MORTGAGE APPLICATIONS FALL—WHAT DOES IT MEAN?

The Mortgage Bankers Association is reporting that Mortgage Loan Applications fell 19.5% last week. So what does that mean for you?

NOTHING!

Look, first off, no one in the Mortgage Industry expects applications to increase during the month of December. I was once working in an office where literally nobody came to work after the first week of the month. I myself have been known to take 3-4 weeks off. Underwriters are still available, but even the most diligent see their work loads decrease. I can’t tell you how many times I have heard the phrase “let’s talk after the holidays.”

So, for the normal home owner, or would be home owner, what does this mean? Honestly, it doesn’t mean much. Loan Officers expect a slow down, so they aren’t just willing to slash fee’s, and Lenders won’t do much to interest rates that wouldn’t have happened anyway.

My advice, if you are in the market for a new loan, go for it. Don’t let the current pace of mortgage applications sway you one way or another. If you are just starting to consider your options, perfect, this is a great time to do that. If you are in a rush, that is fine to, there are plenty of loan officers who are ready and willing to get that last loan in before the new year.

But please, don’t show up expecting something out of the ordinary, just because it seems like fewer people are applying for a new loan.

Now, if this trend continues through January, then we might have something worth talking about!

BUSH’S SUBPRIME FREEZE – My Initial Thoughts

I know it is a bit early to do too much analysis, and until the plan is formally revealed in detail it is difficult to assess the costs and or benefits of a new proposal, however, on the surface, the plan introduced today by President Bush to freeze adjustments to Sub prime ARM Loans seems to be a fairly good step in the right direction. But I wouldn’t go so far as to say that it is enough.

According to reports on CNN.com President Bush will unveil a plan to institute a 5 year freeze on Adjustable Rate Mortgage increases for certain home owners. If you have an ARM don’t get too excited just yet. Apparantly this freeze will only be made available to those Subprime Borrowers who are current on their monthly payments. Any homeowner who is more than 30 days late, or has been more than 60 days late within the past 12 months will be ineligible. The plan, as reported, is only eligible for those loans set to adjust in 2008, and will only be available to those borrowers who are deemed unable to afford payments at the adjusted rates.

So, what do I see that I like and what do I see that is insufficient? First, I like that we are making some progress. I typically don’t like to see too much involvement from the Government in business affairs, but I also understand that if the current trend continues we may be facing the worst economic crisis this country has had since the Depression. I am glad to see the various parties sitting down and putting something together.

That being said, talk about a messy operation to administer. Remember that loans, once written to a borrower, are then sold off to various servicing companies which in turn bundle those loans with similar loans in order to sell them on the securities market. Remember also that it is not uncommon for securitized mortgage notes are frequently divided up and sold to multiple investors. So, who makes the decisions for those homeowners who are affected? Do they re-enter the underwriting process? How do they determine who takes the biggest hit in terms of profits? Does anyone really think the investors are going to simply accept lower payments than what they are contractually entitled to receive? It just seems extremely complex to me.

Not to mention the fact that on the surface it would appear that with the freeze available only to those who are current, in other words, those who can make their payments, this new program really isn’t helping those most negatively affected—the people loosing their homes.

Here is what I don’t understand: When someone gets a sub prime mortgage it should be understood that they have 2-3 years in most cases to fix their financial and credit situation. It is also understood in the mortgage industry that the vast majority of those borrowers will not do much to improve their situations, meaning in 2 or 3 years they will need another sub prime loan. The problem isn’t that the interest rates are adjusting; the problem is that there are no more lenders offering sub prime loans to those people. Many of them still need to refinance to utilize equity to pay off higher interest credit cards. Just because their mortgage may not adjust for a while doesn’t mean that they don’t need to refinance. And, to be frank, our economy could use some of those people about now.

As I have said before, simply lowering interest rates will not fix the mess, and allowing sub prime borrowers to have a few extra years will no doubt save a few homes from foreclosure, but it will not help the economy get out of the mess we are in.

REVERSE MORTGAGES

Two different people have asked me in the past few weeks about Reverse Mortgages. To be completely honest, I don’t deal with too many of these transactions. Not too many Loan Officer’s do. First, they do not pay well, second, they are rather complex, and third most of the homeowners who would qualify for a reverse mortgage are not necessarily looking for any kind of financing. That being said, I am not totally unfamiliar. I have a handful of clients who have benefited from a Reverse Mortgage. Here is some information, in case you are curious.

