MisterVA Travels to Courthouses & Covered Bridges

The Day After

How fitting that the day after the Fed's Open Market Committee lowered its rate for the second time in a week's time is also National Gorilla Suit Day.  The media flood the general public with stories on the 1.25% combined rate cut and how that will affect borrowing rates, all the while leaving most of the story untold.  Probably because it differs vastly from their two minute synopses.  Mortgage rates have not declined by a similar amount and it is up to us, the mortgage professionals, to explain why to the many consumers who will be calling.  It doesn't help us that some national advertisers promote the Fed's actions in their commercials as a reason for lower mortgage rates.

It is not unlike poor Fester Bestertester in the title story in Don Martin's 1963 classic "Don Martin Bounces Back".  Every time he answers the door, what he sees is not what he gets.  What we don't want to do is act like poor old Karbunkle, who is speechless and without an explanation for the surprises that await his friend.  We should be ready with answers and be the experts the callers--our clients--expect when they ask the inevitable rate questions in response to today's news stories.  I will address you to Matt Graham's blog which is highlighted in the left margin on this blog.  If you want some detailed insight on what really drives mortgage rates.  Don't be like Fester on National Gorilla Suit Day.  It is not a pleasant way to spend the day after.

Almost Conference Time

This will be about the 5th year in a row I have attended the New Hampshire Mortgage Conference.  I am expecting it to be the smallest of allest.  The number of exhibitors is down.  The number of members in the MBBA-NH is down.  The number of attendees is down.  So, it is really a back to basics type of conference.  Time to focus on what we still CAN do.  Time to focus on how to improve our business.  Time to meet up with old friends and to make new ones.  It is my goal at every conference to meet someone new.  And it is sneaking up fast--next week is the date.

There are a number of reasons to go to a conference and I think gaining more industry knowledge which can make me a better service provider to my clients is the top one for me.  If I can provide more answers, give better advice, know more options available, etc., then I become a better source for my clients to confidently refer their friends and co-workers and relatives.  This is also the final piece of my application being complete for achieving the Certified Mortgage Professional designation in New Hampshire.  I will be the first to have accomplshed this in Vermont and New Hampshire.  But, it is really the beginning, rather than the end.  As the move toward licensing becomes a reality, this designation will have even more meaning to my clients.  Most state Mortgage Bankers Associations have something similar.  This year is going to be a great year.  And it's almost conference time.

The Onslaught of Rate Queries

It never fails.  The Federal Open Market Committee of the Federal Reserve Bank meets and adjusts their short term rate and the news media are all over it.  Last week, the FOMC dropped its benchmark rate by 3/4%.  Naturally, reports of dropping mortgage rates flooded the airwaves, and that in turn flooded the phone lines to ofices like mine all over the country.  In truth, mortgage rates had dropped steadily leading up to that meeting, but were influenced by other economic news.  And within 36 hours of the FOMC rate drop, 30 year mortgage rates had risen 3/8%.

Long term rates and short term rates are different animals.  Were they the same, the 4.25% increase of short term borrowing rates set by the Fed from 2004-2006 would have meant mortgage rates, not subprime rates, would have risen from 5.25% to 9.5%.  They didn't.  At times, they went a hair over 7% for a 30 year fixed rate mortgages.  The best favor you could do for yourself is to work with a local professional to see what rate structure will work best for you if you are hoping to refinance.  If you have a very small mortgage, doing nothing may be your best option.  And remember that by the time you finish rate shopping EVERYTHING will be different.  The FOMC meets again on the 30th.  And then it will be the onslaught of rate queries once again.

Facing a Subprime Re-Set

Much has been made of the wave of resets of rates due to occur on many subprime 2/28 mortgage loans taken out in 2006.  Knowing how the reset is going to work will help you in your planning if you have a loan of this type.  The first thing to do is to retrieve your paperwork and look for your copy of the Adjustable Rate Rider.  The information contained in that document will help you determine what will happen to your payment at the time of adjustment.  Fixed rate conventional and FHA programs carry very attractive note rates right now, but more on that later.

Most of these loans are based on the London Inter Bank Offered Rate or “LIBOR”.  When a rate adjusts on this type of loan, there will be a math equation done to determine the new rate.  Many loans will adjust no more than 3% at the time of initial adjustment and 1% every 6 months thereafter.  The good news is that the LIBOR rate is about 3.48% right now.  A couple of months ago it was over 5.25%.

