Conversely, I also began to fantasize about what might happen if some of the current mortgage business model were applied to the airline industry- particularly that of the “commission only” sales model.  What if flight crews, and ground crews could pick their own members, and work together to create a fantastic customer experience.  They would make their own websites, and try to make it easy for their customers to buy tickets, arrive, check-in, get through security, and get to where they need to go.  They could actually form real relationships with the passengers, and come up with all sorts of ways to create added value to the traveling experience.  Think of it- packing tips, special parking deals, curbside attention, I bet it would get very creative. If these crews were compensated directly by repeat bookings, customer feedback, or just tickets sold, wouldn’t you imagine that these employees would be aligned perfectly with what needed to be done?  Wouldn’t you imagine that these employees would take so much pride in trying to do their best? Given a choice which would you make?

This is what I love about doing mortgages, and particularly the “commission only” model of being compensated.  At first it was a huge fear, and a huge problem.  It takes a while to get the hang of what goes into accomplishing a loan closing, and during that learning curve you are simply NOT MAKING MUCH MONEY.  But once you focus on what is really important, its amazing what starts to happen.

My fear for the mortgage industry is that it becomes so commoditized, and so suffocated by regulations that the profit is wrung out of the product completely.  If this happens, getting a mortgage will become more like cross country air travel.  You’ll randomly select the cheapest mortgage you can from some website, and fight your way through a pre-recorded 1-800 labyrinth, and totally herded through the signing process completely. All of the humanity and initiative will be surgically removed.  Hopefully this never fully happens or is a long way off, and I may be off base.  I would love to hear your thoughts on this if you have them.

One of the major benefits with working with me, or any other true professional in this business is that you will have a single person who is totally accountable for the outcome.  Even though there is a team of people at work to make it come together for you, its my ego, my reputation and ability to receive future referrals- literally my livelihood that is at stake every time.  I wouldn’t have it any other way. Wouldn’t it be awesome if the folks on the ground in the airline industry had this much accountability?

Lets say you currently have a mortgage for $180k at 5.5% interest.  Your principal and interest payment is $1,078.  And now you really think that you are being foolishly ripped off for paying more than 4.5% on this loan.  Lets also say that your credit score is 685.  So now, in order to achieve this magical interest rate, you will need to pay a load of mortgage processing fees, an appraisal fee, title fees, plus 2% in points to cover the premium associated with a 685 credit score.  Lender and title fees totaling $7,000. This is what you will pay in order to achieve a monthly savings of $115.  The easy math is to divide the monthly savings into the upfront costs and calculate how many months it will take to pay for itself:  $7.000 / 115 = 60 months or 5 years to break even. There are also some additional tax implications to refinancing, for instance, when you reduce your interest rate you reduce your tax deduct-ability.

Or, if the loan that is being paid off was a refinance mortgage, or a purchase mortgage there are some different things that come into play  (Paying off a previous refinance mortgage can create a “recapture” of a prior claim),  I think upon further analysis that the actual recapture would be longer than 60 months.

But if this borrower was convinced that they would be in the property for at least that period of time, and/or had a PLAN for using that added cash flow to further benefit them beyond just spending it.  A case could be made for doing this refinance.  Thankfully there is a new standard form that gets included with refinance mortgages called a “net tangible benefit” sheet.  It forces loan originators to prove that the borrower is benefiting from the new mortgage.

If you would like to dig into YOUR personal finance situation more deeply to determine if a refinance would be worthwhile,  I would love to make some time to figure it out with you.

So now that the Lebron’s choice episode is behind us we can focus on another reason why 2010 is a unique moment in our financial lives.   This year there is a moratorium on the Roth IRA rules.  If you are in a higher tax bracket, you’ve been shut out of the Roth IRA party, until now.  This year, ANYONE can convert an existing IRA into a ROTH IRA.  There are 2 major consequences to doing this:

1. whatever portion of the balance you convert will be considered taxable income for this year.
2. The balance you convert will be able to grow and compound into the future, and when you go to withdraw this money, you will do so TAX FREE!