I will be sending out a report to my Inner Circle with additional information regarding Reverse Mortgages. If you would like to be included in this mailing, just send me a quick email at jayhart@cottonwoodmtg.com

A reverse mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay the loan each month. The cash you get from a reverse mortgage can be paid to you in several ways:

• All at once, in a single lump sum of cash;
• As a regular monthly cash advance;
• As a credit line account that lets you decide when and how much of your available cash is paid to you
• As a combination of these payment methods.

No matter how this loan is paid out to you, you typically don't have to pay anything back until you die, sell your home, or permanently move out of your home. To be eligible for most reverse mortgages, you must own your home (but it does not have to be owned free and clear) and be 62 years of age or older.

Pro’s and Con’s

As with any loan program it is important to consider the ways in which a Reverse Mortgage may or may not benefit you or your loved ones. There are several key advantages, such as the fact that the lender can, in no way, force or even encourage a home owner to sell the home in order to pay off the reverse mortgage. In addition, homeowners are allowed to remain in the property for as long as they are living, regardless of the amount of interest accrued. In spite of these benefits, there are some disadvantages that are worth considering: Unfortunately, several senior home owners have made poor decisions with the sudden influx of money that they receive, reverse mortgage scam artists are common. In addition, the costs of obtaining a reverse mortgage may outweigh the advantages—particularly if the lender is charging an higher than normal interest rate.

As always, if you have additional questions, or would like more information, please contact me at jayhart@cottonwoodmtg.com

RECESSIONS and MORTGAGES IN UTAH

The other day I received an email asking me if we were in a recession, and if so how that would affect mortgages and interest rates. Let me first say that I am not an economist. I took two economics classes in college and struggled mightily to survive. That being said, I have spent the better part of the past decade studying those economic factors which affect home ownership and mortgage lending. To that end, allow me to respond to the question of our current “recession” as well as its potential effects on mortgages.

A Recession is most commonly defined as an extended period of time, typically at least two consecutive quarters during which period the Gross Domestic Product (GDP) has been in a state of decline. In other words, we are in a recession when to total market value of a nations output has been slowing for 6 months or more.

Periods of recession are marked by decreased consumer confidence, which leads to limited spending. More significant, corporate spending is also curtailed, as business leaders become more cautious and less willing to take risks or extend debts. During a recession savings rates decline while wage increases slow. Typically, a recession is accompanied by an increase in Government Spending.

How does that relate to the Mortgage Market today? Well, while consumer spending slowed in September and October of this year, the GDP grew 4% in the third quarter. That tells us that while we may not exactly be in a recession currently, we are most likely teetering on the edge. The Federal Reserve seems somewhat consigned to the fact that periodic decreases to the Fed Rate will hopefully generate increases in consumer credit that will offset some of those factors that seem to be leading to a recession.

So what am I looking for? Housing prices have been in decline throughout most of the country, though not in yet in Utah (except in certain markets in the state). This decline has created an opportunity for home sales to increase. An increase in Home Sales will most likely offset many of the factors leading to Recession. If, however, consumer confidence remains low—as many potential buyers fear values decreasing more—and home sales continue to slow, we can expect a recession to follow.

Luckily, it appears that employment rates continue to increase, which typically offsets recession forces; however, with so many Americans in the habit of relying on debt, including home equity for basic spending, I don’t expect increases in employment to do too much to help our housing market.

During the recessions of the early 70’s and the early 90’s low interest rates were able to spur growth which helped greatly. Unfortunately, in 2001 and 2002, with a recession looming, rates were dropped to unprecedented lows, creating the housing explosion that most of the country has been enjoying for the past several years. Now, we find ourselves in a situation where interest rates are already so low that there isn’t much room to go. In other words, I don’t expect drastic drops in interest rates.

If we are in a recession, or about to be in a recession, I would anticipate fear preventing many people from purchasing new homes, which means that unless some other sector (services, for example, such as healthcare) provides a sudden growth spurt for the economy, then we are in for a bit longer wait than anticipated. I wouldn’t be surprised if the housing market remains cold for at least the first 6 months of 2008. Which actually means that if you are hoping for large increases to your home values you may be waiting until the spring of 2009.

THEN AGAIN, I AM NO ECONOMIST. I am a Mortgage Expert. I only know what I read and what people much smarter than I have taught me.

Those members of my Inner Circle Email List will remember a similar report which I sent out well over a year ago. As always, if you are not a part of my Inner Circle, and would like to receive periodic emails with additional information, just email me at jayhart@cottonwoodmtg.com and let me know. Also, if you would like to receive a copy of the full report regarding RECESSIONS, drop me a line and I will email it to you.

