatively affect your credit rating.  Watch out for certain purchases such as mobile phone plans or gym memberships, as these can sometimes result in an unintended inquiries.  With regard to shopping for your mortgage and talking to different lenders, you can actually have unlimited credit inquiries during any two-week period and this will NOT have any adverse affect.
4. Do not incur new debt: Buying a new car or making other expensive purchases during the loan process can change your credit worthiness.  New debts will directly impact that critical “debt to income ratio”, which governs how much money can be borrowed.  Wait until after funding, there, tiger!
5. Do not change jobs or quit your job: Your approval is based not only on income, but also on employment stability.  Try to delay any of these types of changes until post loan funding.
6. Do not change banks:  Do not switch to a new bank during the loan process.  This will create a ton of additional paperwork and special verification for you.
7. Do not remodel your home: In a refinance, one of the parts of your “approval snapshot” is the real estate being used to secure the funding.  If the property is in any state of dis-repair, that is a likely deal breaker for the loan approval.

Lots of these things are un-avoidable, but if you know what to watch out for, it can make your life and your loan process easier to deal with.  Problems with a mortgage approval are practically inevitable, but my job at Portland Home Loan is to minimize these problems for you at every turn.