Volatility in the Credit Markets

The world of loans and finance is like a global pile of pick-up-sticks, and this last week demonstrated how one move rolls everything. On August 9th France's largest bank BNP Paribas halted withdrawals on the investment funds it said could not be fairly valued because they held subprime loans. The European Central Bank and Federal Reserve in the U.S. each added money to their own systems in response to the European banks' sudden demand for cash over the subprime loan market problems here.

The analyst at SCME Mortgage Bankers tells us that actually what you don't hear in your television news reports is that subprime loans themselves are not the problem: subprime loan delinquency rates are close to the delinquency rates on FHA/VA loans. When was the last time you heard about HUD-insured FHA loans in the media?--those low down payment loans which have been around since the Depression. Both types of loans lend to borrowers with lower FICO scores and other credit profile issues.

The difference is that the subprime loans are backed by bonds, and some hedge funds have raised capital to buy those bonds, and also borrow additional funds using that same capital, to buy more bonds through leverage. With a decrease in the value of the bonds, such as is now going on the subprime market, these hedge funds are receiving margin calls, meaning the lender wants its money. If the hedge fund cannot meet the demand, it suspends withdrawals. Some mortgage sources have paid out cash to meet the margin calls, and eventually are having to close their doors, American Home Mortgage--a strong and solid lender--being a good example. Banks which lent money to the hedge funds are now in the last few days backed up by deposits from the country's central bank, thus creating news when we read about the European Central Bank loaning $130 billion to its banks, and the Federal Reserve adding $24 billion to the U.S. banking system.

What has happened in the subprime loan market is a much larger story than a short spot on the 6 o'clock news. It's tied into our system of investing, who is regulated and is not regulated, and what happens when market factors change.

For another look at the current situation, click on this Singapore post.


Long Beachhedge fundcredit market

How to Read Your Mortgage Documents

This is a great article from YOU Magazine specifically relating to adjustable rate mortgage documents. The links show very explanatory illustrations:

Every day you read another horror story about the subprime collapse. Most of the stories focus on the negative impact Adjustable Rate Mortgages (ARMs) will have on subprime borrowers once their interest rates reset. But what's often unreported in these news pieces is the fact that the risk extends far beyond subprime borrowers. That's right. Anyone with any ARM that is scheduled to reset may be faced with an interest rate increase of up to 2.00%-3.00%, even A-paper borrowers.

This article is not designed to scare you or add to the flood of media hype on this topic. To the contrary, our goal with this interactive article is to empower ARMs consumers with the knowledge they need to avoid becoming one of the millions of borrowers expected to foreclose in the coming years. Continue reading and you will learn how to interpret your mortgage documents, calculate your increased rate, estimate your increased monthly payment, and determine what you may need to do to avoid potential problems. We'll also show you actual loan documents and explain some of the confusing legalese that can easily lull borrowers into a false sense of security. Even better, print out this article and discuss and double-check your calculations with your mortgage professional. This will help to put your mind at ease because you'll know exactly where you stand with your mortgage.

These sample ARM documents may differ from those found in your mortgage, but they contain the basic ingredients discussed in this article and are typical of all ARMs documents, with the exception of Option ARMs (which YOU Magazine will feature in a future article).

Initial interest rates on ARMs are generally locked for a predetermined period that can range anywhere from 12 months to 120 months. When the predetermined fixed-rate period of the ARM expires, the interest rate is then subject to change based on a combination of three factors.

The first factor is the initial interest rate cap that was put in place at the time the loan was originated. This interest rate cap typically ranges between 2 to 5 percentage points, depending on the terms of the note. The higher cap of five points is generally in effect for loans in which the initial fixed-rate period is five, seven, or ten years. This means that if your initial interest rate was 6.00%, the maximum interest rate your loan could adjust to upon the first adjustment would be 8.00% or 11.00%. The initial interest rate cap will be in effect for 6 to 12 months before it is subject to adjust or reset. The cap on all subsequent adjustments to the interest rate should be either 1.00% or 2.00%.

For those borrowers with a subprime loan, the pain of the first adjustment will be followed with a potential increase in rates again within six months of the first adjustment.