BREAK DOWN OF CLOSING COSTS

One thing I know for sure: No one wants to pay closing costs. Trust me, I understand. I own multiple homes, I pay plenty in interest each year, do you think I want additionally fees when I refinance? Of course not. I am no different than anyone else. In spite of the bitter pill that is closing costs, the reality is that Loan’s cost money; Fee’s are assessed for services preformed. If you don’t want any fees, don’t request any work to be done on your behalf.

Loan Officers understand how uncomfortable closing costs can be, so in an effort to earn your trust and your business, many Loan Officers have started adjusting the way fee’s are presented. When preparing a Good Faith Estimate, many Loan Officers will leave certain settlement costs out, opting instead to disclose only those fees for which they are responsible. While this may be legal, I find it highly unethical. Nonetheless, I am confronted weekly with flawed Good Faith Estimates, followed by questions about why my costs seem so much higher. MY FEES ARE NOT HIGHER, they are simply fully disclosed.

In hopes of making your life easier, and taking some of the pressure of your Loan Officer, I am going to give a quick breakdown of what closing costs and settlement fees you ought to find on a Good Faith Estimate. I will not provide specific amounts, simply which fees to look for.

1. Items Payable in Connection With Loan: These fees are those directly associated with the processing of your loan. They will include the Origination Fee, Processing Fee, Appraisal, Underwriting, etc. This is the section which a Loan Officer is required to disclose, therefore you will typically see this in most Estimates.
   

2. Title Charges: These include the closing or escrow fee as well as the Title Insurance. This will typically be disclosed, however beware of large discrepancies in Title Insurance amounts. A Loan Officer has no say in the amount of title insurance you pay. This amount is determined by the title insurance company, and most Title Insurance Companies are simply selling Policies for larger nationwide companies, so the rates will be fairly similar from one company to another.
   

3. Government Recording and Transfer Charges: This will vary depending on the county as well as the lender. Typically this will include the cost of recording the new Deed of Trust for your loan. Depending on the number of pages to be recorded, this fee will vary.
   

4. Pre-Paid Items: This may include any prepayment of Mortgage Insurance or Hazard Insurance Premiums. This will also include interest that will be assessed from the day of your closing to the date of your first payment. The later in the month you close, the lower this fee will be.
   

5. Reserves for Escrow: This is the most common section for a Loan Office to leave blank. This includes the initial deposits for your Hazard Insurance Premium and Tax Assessment Reserves. These amounts are deposited into your escrow account monthly to cover your insurance and tax responsibilities when they are due. The Tax reserve will vary depending on the month you close for a refinance. For a purchase your tax reserve will typically be 2-4 months. Expect your Insurance reserves to be 12-14 months worth.

Where Have I Been?

No, I didn’t go fall off the map, and no I didn’t forget about my blog. The reality is that over the past 3 weeks I have spent as much time in Airport Terminals as I have in my office. As I have been traveling the country and speaking to people in different areas I have gained some new perspective on a few things related to the housing market and the mortgage market in Utah. I plan on being in the office for this week, so I will try to get caught up on a few things, as well as share some new insights.

My first thought: BE GLAD TO LIVE IN UTAH.

I spent a week in Michigan speaking to crowds ranging from 75 to 250 people. I had some time to drive around and see the neighborhoods. I also had a chance to visit briefly with a few homeowners and gain some of their observations. Michigan has it bad. Any way you look at it. Not only are homes staying on the market well over 120 days, but in the past year the average sales price has dropped over 10%.

Understand that the Real Estate market reflects the local economy. Detroit has an unemployment rate of 14% with the highest rate of foreclosures in the nation, and nearly a third of all residence living in poverty.

We are lucky in Utah to have one of the nation’s lowest unemployment rates. We have home values that continue to increase, and our standard of living continues to improve. I guess what I am saying is, among other things for which I am thankful; living in Utah is near the top of my list. I hope you feel the same way!

A THEORY ON UTAH FORECLOSURES

There seems to be this idea out there that Utah Homeowners are loosing their homes left and right. I don’t really understand where this idea came from. CnnMoney.com recently listed the 10 States with the highest rates of default, and guess where Utah came in? That’s right, not on the list.

So, where are the most foreclosures? Try Nevada, California and Florida for your top 3. Michigan and Ohio come in at 4 and 5 respectively with Colorado, Arizona, Georgia, Indiana and Texas rounding out the top 10. Notice a theme? To get in the top ten it would appear that you need to be in a state with a struggling economy and high unemployment rates (which we are not), or a state with an abnormal amount of real estate speculation (which we are dangerously close to having).