A loan that will adjust right now will add the margin to the LIBOR rate.  In many cases, the margin is 6%, but some loans have greater margins than that.  If the initial rate on your loan was 8%, then the new rate will be about 9.5%.  When you add the LIBOR rate to the margin, you arrive at the new rate.  [A couple of months ago, the math said 11.25%, which meant a 3% increase for sure.]  If you had a beginning balance of $100,000, then your payment started out at $734.55 on a 30 year loan.  Now, 2 years have gone by and your loan balance may have dropped by $1500 or so.  With the higher rate and shorter term, the new payment will be about $839.81.  Compared to a 6% rate, which is readily available, a payment of $591.73 for a 30 year fixed rate looks pretty attractive.

If you took a longer term, then the payment savings will not be as great.  You still are faced with the ‘what if’ scenario.  And a 3% increase rather than a jump of 1.5% would mean $947.59 per month.  Are you prepared for that eventuality?  After all, there is no guaranty that the LIBOR index will continue to recede.  One of the best things you can do if you are a few months away from a rate adjustment is to speak to a local mortgage professional, review your credit standing and debt structure, and make a plan to put you in a more favorable mortgage position.  After all you want to own the house.  You don’t want it to own you.

Mid-Season Meeting

It is mid-season for High School Basketball.  Today, we officials had our mid-season interepreter's meeting.  We went over what is working & what isn't.  What questions have come up as a result of game situations were discussed.  And we watched film on different points of emphasis.  The reason for doing this is to become better officials for the kids' games.  Sometimes, we get all wrapped up in what WE are doing that we forget why we are there.  And why we are there is so that HS kids can play basketball.  We are there to enforce the rules and make sure the games flow as they were intended. 

The HS players are not just forming memories for the rest of their lives, but they are also learning lessons in life.  Teamwork applies in the workplace.  So does the drive for success and carrying out instructions.  The coach becomes the boss or supervisor.  Losing a game is like losing a customer.  Adapting to win the next game is crucial.  If you do not adapt, then you will keep losing.  Same thing in our business.

It is important for us to hold mid-season meetings to see what is working and what is not.  To develop new offenses and defenses to make sure the outcome is different next time.  To work on our weaknesses so that they become strengths.  Sometimes having meetings seems like a waste of time and sometimes they are.  But, if you have a purpose, then there is nothing better than a mid-season meeting.

FHA Training at its Best

I have been doing FHA mortgage loans since 1991.  In that time, I have learned and un-learned a lot about the program.  Back in 1996, I was working for a bank and got the bank approved for FHA lending.  As a part of that approval, I sought out training for originators and underwriters.  The training I settled on was offered by Diehl & Associates of Indianapolis.  They sent someone right to the bank for training and we all received a comprhensive guide that made a great refeence tool.  It was a 2 day training.

SInce that time, I have sent people to them for training--both on the origination side and on the processing & underwriting side.  Their training is used for certification for Direct Endorsement underwriters for FHA loans.  As an example, in New Hampshire in 1998, VA & FHA made up 22% of all mortgage loans.  In 2007, it was only a 3.4% share.  The FHA loan will be making a bigger presence in 2008 and in future years due to the problems with subprime loans.  And many companies will be looking for proper training.  Cheryl Diehl is well worth the money.  Even the purchase of the guide alone will put you and your staff light years ahead.  It is FHA training at its best.

Refinancing Boomlet?

As rates for 30 year fixed conventional and government loans drop to 6% and below, it brings to the table a number of folks who may be in a good position to refinance.  There are several groups of folks that come to mind, but the thing to pay attention to is the benefit to the consumer.  VA Interest Rate Reduction Refinancing Loans [IRRRLs] are great ones to look at for candidates to refinance.  This is a streamline loan without the need for an appraisal.  If you are in an area of declining values, you may need to consult an underwriter.  As a rule, no new appraisal is needed and if the veteran will benefit by a lower rate, and I don't mean by 1/4% like some people are hawking, and the loan is current, no new re-qualifying is necessary.  Closing costs & pre-paids can be included in the new loan and you can probably close in 2 weeks.  Targeted rates would be anything over 6.5% as long as a 1% drop in note rate will be realized.  No cash can be taken out with this program.