In addition to the cap, there are two components that determine the interest rate when the ARM adjusts. The first component is what is known as the interest rate index. The index is the fluctuating component of the new interest rate and is based on, or tied to, any one of several indices tracked by the Wall Street Journal, including, but not limited to: the London Interbank Offer Rate (LIBOR), U.S. Treasuries, as well as the Prime Rate.

The second part of this equation is what is known as the margin. The margin is the fixed number that, when added to the index, determines the interest rate the borrower will be charged upon adjustment.

This means that, if the index tied to the mortgage is the Six Month LIBOR, which, let's say is approximately 5.38%, and the margin for a borrower was listed at 5.00, the newly adjusted interest rate could be 10.38%! If the borrower's original interest rate was 6.50%, and the loan carried a 3.00% initial interest rate cap, this loan would adjust from 6.50% to 9.50% at the first adjustment. If the index remained the same at the time of the next adjustment, the interest rate would adjust to 10.38% when the loan resets.

It's important to understand that, while the interest rate will never be higher than the lifetime interest rate cap, this number itself can be relatively high – the life-cap in our sample ARM is 15.95%. For borrowers who are unable to refinance due to changing circumstances, this means that rates could reach the maximum level the loan allows!

Let's apply this to a sample ARM holder and see the results. For someone with a mortgage in the amount of $300,000, the interest costs alone could increase anywhere from $6,000 to $9,000 a year. This translates into a mortgage payment increase of $500 to $750 a month just in interest. For anyone struggling to keep current on their monthly payments, such an increase could have disastrous results.

You may be wondering why anyone would take on an ARM in the first place. Despite the scenarios we've outlined here, ARMs, as a product, are not evil by design. It's true that ARMs are currently experiencing an increase in interest rates. But in a market with falling interest rates, ARMs placed at that time will experience falling rates as well, without having to refinance. Because of this feature, ARMs hold an important place in mortgage financing. In many instances, borrowers have qualified for a larger home or have been offered a lower payment for a similar amount financed because of the availability of ARMs.

Even though underwriting standards continue to tighten as a result of the subprime fallout, it does not mean that you won't qualify for an A-paper loan. Many people who may have been limited to subprime products in the past are now qualifying for Expanded Approval (EA) loans through Fannie Mae. Borrowers qualifying through EA criteria may also have the ability to qualify for Timely Payment Rewards (TPR), a program that allows for automatically reduced interest rates, without refinancing, on a 30-year fixed rate product, provided the borrower makes payments on time for a period of 24 consecutive months within the first several years of the mortgage. In most cases, borrowers with credit issues benefit more from an EA loan than from adjusting with their subprime ARM or originating a new subprime loan. Talk to your mortgage professional today about these options if you have any questions or just want more information.

Obviously, it is very important to understand the complexities of how any of these financial instruments work, as well as any potential implications the borrower might face throughout the life of the loan. Congress, many state legislatures, and the Federal Reserve are currently reviewing how mortgage companies present ARM disclosures to borrowers at the time of application to ensure borrowers better understand the mortgage process. Until then, it's up to you to protect yourself and your family. Don't get caught off guard. Pull out your ARM loan documents and use the interactive features of this article to estimate the changing cost of your ARM. If you don't like what you see, or you're still having trouble working out the numbers, make an appointment with a mortgage specialist right away.

Article also courtesy of Doug Davis at Clarion Mortgage.
Long Beach

Plusses and Minuses of Long Beach Condo Conversions

National homeownership by the end of the Clinton Administration supposedly rose to about 65%, the highest ever recorded. But, according to the City of Long Beach within the last few years, during that same time period, that was about how many non-owners were living in Long Beach. In other words, we were the opposite of the national picture. According to the Long Beach Business Journal, July 31, 2007 edition, the local situation may be close to reversing itself. A total of 152 conversion projects have been approved, reducing Long Beach's supply of rental homes by 2,133 since 2000.