It would seem to me that foreclosures are the result of either people not having money to pay their mortgages, or people purchasing homes with artificially inflated home values resulting from investors and speculators driving values up.

Since much is written about the health of the Utah economy, I am left to believe that the increasing number of real estate investors is a leading factor contributing to high foreclosure rates. My advice, beware the speculator.

UTAH LOAN FRAUD - Part 4

This is Part 4 of a 4 Part article I recently wrote concerning Mortgage Fraud in Utah.

If you would like an emailed copy of the entire article, contact me by email at jayhart@cottonwoodmtg.com or comment on this post.

The unfortunate reality is that while most loan officers and borrowers have good intentions, the financial benefits associated with fraudulent loans continue to encourage illegal and unethical behavior. Mortgage Fraud leads to artificially inflated home values and unnecessarily high rates of default. Such factors then lead to a slowing of the economy and ultimately and increase in interest rates, thus perpetuating the apparent “need” to falsify loan documents.

However, while there is a great deal remaining to be accomplished in efforts towards the eradication of Mortgage Fraud in Utah, it is important to note the progress that has been made. The Utah Association of Mortgage Brokers, in conjunction with the Division of Real Estate should be recognized for the efforts of recent years; The countless loan officers who have been willing to sacrifice potential income in efforts to maintain personal and professional integrity; the many home owners and buyers who have recognized mistaken and misrepresented information and refused to continue a transaction. These individuals and organizations should be commended, but such recognition should not be viewed as acceptance of current trends and practices that lead to illegal behavior.

Mortgage Fraud in Utah is a major problem, as it is throughout the nation. This problem is seen through multiple practices and is having a negative impact on our economy, particularly the housing industry. As Fraud persists, it is important to recognize the involvement of the various parties of a transaction, rather than identifying one group of persons as the scapegoat for a larger systemic problem. If our economy requires the elimination of Mortgage Fraud, then much effort needs to be increased. Only though proper education and understanding can we prevent Mortgage Fraud in Utah.

UTAH LOAN FRAUD - part 3

This is Part 3 of a 4 Part Article I recently wrote concerning Mortgage Fraud in Utah.

WHAT CAN WE DO TO STOP LOAN FRAUD?

Unfortunately, in spite of the negative consequences of Mortgage Fraud, there will continue to be those who feel that the only way to complete a transaction is through misrepresentations. In hopes of decreasing, and ultimately eliminating mortgage fraud, I will offer 4 possible actions to be followed.

1. Increase Education. Much has been done in recent years to increase awareness among loan officers. These efforts are commendable, and should be included. I would like to see additional requirements associated with a loan officer’s continuing education dealing with loan fraud. However, more pressing in my mind, is the need to provide education to consumers. I would like to see efforts made by the various organizations and associations representing the mortgage industry, including the Division of Real Estate, increase efforts to educate the public regarding the types of loan fraud and the accompanying consequences. In addition, loan officers should be more proactive in educating clients and prospective clients about the consequences of loan fraud.
2. Enhance regulations. While a great deal has been accomplished, the Division of Real Estate does not have the necessary funding to properly investigate and prosecute Mortgage Fraud. Lobbying efforts should be increased to secure adequate funding and additional investigators should be hired and trained. In addition, the already steep consequences should be enhanced, specifically for the seller and buyer/borrower involved in a transaction.
3. Loan Application Due Process: Loan Officers and borrowers alike should be more judicious in reviewing loan application materials. An applicant should not sign incorrect loan documents, and a loan officer should refuse to process a transaction. More care should be given to careful review of a file prior to closing.
4. Incentivize Proper Transactions: Lenders should award financial benefits to loan officers and underwriters who maintain clean loan histories, including reporting illegal behavior, hereby encouraging more efforts to avoid potentially fraudulent loans. In addition, lenders should make investment and non-owner occupied loans more satisfactory to borrowers. A buyer is less likely to encourage a fraudulent loan if he or she feels less vulnerable to increased interest rates and lending restrictions.

UTAH LOAN FRAUD - Part 2

This is Part 2 of a 4 Part Article I recently wrote concerning Mortgage Fraud in Utah.

WHAT LEADS TO LOAN FRAUD?

My experience is that most cases of loan fraud are initiated by any one or combination of 3 parties: Real Estate Seller/Builder, Borrower, and Loan Officer. It is unfair to place blame on any one party when it is most common for multiple parties to be at fault.