HERE’S WHAT I THINK ABOUT TAX FREE RETIREMENT ASSETS

A standard IRA (individual retirement account) is an account that individuals can contribute to annually up to a certain amount.  This contribution becomes a tax deduction for that year, but as the account grows over time, the future withdrawals are taxed as income on the year they are drawn upon.  So there are some advantages to having these accounts as tax shelters in the near term.

A “ROTH IRA” is an account that is NOT an immediate tax shelter, as the money contributed to this account is done so post tax. BUT the key feature to this account is that as it grows over time, you will NOT be taxed at withdrawal. So you can see how for someone in their late 30’s or even late 40’s, being able to convert some or all of this balance can make a major difference in their retirement assets.  Obviously, the older you are, the less time you have to benefit from compounding interest, and the reason to make this conversion may not be super compelling.

By making a conversion from standard to ROTH IRA, the tax bill that results can be paid over the next 2 tax years I believe.  For best results, the tax bill should be paid from a source other than the IRA itself.  You want to leverage as much of the benefit as possible by creating as much Tax free money as possible.  Giving the account itself a “30% haircut” right off the bat will be VERY VERY VERY costly.  Do the math.

Lets all take a page out of the Lebron James playbook and create a big pile of money for ourselves and our families!

Again, be sure to consult your tax professional before making this conversion to be certain you are making the right choice.  I am always happy to recommend my clients talk with Grant Folske here in town.

From the industry that has been “crying wolf” for the last I don’t know how many years about “low low rates”, I know that this is just more noise.  I have been trying to figure out exactly how to describe what is happening lately in the fixed rate mortgage marketplace.  Because rates usually move in step with the general state of the economy (economy good= rates go up, economy bad= rates go down) we’ve been in a VERY low mortgage rate market for most of 2010, and late 2009.  I know that certain radio advertisers have been pimping the so called “rate of a lifetime” every 15 minutes for going on 3 years now, to the extent that the urgency has been drained completely.  Well I’m here to tell you that today the FNMA 4% bond coupon that we use to track pricing has just hit the highest level in history.

I think that short term we are ripe for a slight correction, but longer term, we are looking to stay firmly below 5% for the foreseeable future.

The beginnings of a slight pricing correction

Bond pricing goes up = fixed Mortgage rates go down

I don’t want to brag (too much… okay yes I do want to brag), but please check out my January 2010 Mortgage Rate Prediction!  When everyone was saying that we would spike after March, you can see that we’ve done the exact opposite.  I did predict a slight uptick, but I had no way of predicting what we are seeing now.   I’m stunned.

Call me to lock a rate!  I am seeing 15 year fixed rates in the sub 4% rate territory, and 20 year fixed in the VERY low 4%’s.  I encourage you to fill out the “loan Check up” form at the upper right to see if you could benefit from a refinance.  And there are some great options out there, so don’t think that just because you’ve lost value that you won’t qualify.

LETS TALK!

Most home buyers bring some kind of down payment to the table in a real estate purchase.

The money down can come from any variety of sources, and a very common source of funds is that of the “family gift”.

Different loan programs have different requirements when using gift funds as the down payment. Most lenders will require there to be a legitimate and verifiable family relationship between the donor and recipient. The FHA mortgage allows for the ENTIRE balance of cash due to be from a family gift, whereas conforming agency loan programs will require the borrower to have 5% of his own funds in the deal if the down payment is less than 20% (if the down payment is 20% or greater, conforming loans will allow the full balance of the down payment to be from a gift).