No trend is perfect: The opportunity for homeownership has decreased homes available for renters. With long term population projections in the state predicting that the demand for housing will continue far into the future, there will continue to be a demand for housing for both owners and renters, and right now there's a demand for rental housing, and there may be some future restrictions on conversions to allow for a balance. The newly converted units are often smaller and priced lower--800-900 sq ft for a 2 bedroom--than the original condos. Some lenders need specific information on final conversion date and the current owner occupancy level, if any, to underwrite financing. The smaller 2-story buildings may not have elevators, however, remodeled new interiors with new appliances, for some buyers, may be a compensation for these other factors. Buyers should know that in dealing with a smaller building, they will also be a dealing with a smaller risk pool in their Association funding. The unit at 2138 E 1st St. is an upper floor 2 bd/2ba, 775 sq. ft, $238/month HOA dues, ocean view, in a historic district, and has been listed and on the market for 440 days, per today's MLS activity, in a building of 10 units where all others have now sold, list price $417,500. There are others on the market at lower prices than this one.

For a list of condo units in this area, please let me know, they're easy to e-mail.

Do tenants need some protections and acceptable and affordable housing stock, yes. Do buyers need lower-priced units and opportunity to buy in a selection of areas, yes. The story is not as completely simple as this, there are multiple effects and ramifications on each side pertaining to job impact, higher developer fees, higher rents, and units sitting on the market, but the City of Long Beach wanted more owner-occupied housing, and that is what is happening.

Long Beach

A Note for the 4th of July

It's only fitting to check in at the site for Monticello, home of Thomas Jefferson, not only because he was a President, but also his final day is recorded on a July 4 (but back in the 1800s).

Tomorrow, 76 people from 36 counties will become United States citizens in a ceremony at Monticello. These ceremonies for Monticello started in 1963, are presided over by a local judge and are accompanied by patriotic music by the Charlottesville Municipal Band.

If they haven't bought their new U.S. home yet, we hope they will soon. Many Americans don't realize that the United States is one of the very few countries where a buyer can obtain a 30-year mortgage without discrimination towards age, marital status, race, or gender discrimination, with zero down if need be. The variety of loan options available in this country does not exist in many countries where 20% down is still the standard.

Long Beach

California and Subprime Loans

If the only thing you've done is turn on the television, you've heard over and over about "subprime" loans. Many people are unfamiliar with a lot of loan terms, and that includes those working in the real estate industry, but just know that because you're shopping for a loan now doesn't mean you're automatically going to get a "subprime" loan, because there are many loan choices. The individuals who've experienced trouble, so often the subject of the news media, are those whose credit scores were lower, so they were offered loans not at the prime market interest rates, but at higher rates with other conditions which led to them not being able to afford their payment when it reached the "fully indexed" level, meaning loan plus margin (the lender's set profit zone). These loans contained terms and condition not understood by the buyers, who for instance thought a 2-month or a 12-month 1% start rate was the actual interest rate, and did not understand what the annual increases would be on their loan, or what that would mean to their payment.

Before you read further, if you're a buyer currently searching for a loan and you have good credit with a strong mid-score over 680 (you knew there are 3 FICO scores, right?), you are not this kind of borrower.

Thus, the following excerpt from California's Department of Real Estate Bulletin, Spring 2007 where a borrower has a 1% start rate, payments increase annually while the deferred interest is added to the loan principal, and after 5 years go to the full payment level, while the loan principal has increased:

We have analyzed the impact on a buyer who takes a $300,000 payment option ARM and makes the minimum payments of $965.00 per month. The analysis is based on an actual adjustable rate note from a national lender. The note provides for first year payments based on a 1% interest rate, annual payment increases of no more than 7 ½% of the previous payment for 5 years after which full payments must be made to amortize the loan over the remaining term. Interest is adjustable monthly beginning after the first month based on the Twelve-Month Average of monthly yields on actively traded United States Treasury Securities adjusted to a constant maturity of one year as published by the Federal Reserve Statistical Release entitled “Selected Interest Rates (h-15)," otherwise known as the MTA. The margin is 3.10. Maximum deferred interest (negative amortization) is 115% of the original principal balance. There is no cap on the monthly rate increases and the life cap is 9.95%. As of the date this article was written, the index value for the Monthly Treasury Average was 4.88 making the fully indexed interest rate 8.0% after rounding. Let’s assume that there are no increases in the index for the first 5 years (a very conservative and unrealistic assumption). The loan term is 360 months.