• Real Estate Seller/Builder: As a market softens, it is not uncommon for a seller or builder to use fraudulent practices to maintain profitability. Appraisal fraud and Double Contracts are probably the most common types of fraud utilized by this group. As a market becomes increasingly competitive, fraudulent practices may be seen as a way to maintain market share and generate revenue to the builder. In the case of a private seller, fraudulent practices may provide a way to sell a home is a slow market by offering additional incentives, such as cash back to remodel or finish a basement.
• Borrower: It is not uncommon for a borrower to request actions that are fraudulent. This is extremely common when a borrower is seeking a loan program that may have been available in the past but is no longer being offered by lenders—such as no money down purchases with poor credit. A borrower may have used such a loan in the past and is unwilling to accept that these types of loans are unavailable at this time. Probably most common is fraud initiated by Real Estate Investors and Speculators. With seemingly little to loose, these individuals will request fraudulent activities to bolster profits on a transactions.
• Loan Officer: In a competitive market place, many Loan Officers feel that every effort possible should be used to close a transaction, including if necessary, loan fraud. The mindset is “well, If I don’t get them this loan they will just go to someone else who will, so I might as well get the paycheck myself.” Increased restrictions by lenders to loan amounts, coupled with less leniency in terms of credit scores and credit history have made it more difficult for loan officers to remain competitive. For many Loan Officers, fraudulent activity is seen as a last resort to retain an income stream.

UTAH LOAN FRAUD - Part 1

This is Part 1 of a 4 part series I recently wrote for an article concerning mortgage fraud in the Utah.

A lot has been written lately about the high levels of Loan Fraud in Utah and how this has impacted the current cooling of the housing market. Perhaps the most commonly asserted point regarding Mortgage Fraud has been the role of the Loan Officer. Now, I am not going to give a pass to my colleagues who have participated in fraud over the years. Their actions have helped create an economic environment with inflated home values increased foreclosure rates. But the blame cannot, and should not stop at the Loan Officer; blame needs to be placed upon all participants who promulgate such improper behavior.

In an effort to provide education concerning Loan Fraud, and in hopes of curtailing fraudulent behavior, I will first discuss some common aspects of and strategies for loan fraud, then I will discuss the factors leading to loan fraud, and finally I will highlight some steps that can be followed to limit and ultimately eliminate Mortgage Loan Fraud in Utah.

WHAT IS LOAN FRAUD?

Mortgage Fraud is refers to any efforts or actions whereby the intent is to misrepresent information on a mortgage loan application, in order to obtain the loan. While most would agree that Identity Theft is fraudulent, there are more common and more subtle actions that also constitute fraud.

• Occupancy Fraud: Most common in times of housing growth, this fraud occurs when a potential borrower claims the intent of occupying a home as a primary residence in order to secure more favorable loan terms.
• Income Fraud: This fraud occurs when a borrower artificially inflates his or her income to increase his or her ability to qualify for financing. This is occasionally done through altered W-2 forms, but is most common on “stated income” loans where no income verification is required.
• Appraisal Fraud: Common in new home constructions, an appraiser may be asked to unnecessarily inflate a homes value so that a homeowner is able to receive additional funds or sell the home at an increased amount.
• Double Contract/Cash Back Schemes: Typical among the various “real estate guru” courses, this practice involved a buyer and a seller essentially using two separate purchase contracts, one at a high level which is used provided to the lender, and another at a lower amount that is kept between the buyer and seller. When financing is received at the increased amount, cash is then distributed.

SELLING A HOME IN UTAH

I am frequently asked about the benefits of using a Realtor vs. the benefits of trying a For Sale By Owner. To be honest, I have done both, and had mixed reviews with both. I am not a Real Estate Agent. The first home I sold was about the easiest thing I have ever done. I put the ad in the paper, a sign up front, and had an open house. Within 2 weeks it was sold—above my asking price. Then again, I tried to sell a home on my own, and after 5 months finally asked for the help from an agent.

I am convinced that the easiest way to get your home in front of potential buyers is through a listing on the Multiple Listing Service, or MLS. That, of course, means that you need an agent. If, however, you are not in a terrible rush, or you have some extra cash for some aggressive marketing strategies, then you can save significant money by selling on your own.

LET ME MAKE THIS CLEAR: I don’t have a preference one way or another.