So here comes the tricky part – HOW TO DOCUMENT THE TRANSFER OF GIFT FUNDS

A meticulous paper trail showing where the funds start, and how they transfer to the recipient is always required when using a gift as your downpayment. We recently had a significant transfer of gift funds be in the form of cash, which is a BIG NO-NO! Cash is like kryptonite for mortgage underwriters. It is impossible to definitively assign to people, and underwriters will NEVER accept cash deposits of any kind as required funds for a loan approval. I can’t stress this enough! The only way to use cash is to deposit into your account as soon as possible, and let it “season” for enough time to show up on a bank statement unconnected from that initial deposit.

Generally what is required in documenting gift funds is as follows:

• Proof of Donor’s ability to give the money (proof that the donor is not borrowing the gift from somewhere else) This is usually an asset statement of some kind.
• Transfer documentation: Copy of a canceled check + deposit slip, wire transfer paperwork, or cashiers check copy are usually admissible for underwriting.
• Proof of recipient’s receipt of funds
• Signed mortgage “gift letter” DOWNLOAD GIFT LETTER HERE

For more details about how to manage this process, please contact me. My staff and I have a LOT of experience in assisting buyers get great financing packages while using gift funds for a down payment.

With interest rates absolutely plummeting and apparently staying low for some time here, I really want to get a message out to the huge contingent of people who feel like they WON’T qualify for a mortgage, or a refinance. I have had many conversations with clients in recent weeks who seem to be in disbelief that they should refinance. Perhaps they just refi’d a year or so ago, and don’t want to take on another load of closing costs.

For borrowers who find themselves in this position, I only suggest a “no-closing cost mortgage refinance”. This will potentially get them a lower rate without any upfront costs, and put them in an immediate cash flow win.

The next problem borrowers are having trouble convincing themselves us is one of appraised value. “What if my house doesn’t appraise?” is a valid concern, and is a legitimate issue facing many homeowners.  This can sometimes be the reason why a refinance wouldn’t work.  But there are new loan programs, sponsored by early 2009 stimulus law, that can address THIS issue as well.  If your current loan is backed by either Freddie mac, or Fannie Mae there are some new options for a rate and term refinance that allow what is owed to be up to 105% of the appraised value.  One of these programs is called “the Fannie Mae DU Refi Plus” aka: the HAMP/Home Affordable Mortgage Program, the other is called the Freddie Mac Open Access Loan.  Also, there are some FHA streamline options for current FHA loan holders who need to avoid an appraisal altogether.

I encourage you to contact me, and find out if one of these programs could be the answer for you in benefiting from the current mortgage marketplace.

There is a new Senate Bill that has recently been turned loose out of committee, and I believe that it is potentially disastrous for the Mortgage industry as we now know it.

The area of concern is amendment (SA. 3962) offered by senators Merkley (D-OR) and Klobuchar (D-MN) to S. 3217, the “Restoring American Financial Stability Act of 2010.” First let me start by saying that I’m personally ALL FOR financial stability, who isn’t? This Act is DEFINITELY passing later this year. Think of it like a political battleship that is unsinkable, floating through the rivers of congress. Every congress person is attempting to toss little bits and pieces of legislation onto the boat as it is certain to be approved into law. This amendment is one of those toss on pieces, and here is the gist of what it is trying to do:

The amendment will prohibit lenders from using bank rebates to pay for a portion of borrowers closing costs. The new law would have borrowers either pay for ALL FEES upfront, or ZERO FEES upfront, with no “in-between” option.

I believe that this will ultimately make mortgages more expensive for all concerned, and also become an additional pressure against property price appreciation. If you have ever received a mortgage and had some portion of your fees credited to you by the lender, then you have benefited from the way loans are currently priced. Additionally, this is an extremely “big-bank friendly” piece of legislation, and the big banks are much better positioned to survive an industry change such as the one proposed here.

Our company, Mortgage Trust, inc. has prepared 2 letters that I urge you to download, sign and return to either myself or your representative in US Congress. (if you send to me please indicate which congressperson should receive it ) One letter is prepared for homeowners, and mortgage holders, and the second letter has been prepared for Real estate professionals. If you are both, please fill out both, and pass these letters to your network liberally! Lets go national with this thing!