After year one the balance has increased, because of negative amortization, from the original $300,000 to $312,814; after year 2, $325,787; and after year 3, $338,861. After the 43rd month, the deferred interest maximum is met ($345,328). Since there have been payment increases of 7 ½% each year, the monthly payment of $1,199.00 after year 3, would increase to $2,604.00 per month (the fully amortizing payment over the remaining 317 months) – an increase of $1,405.00 monthly barring any interest rate increases for the life of the loan. Considering that the one-year Treasury Security index value has increased almost 400% since January 2004, even though interest rate increases have slowed recently, the likelihood that this loan would achieve its maximum interest rate of 9.95% is very good. If that were the case after 43 months, the monthly payments would have ballooned to $3,063, a 317% increase from the original payment of $965.00.00 per month. Unless the buyers have planned for the payment increases by either expected increases in income, setting aside all or part of the monthly payment differentials, or some other financial plan to meet the increased debt service, the financial impact could be severe.

Some lenders are now doing the logical thing by making the buyer qualify not just at the initial rate, but the full payment level to avoid this situation, and the Department of Real Estate in the same article now states the real estate agent is to review loan document terms and conditions with the buyer.
NOTE: In a revised statement released on April 12, 2007, the DRE clarified that it "is the fiduciary duty of each licensee who represents the borrower in obtaining a loan to completely explain the terms and discuss the relative merits and risks of these loan products well before the point of signing loan documents." Buyers really must understand the basic terms they are agreeing to.

Long Beach

Buying a Home at Auction

With more talk about foreclosures, there’s more awareness of buying a property at auction. But it’s important to do your research first if you think you want to buy a property this way. You need to get information about the property, i.e., amenities and square footage, how much is owed against it, and what is the expected opening bid, either required or suggested.

Have your financing already in place, and be prepared for the required deposit for an accepted bid. Your financing must be in place within a specified period of time.

Price at an auction is based on the loan amount owed plus fees and expenses that the foreclosure process has incurred. It may be less than market value, but realize that once the lender owns the property, it may sell with the help of a real estate broker or through auction.

You usually have to have the money in hand and your loan ready to fund. Each auction has different time requirements.

Most of the time, you don’t have the option of getting inspections and may not see what you’ve bought until you’ve bought it. Most homes are sold in “as is” condition without any warranties of any kind. There are no disclosures or guarantees. There are some auctions where you are allowed an advance preview which may afford an inspection.

Consider all your costs, including the auctioneer’s fee and taxes owed against the property. And during this time, all your research could be wasted (is any knowledge really wasted though?) as the borrower may be able to cure the loan at the last minute!

Last but not least, a property sold at auction may not have clear title, depending on how they are sold. There could be various liens and encumbrances which could require a lot of work to clear up.

Be prepared, if necessary, to walk away. If the deal is not right for you, it’s not a deal.

Information courtesy of eHow.com.

Long Beach

Foreclosure Auction

Basics of Your Loan

These days with so much in the news about subprime loans gone bad, it's also important to know that statistically, these represent a small percentage nationally.

"The truth is that 99% of all loans in the U.S. are not in
foreclosure. The remaining 1% that were foreclosed upon had the following breakdown:
* 80% were classified by federal lenders as Professional Thieves and were turned over to the FBI.
* 20% were classified by lenders as Fraud for Property that resulted in unethical lending practices.
* Ca. Defaults: Historical 32,762 - Low: 12,145- 3Q’04 High: 59,987 – 1Q’96 Current: 37,273
* For all of ‘06, foreclosures accounted for only 1.81% of all Orange County sales, with lenders reselling those homes at an average discount of only 3.8%!" Gary Watts, p. 4 of Real Estate Outlook 2007.

To avoid future dissatisfaction, find out now what to expect to see at your closing when you're faced with a stack of paper to sign. You want to know about three basic parts of your loan papers: The note, the deed of trust (or trust deed), and your HUD-1 statement.

The Note secured by a deed of trust includes the interest rate, payment terms and may include pre-payment penalty terms and other provisions. Make sure these are what you were told you were getting.

The trust deed will show the names of the trustor (borrower), trustee (usually the title company which holds title on behalf of beneficiary), and beneficiary (legal holder of the Note), and includes how the buyer will be taking title, and a legal description of the property and prepayment terms. You need to carefully check all of these before signing for any errors. Bring the legal description from your preliminary title report given you in escrow to refer to. (Even title companies can make mistakes: One time I was representing a buyer in escrow on a property and saw that the seller's name on the tax records had been replaced by the buyer's of the neighboring property because of an inaccuracy in recorded documents.)