If you do use a realtor, here are some things to consider:

• Standard sales commissions are 6% of the sales price, but only 3% goes to your agent, the other 3% goes to the buyers agent
• Realtors are not “greasy sales people.” I mean, sure you may find the occasional scum bag, but no more than any other industry.
• It is still your home for sale. That means that you should work with your realtor. Stay involved in the process, follow up with marketing efforts and ask questions.
• Consider interviewing multiple agents before listing your home. They stand to make a significant amount of money, you deserve to make sure you are comfortable with their approach.

If you try on your own, consider these:

• More frequently people are turning to the internet rather than the newspaper.
• Without an agent you may be able to decrease your price to better position yourself.
• Make sure you use an official Real Estate Purchase Contract (available on the state department of real estate webpage).
• Consider one of the various For Sale By Owner websites. I have a property listed at www.isoldmyhouse.com and have been pleased with the attention it has received thus far.

This much I can tell you: The market is slowing, but it isn’t dropping. I have no reason to think we are going to have 15-30% drops in value as so many states are experiencing. That being said, don’t expect people to get in a bidding war over your home.

MORTGAGE BROKER?

Well, I am back. I am trying my best to get some work done, but it is tough, I am having Cruise Withdrawals. For one, I feel like the room keeps swaying back and forth. Also, it has been 3 hours since I ate any food—anyone who has taken a cruise will tell you that 3 hours is much too long to wait in between meals. So, I got a bit of a tan, I gained some weight, and I saw some parts of the world that I had not yet visited. All in all it was well worth the time away.

I met some great people on the ship, several of whom asked me about my career. Upon hearing the term “mortgages” I noticed that people both got a look of fear and tried to excuse themselves immediately, or they asked how I was dealing with the turmoil in the industry. Suddenly it hit me: People have no idea what a mortgage broker does.

It’s actually pretty basic: I get people money for their homes. That’s it. I am not some scary con-man out to take away your precious gems or steal your retirement. You don’t need someone like me. If you have a few hundred thousand dollars extra then pay cash for your home. That’s fine by me.

For the other 99.9% of the nation, a mortgage broker may not be such a bad idea. I have access to hundreds of banks and lending institutions. I have processors that specialize in knowing what you need to get a loan with the least amount of hassle and headache. I have experience negotiating with underwriters to get you the quickest turn times possible. And, as a broker, I have the flexibility to get you loan programs and rates that are more aggressive, or better suited for your needs than the guy at the bank.

I am no different than any other Mortgage Broker (well, I actually think I am quite a bit different—I think I care more, work harder, know more, and save you more, but you get the point). So, why the concern? The average home owner will refinance every 4 years. The average home owner will buy a new home every 10 years. Until incomes jump off the charts, people will need a loan.

As for the current industry, well there isn’t much I can do about it. As I have said previously, things will improve. Rates are still low, and fees are competitive. Lender guidelines are already starting to become more liberal, and more money is slowly becoming available. It is not time to panic. Instead, it is time to carefully re-evaluate your financial objectives and make sure you are utilizing your assets wisely.

Anyway, I am glad to be home, but I have so much to do both at the office and in my yard to make up for a week away.

Have a good day—catch you tomorrow.

MY MORTGAGE PROJECTIONS (at least for this week)

There will be no updates for a few days. I will be enjoying some much needed and well deserved time off. We are taking the baby and joining my in-laws for a family reunion cruise. I know, life is rough!

Since I won’t be around to write anything new, I thought I would give my projections for the mortgage market while I am away. Since this isn’t rocket science and since I repeatedly remind you that anyone who claims to know what will happen to mortgages is a liar, offer some thoughts with the caveat that this should be taken with a grain of salt.

Thanks in part to the Federal Reserve Boards cut to the Fed Rate we have seen a leveling in interest rates. For the most part mortgage rates have neither increased nor decreased significantly. In the days immediately following the Fed cut, mortgage rates rose, during the past week they have fallen. That tells me that there is no reason to expect a significant change during the next 5-7 days.

According to the Mortgage Bankers Association, Applications for new mortgage increased 2.4% over the past week. This is a good sign—and one that I have been predicting for a few months. While refinance applications outpaced new purchase applications during the past week, both had a slight increase. 2.4% may not seem like much, but in an industry that has had applications slip for months at a time it is nice to have reason to believe that things are improving.

So what does that mean to you? Industry strength will increase confidence by investors which will allow an increase in fluidity for Mortgage Lenders. This will most likely lead to a slight loosening of lending guidelines, making more money available to more potential borrowers. Don’t expect rates to drop significantly for a while, but if you are considering purchasing or refinancing, we may be entering a period of improvement which could signal the perfect time to act.

Well, I am off. Enjoy next week. And have a great weekend.