The FHA streamline refinance is another easy one.  The original gross loan amount can be used as the new base loan amount.  Most, if not all, closing costs can be included.  Some lenders require a 12 month clean mortgage history.  No other credit qualifying and no new appraisal is needed.  These should close around the 25th of the month to avoid double interest for more than a day or two.  Again, the FHA streamline is a rate & term program.  No income qualifying needed for either of these two programs.

The conventional loan is another one to look at if your client has 6.5% or higher.  Getting an application ready so you can grab a good rate is a wise course of action.  That way, you can produce more of them in a short span of time should rates drop and your phone lines get flooded.  Appraisals are needed and these are full doc loans, so your client should get documents at the ready for you.  Areas with declining values, and that is not widespread throught the country, may have fewer opportunities, but the easing of rates will mean a refinancing boomlet.

Dos and Don'ts of Reverse Mortgages

Just got my AARP Bulletin.  Perfect timing as it is my birthday today.  And since I just got back from NH doing a reverse mortgage closing, it is apropos  that an article on the subject appears in the current issue.  There are 5 questions to ask according to the article, if you are considering a Reverse Mortgage.  The first one is to find out if there are other less costly options as the closing costs are higher for a reverse mortgage than for other types of loans.  Does selling & moving make sense?  Downsizing? A home equity loan?  The second one has to do with how long you plan to remain in the home.  If you need it to pay for home care or are there for a long time, it may make sense.  The third one has to do with timing--maybe you can afford to wait a bit and then more equity is available to you.  The fourth one has to do with investing.  You should NOT take one out to invest the proceeds.  The cost far exceeds the income you could earn.  Don't let someone sell you on the idea.  And finally, you want to discuss the option with family.  The required counseling session can include family members.  Remember that the time to ask the questions is before you sign the papers.  If you are in Vermont or New Hampshire, I would be happy to direct you to a qualified counselor who is independent and receives no compensation to provide the counseling.  I would also be happy to assist you with your loan.  My contact info is here.

The Case for Duplexes

Often overlooked by first time homebuyers, the duplex is probably one of the wisest decisions than can be made.  Most people do not want to have the apartment type feeling that they just left.  However, this can be a stepping stone to a single family living AND the development of a secondary income stream.  With the high cost of housing, many feel they are priced out of the market.  But with a low down payment program such as FHA, not only can a home be more affordable, but help with the payment itself can come in the form of the rent from the other side.  With FHA, a home selling for $150,000 needs only a 3% investment, or $4500.  The seller can pay the closing costs and pre-paid expenses and a gift can be used to help with the 3%.

Let's say that you have a $700 rent payment from the other side.  Assuming taxes & insurance of $2400 per year, and a note rate of 6%, a monthly mortgage obligation of $893 plus escrows of $200 for taxes and insurance and a $61 MIP payment, only a little more than $450 per month is what remains.  If you save some money, then within a couple of years, you may be able to afford a single family home AND hold onto the duplex, which will now more than cover itself.  A duplex is not for everyone.  But it could be a very smart way to plan for the future.

What It Takes To Be Number One

I am not a Green Bay Packer fan.  I remember actively rooting for them exactly twice.  Both times against the Dallas Cowboys in the 1960s.  But, I AM a fan of Vince Lombardi, for whom the Super Bowl Trophy is named.  I am reading a short book about him right now.  It is based on a speech he gave many years ago.  His speech, immortalized, and rightly so, ends with this sentence: "But I firmly believe that any man's finest hour--his greatest fulfillment to all he holds dear--is the moment when he has worked his heart out in a good cause and lies exhausted on the field of battle--victorious."  This last line is a great summation of the speech, which has served as a motivator for many people in many lines of work.  Hard work pays off.  Commitment pays off.  Belief in what you are doing pays off.  This is true with family life as well.

This book actually came as part of a package from Simple Truths.  I probably would not have ordered it on its own.  But, it probably will be one that I order to give to friends.  We need to do things right all of the time, not only when it is convenient.  How complex is it to fix mistakes....especially mistakes that are made when we are lazy or complacent?  Doing things right when they are convenient is not an option, it is a necessity.  Just reading through the Table of Contents is a motivator.  Commitment. Discipline. Excellence. Mental Toughness. Habit. Faith. Passion. Results.  Truth.

I am challenging myself to be number one.  In some of my goals for 2008, finishing first is mentioned.  It will take a table of contents to accomplish.  What about YOU?  Do YOU have what it takes to be number one?