The government HUD-1 statement is your final accounting of costs and disbursements for your property transaction. Save this form, as well as the rest of your transaction records, in your files. This document is included with your escrow closing package.

If you want assistance at the time of closing, ask your Realtor or loan officer to be there with you during your appointment, or ask them to be available by telephone in case you have questions when you sit down with the escrow officer.

And, last but not least, while I as a Realtor work with loan professionals I trust and may make a recommendation to you, you the buyer should search out your loan options with other professionals to satisfy yourself. This is also not the time in your life to assume your friend or relative who has been in the business 6 months is going to give you the assistance you need. Loans require extensive knowledge. I have been asked questions by buyers in escrow, who should have been asking these questions of their own Realtor, about lender services they are now unhappy with after their buyer contingencies have been removed and they may risk losing their deposit. Ask how long that loan officer has been in the business on a fulltime basis, if they can be reached when they are out of town, and who can you contact in their office if they are not available immediately, i.e., their loan processor. These questions are not a guaranty, but the answers may give some hints at the service and competence you will be receiving. There is much information on the internet, a lot of it negative, fear-driven, inaccurate or inapplicable to you, but there is no reason why you the buyer shouldn't be attempting to learn about your upcoming loan and home purchase as much as you can.

Home Loan, Mortgage

First Time Homebuyers in Los Angeles and Orange Counties

There is a NEW First Time Buyer Program Available, through funds raised by Realtors and their Pacific West Association of Realtors who have contributed over $300,000 to this program--the “Opening Doors” program applications are available as of Monday, 2/25/2007. If you, or a member of your family or one of your friends, is a first time buyer, they may be able to take advantage of a new program that will give $5,000 up to $15,000 towards down payment costs.

Yes, there are guidelines and here are some basic guidelines:

Current upper sales price limits are $568,601 (non-targeted) for Orange County and $564,264 (non-targeted) for Los Angeles. Targeted areas have higher sales prices (geographic areas and income qualifications defined by California Housing Finance Agency).

Property areas must be within Anaheim, Anaheim Hills, Brea, Buena Park, Cypress, Fullerton, Garden Grove, La Habra, La Habra Heights, La Mirada, La Palma, Lakewood, Long Beach, Los Alamitos, Norwalk, Orange, Pico Rivera, Placentia, Rossmoor, Santa Ana, Seal Beach, Signal Hill, Stanton, Tustin, Villa Park, Westminster, Whittier, and Yorba Linda and nearby county areas.

Income limits generally are: Current limits for Orange County are $97,320 (1-2 persons) and $113,540 (3+ persons), and for Los Angeles County are $83,160 (1-2 persons) and $97,020 (3+ persons).

Minimum FICO score of 620 for all applicants.

This program is designed to help people who want to buy. For more detailed information, a lender referral, active listings, or an application form, please contact me immediately!
Long Beach, Homebuyer

Lenders Tightening Up--Take Care of Your Credit Ranking

It just can't be emphasized enough to keep track of your FICO score, because the name of the game is the higher your score, the more choices you will have and the better rate at a lower cost you will get. As more subprime lenders change their lending guidelines and cut back, as today's announcement concerning Washington Mutual's subprime division Long Beach Mortgage indicates, buyers who want to buy need to learn about what goes into the FICO score. For instance, length of credit history accounts for 15% of your score, and your payment history accounts for 35% of your score, as the graph shows. Keeping your balance owing on a credit card, for instance, to less than 50% of your total credit allowed is also a scoring factor.

No point in going out and buying that new car just when you want to shop for a mortgage loan, because you could be loading yourself up with too much debt. The mortgage industry started using this scoring system in the 1990's, developed by the Fair Isaac Company, and they have specific score breakdowns showing the likelihood of a 90-day late in the near future according to your credit score. If your score is 700 or over, it's 288 to 1; if your score is 600 the likelihood is 4.5 to 1. There are more features, plus the fact that your score comes from 3 agencies and each may be a little different, so lenders develop loan qualifying criteria based on your high and mid-scores. If you want more information, please contact me.