SHOULD I GET OUT OF MY ARM?

The sky is not falling! Look, I realize that the past few months have been rough. Everywhere you turn, from the media to billboards and radio ads, people are telling you to get out of your Adjustable Rate Mortgage. I personally like the advertisement on the radio where the guy says, in his southern drawl, “You made a killing on that ARM, now it’s time to get out of it.” Well, the reality is that many people did save a lot of money by utilizing an Adjustable Rate Mortgage, and for many of those people the fear of increasing payments is a legitimate concern. That being said, not everyone should run to get a fixed rate mortgage. In truth, it all depends on what your reason was for getting an ARM in the first place.

Here is an excerpt from a report on ARM’s that I sent to my Inner Circle a few months back (as always, if you want to be included in the Inner Circle, send an email to jayhart@cottonwoodmtg.com)

There are two times when an ARM can be beneficial to a home owner: When you are not planning on remaining in your home for an extended period of time, and when you require an increase of cash flow. . . . Consider the words of Alan Greenspan: “Research within the Federal Reserve suggests that homeowners might have saved tens of thousands of dollars had they held adjustable rate mortgages rather than fixed rate mortgages during the past decade.” While it may be a stretch to assume that Mr. Greenspan is suggesting that all homeowners choose a loan program with an adjustable rate, it is important that a homeowner consider the potential benefits from considering an ARM.

The same remains true today. If you are in your ARM for the right reasons then why jump ship now? The way many homeowners are hitting the panic button reminds me of the football coach who replaces his quarterback after one intercepted pass. I don’t know how many times I have said it: Your mortgage should be a part of your overall financial strategy. If the “business plan” for your family and home included an ARM 2 years ago, what has changed now?

I was breaking down the numbers for a client the other day—she was adamant that she needed to trade in her ARM for a Fixed Rate loan. Her rate had adjusted 2% over the past two months. Her payment had increased accordingly. However, in spite of the adjustment, her rate was still ½% lower than the fixed rate that she would have received. In addition, she is planning on selling within the next year. She would have paid at least $2,000 to refinance, only to pay closing costs again when she purchases her new home. In this case, refinancing made no sense.

That being said, for many homeowners, now is the time to switch to the Fixed Rate loan. If your income or debt level has changed, or you no longer anticipate selling your home then you may want to restructure your loan. If your new adjusted rate is higher than the rate you could get on a fixed loan, then you may consider restructuring.

All I am saying is, don’t panic. Don’t assume your loan officer was lying or ripped you off. If you did your homework and your Loan Officer did his or her job properly, then you knew this could happen. Take a step back, look at your options and weigh them against your current situation and needs. If you still need to refinance, then do it sooner rather than later—there is no guarantee that rates will stay as they are.

CREDIT REPAIR -- Steps 3 & 4

There are 4 steps to follow when fixing your credit: Identify the problem, Notify the Credit Bureaus, Fix the Problem and Keep Records. All four steps are important, however, depending upon your specific credit situation; one step may be more significant than others. Understanding the basic information about each of the 4 steps will make your efforts to repair your credit much easier and significantly more successful.

Having previously covered steps one and two, I figured now is as good a time to address steps 3 & 4 in the process. Of course, this information is simply a starting point. There are many additional things that can and should be done. If you want more information or some advice, just let me kn0w. As always, you can email me at jayhart@cottonwoodmtg.com.

Step 3: Fix the Problem

If you credit is being damaged because you don’t have enough credit, then open an account. Be careful to not open the wrong type of account, and avoid opening more than a single account at a time. If you need to stop missing payments, then make arrangements with your creditors to do so—this may take some reworking of the budget, but it will be worth it to have your credit improve.

In the event that you have something reported that is legitimately incorrect, you need to contact your creditors and inform them of the mistake. This may require submitting proof of your innocence, and don’t be surprised if it takes a few weeks, but in the end it can have significant positive affects.

Step 4: Keep Records.

Make a copy of your credit report. Make a copy of any letters you mail. Write down information on any phone calls, including the date and time and the full name of the person with whom you speak. Seems simple right? I had a client who had written several letters to the credit bureaus as well as her creditors. Unfortunately, she seemed to be getting nowhere. Finally, after a few months of struggles she mailed a new letter and attached a copy of each of the previous letters including the certified mail receipts. Her request was simple: Either fix my problem or let me know why you are not responding. The credit bureau immediately removed the negative report.