DOWNLOAD LETTER TO CONGRESS (CONSUMER VERSION)

DOWNLOAD LETTER TO CONGRESS (REAL ESTATE PRO VERSION)

Mortgage rates had a wild ride today where we saw a swing of over 80 basis points as the international markets continue to have concerns about Greek debt. Fixed rate mortgage pricing is fully informed by yields on FNMA Mortgage bonds. In general- When lots of people are BUYING bonds, the associated yield can be lowered. As its the yield that is what attracts buyers.

When there is a lot of FEAR and DOUBT in a marketplace, bonds of all kinds become very attractive. But a bond is a promise to repay over a given time frame. I heard that certain Greek “treasury” (or the Greek equivalent of US treasury bonds) Bonds were showing a yield of over 20% at times yesterday. What this means is that nobody is buying the bonds out of fear that Greece will not be able to pay them back. That yield has to be VERY high to outweigh the perceived risk.

With these bond buyers shying away from Greek, and other European bonds, those dollars are coming to the US bond market, and there was a massive rally today. So with all of these buyers, the US bond yields do not have to be very high to attract buyers. So the yield goes down, and bingo-bango…

Fixed rate mortgages go down too.

Tracking these kinds of market movements for my clients is something that allows me to always participate in improved rates, while avoiding negative rate changes.

Here is a LINK to a short video that explains my service in greater detail.

What could you do with $188,000.00?

I was recently talking with an old client of mine who was not even considering a refinance. He is about 2.5 years into a Jumbo 30 year fixed mortgage at 6.25% and a remaining balance of $519K.

We have recently rolled out second mortgages again, that can close at the same time as a conforming first. What this means to current Jumbo mortgage borrowers is a potential huge savings. We put together a maximum conforming first mortgage of $417,000, (with no closing costs) at a rate of 5.375%, and a second mortgage home equity line of credit at 4.5%. for the remaining balance of $105k. This new mortgage structure created over $700 per month in additional cash flow.

Now if this borrower continues to commit the same payment he has already been paying, and applies this new overage to the second mortgage, he will accelerate his pay off, and shave over 5 years off his loan term which translates into over $188,000 US Dollars.

Now if this borrower decided to save the difference, he would need to exceed an average return of 3.27% in order to create EVEN MORE savings. 3.27% is the blended EFFECTIVE PERCENTAGE RATE of the new financing. This is the cost of money adjusted for tax benefits. If the savings exceeds the cost, this borrower is in an even better position to pay off the loan sooner and save even more money.

If you would like to see if you qualify to refinance OUT of your high rate Jumbo mortgage, or if you are just interested in finding out what your CURRENT “E.P.R.” EFFECTIVE PERCENTAGE RATE is on all of your debts, drop me a line and I can show you what it all costs.

1. pay my balance at 6% ($2,400 with principal reduction)
2. pay my balance at 6% Interest only ($1,900 with NO principal reduction)
3. pay 55% of the first option ($1,320 which ADDS the difference between the Int only payment to the balance)

So I was on this program for about 3 years and change, every month paying the minimum option, and every month adding about $600 to my mortgage balance. Every year I got my 1098 Mortgage interest statement for the 1320 x 12 months and deducted it against my income. But over time, my loan balance increased by about $20,000 of DEFERRED INTEREST. So when rates moved lower as we all know they have in recent months, I re-assessed my strategy and locked in a fully amortizing note on the entire balance. In doing this, the deferred balance of mortgage interest was collected by my lender, thus creating an added $20,000.00 interest write off for myself this year.

So if you ever wanted to know how you get credit for the interest on an Option pay ARM, this is how it works.

If YOU are in an Option Pay ARM presently, and would like to look at refinancing out of it, I would be happy to do some analysis with you and determine if its the right move.