Long Beach, subprime

Something to Think About: Future Homeownership

Comments by the CEO of Freddie Mac, Richard Syron, on February 8, 2007:

The driving force in housing is going to shift dramatically in coming decades, from the Baby Boom generation to minorities and immigrants. Demographic projections indicate about 15 million new households in the United States in the next decade, and some 10 million of them will be minorities. Recent immigrants will likely account for 5 million of these new households, and many will be unfamiliar with U.S. banking and mortgage finance.

America will need 20 million additional homes, about 2 million a year. Today, total homeownership in the U.S. is 69 percent, the highest it's ever been (sometimes we forget to think about the positive while we're totally engrossed in solving tomorrow's issues). "Today, 76 percent of white non-Hispanic families own their homes, but only half of minority families are homeowners."

About 200,000 loans entered foreclosure proceedings during the third quarter of 2006. Based on our experience, about 60,000 of these families will ultimately lose their homes. If that rate continues, nearly a quarter-million families will lose their homes to foreclosure during the coming year. This is an issue we are quite concerned about.

Our gains in homeownership should be protected, but not at the cost of giving risky loans to those who can't fulfill them. Every buyer needs to understand the terms of the loan they are being given.

Long Beach, Demographics

Good News for Loan Financing--Mortgage Insurance is Tax Deductible in 2007

Buyers have always been faced with certain loan condition when making less than a 20 percent down payment on a home. To avoid paying that extra non-tax deductible mortgage insurance premium -- or a higher interest rate factored into some 10 percent down loan programs -- buyers frequently chose "piggyback" seconds whose interest was tax deductible. But, Congress recently passed legislation that provides for an itemized deduction on federal tax returns for the cost of private mortgage insurance paid by eligible borrowers. Previously, borrowers could not deduct the cost of their mortgage insurance payments. Now, a new federal law allows qualified borrowers with adjusted gross incomes up to $100,000 to deduct 100% of their 2007 MI premiums on their federal tax returns. The legislation is effective for mortgage insurance certificates issued in 2007.

Individual savings will vary depending on the size of the loan and a borrower’s adjusted gross income and tax bracket. According to an analysis by Bankrate, a leading source of consumer financial information, a homeowner with a $180,000 mortgage would save about $351 in taxes a year.

This new deductability allows buyers to now reconsider whether to choose lender seconds--where the interest has always been tax deductible but higher interest rates now apply--or go with deductible mortage insurance which may have extremely competitive ratios compared to the current interest rates on many piggyback loans.

The legislation specifies that the tax deduction applies to mortgage insurance contracts issued between January 1 and December 31, 2007, so it would include purchases and refinances within that year. However, Congress has the power to extend the tax deduction to future years, or even to make it permanent. This currently does not apply to investor purchases.

Currently, this MI tax-deductibility legislation only applies to eligible borrowers with adjusted gross incomes of $109,000 or less who purchase or refinance a home between January 1 and December 31, 2007 and pay mortgage insurance premiums. Mortgage insurance premiums allocable to 2007 will be fully deductible for eligible taxpayers earning up to $100,000. The amount of the deduction incrementally phases out for those who have adjusted gross incomes between $100,000 and $109,000 annually. For more specific information, please visit www.pmi-us.com/tax.

Income Tax, tax deductions, Mortgage Insurance

Mortgage Applications Hit ONE-YEAR High

Applications to buy a home rose 8.7 percent as of 12/13/2006 over the prevous week, and were the highest since January of this year. Lower mortgage rates encouraged refinancings, but also encouraged new buyers to think about taking advantage of lower rates, even though they rose recently.

Break for Borrowers

The Federal Reserve has once again left the rates alone, and "judges that some inflation risks remain." The prime lending rate remains at 8.25 percent, breaking the string of 17 rate hikes that has driven the funds rate to its highest level in more than five years. Mortgage rates have actually fallen this year from it's high of 6.8 percent on a 30-year fixed: so it's still a great time to refinance or purchase!

Your House Is A Home, Not A Tech Stock

Everywhere you read, it's all about the slowing housing market, or worse. Nobody likes to feel they bought or sold at the right time, but to make the best move you can you need to know your future plans a lot more than you need a crystal ball. Playing the wait-and-see game, as this Los Angeles Times 9/10/2006 article shows, doesn't always work out. Real estate is cyclical in nature, and if you buy and plan to stay at least five to seven years, you are more likely to be making a good investment. "But housing is not bought and sold as easily as tech stocks ... People who are rolling the dice, and not getting into real estate for the right reasons, are putting themselves at risk," says John Karevoll of Dataquick. "If you're planning on living in the property for three to five years or more, you can make a good investment today," he said. "It won't be as good as if you bought three years ago, but it will be better than if you wait until interest rates go up." So trying to time the market and sell early or wait to buy, as some people have learned, can be the wrong move for the wrong reasons. First and foremost should be an assessment of your needs, then try to match those needs with the best loan and the best house that you can get at the time.

When Refinancing Makes Sense, to say the least

"Hell is probably pretty crowded right now, but I hope there's a special circle reserved for lenders who make low-interest, adjustable-rate mortgages without adequately explaining how they work and what their drawbacks are. And I don't mean just handing you a written form along with the mountains of other paperwork you receive when you apply for a loan. I mean talking to you about what could happen under worst-case scenarios -- until you understand your risks clearly. Low-interest, interest-only loans and so-called 'option' adjustable-rate mortgages (ARMs) that allow buyers to make only minimum payments evolved over the last few years to deal with the 'sticker shock' buyers felt when they saw how much home prices were ballooning every month.

Now home prices have stabilized, while rising interest rates are causing sticker shock. In fact, the non-partisan Center for Responsible Lending says 97.5% of borrowers who have teaser rates expiring on loans this year could face 'payment shocks' of at least 25%, while three-quarters could face increases of 50% or more.

Incomes can't possibly keep up with these bump-ups. According to recent government statistics, real median household income has remained almost flat -- rising only 1.1% last year, to $46,326, from the year before."
If you need refinance information or a quote, contact me at my website.

What Caused This Market Anyway?

If you're looking for a fresh explanation for your buyers who are afraid they're buying at the wrong time and you're looking for solved real estate mysteries late at night, like how did the subprime mortgage market and our technologically driven society affect real estate, this 44 page article by two economists might have some answers: ..."the housing boom has not been driven by unusually loose monetary policy [i.e., not the Federal Reserve's low interest rates for the last several years]. This is not to say the monetary policy has not been unusually loose, but that to the extent it has been loose, this is not what has been driving spending on housing. Second, the current levels of spending on new housing are largely explained by technology-driven wealth creation over the previous decade. Third, changes in the demographic, income, educational, and regional structure of the population account for about one-half of the increase in homeownership. That is, without any other developments, the homeownership rate is likely to have gone up anyway, but not by as much as it has done. The last finding is that substitution away from rental housing made possible by developments in the mortgage market, such as subprime lending, could account for a significant fraction of the increase in residential investment and homeownership." --From "The great turn-of-the-century housing boom" by Jonas D. M. Fisher and Saad Quayyum.

That First Home

Dream homes are great to dream about, but please don't expect everything without the money to match. Expectations that are too high might cause the first-time homebuyer to miss a golden opportunity. If you've been renting and don't have much equity, the smart thing to do is look into the future at the second or even third home as the one that really represents where you want to be. People believe their parents did the right thing by buying, but many people forget that their parents may have also built up the move-up over time.

Financial coast David Bach says, "... renters may need to take a step backward when buying their first home. It's almost always better to cut the renting cycle as soon as you can and to continue to upgrade from there," he said. "Buy what you can afford now, build equity, and move closer to that dream home."

With today's loan products, there is ample opportunity to get into that first property, where you realistically may not be staying for more than 3 to 5 years, so remembering that, compromising on home features may be easier to do. Read this article about the Wells Fargo buyer survey.

Not All Loans and Lenders Are Created Equal

Buyers tend to overlook the importance of comparing loans when starting to home shop, or loan officers. If your FICO score is in the low 600's, don't expect to get the same deal your friend with a 700 FICO just closed on. If your loan rep is a relative or a friend, that's all the more reason to compare loans, it's possible to get taken for granted, or worse, find out your friend isn't very experienced. Here are 10 questions to ask when applying for a mortgage, always ask for an upfront good faith estimate. If the loan rep isn't in a hurry to provide you with one, keep shopping. Don't underestimate the important of providing all documentation on time or taking care of other loan conditions as soon as possible.