CREDIT REPAIR -- Step 2

There are 4 steps to follow when fixing your credit: Identify the problem, Notify the Credit Bureaus, Fix the Problem and Keep Records. All four steps are important, however, depending upon your specific credit situation; one step may be more significant than others. Understanding the basic information about each of the 4 steps will make your efforts to repair your credit much easier and significantly more successful.

Step 2: Notify the Credit Bureaus.

If you are suffering from either a mistake or a late payment, it is important to notify the credit bureaus about your concern. The creditors are responsible to accurately report your credit usage to the credit bureaus; however mistakes and errors are not uncommon, when this occurs, you need to contact the credit bureaus.

Send a certified letter to each of the three credit bureaus. Include your Name, Address, Social Security Number and the account information for those accounts in question. Inform the bureaus that there are mistakes that are represented on your credit report which you would like removed. In the event of a late payment, simply indicate that all payments were made on time. At this point the credit bureau has 30 days to investigate your claim. Due to the large number of reports each month it is not uncommon for a credit bureau to simply remove the negative items without a full investigation.

CREDIT REPAIR -- STEP 1

There are 4 steps to follow when fixing your credit: Identify the problem, Notify the Credit Bureaus, Fix the Problem and Keep Records. All four steps are important, however, depending upon your specific credit situation; one step may be more significant than others. Understanding the basic information about each of the 4 steps will make your efforts to repair your credit much easier and significantly more successful.

Step 1: Identify the Problem.

Whether it be from missed payments, high balances, or falsely reported accounts, the first step to repairing credit is to identify what it is that is pulling our credit down. There are 5 factors that are used when calculating your FICO score (the score most commonly used when referring to one’s “credit score”). By understanding what factors affect your credit you can more easily identify those problems, or potential problems that are keeping your credit lower than you would choose.

The most heavily weighted factor is Payment History. Representing about 35% of your score, your ability to make timely payments is the most important indicator of credit worthiness, and thus your credit score. Next in significance is Credit Balances, which comprise 30% of your score. The more you owe the more of a risk you represent. Balances that remain under 1/3^rd of the available limit will demonstrate less risk and therefore a higher score. Third is Credit History, which comprises 15% of the score. The longer you have had credit, the more likely it is that you understand how to properly use credit, thus, the higher the score. New Credit and Types of Credit represent 10%, respectively. Opening multiple new credit accounts in a short period of time, or having too many credit cards and no home loans tend to show less economic stability, and therefore can lower your score.

When reviewing credit, it is important to consider each of the 5 items that affect your credit. I suggest making a list of any items that could be affecting your credit. For items dealing with existing accounts, note the creditor, account number, type of credit, balance, payment history and available credit (all are found on the credit report). If your credit is being affected by a lack of credit history or by too many new accounts, you will want to make a note so that you can find the most effective strategy for improvement.

The most common problem my clients face is payment history. It is not uncommon for someone with otherwise good credit to have a late payment on an account which lowers the credit score. Frequently this late payment is the result of a misunderstanding, or an incorrect mailing address; occasionally payments are missed because of forgetfulness or a lack of money; every now and then a payment is listed as late when it was in fact sent and received on time. Regardless of the reasons for a reported late payment, it may be worth challenging the derogatory item, therefore, make a note of it.

MORTGAGE TIME FRAME

Every now and then someone calls with the most ridiculous expectations. It really doesn’t matter how wonderful you are as a borrower, some things just take time. I had a woman the other day tell me that she wouldn’t hire a loan officer unless she was guaranteed that she could close within 5 days. Truth be told, it is possible, under certain circumstances, to close a loan, start to finish, in 5 days, but trust me, that is the exception not the rule. I like to tell my clients to plan on 30 days, but to rest assured that I will do everything possible to close earlier. I would say that 10 days is about as quick as you can hope.

Let me break down the process for you:

Application/Initial Underwriting: 2 Days

Processing/Appraisal/Title Report: 3-5 Days

Underwriting: 2-3 Days

Document Preparation: 1 Day

Closing: 1 Day

I will tell you this: The most common factor that slows the process is when a borrower is unable to provide the necessary documents within a reasonable time frame. It is extremely common for me to contact a client and request an additional pay stub or bank statement only to wait as long as a week to get a response. That is why I always say, come to your initial appointment with the paperwork ready—it only makes it faster for you.

So, next time you are looking for a loan, remember to keep your expectations realistic.

Have a great weekend!

WHAT TO LOOK FOR IN A LOAN OFFICER

I was asked this morning about how you know if you have a good loan officer. Obviously the first rule is to call me. Then you know you are talking to the best. But, if you honestly must know, I figured I would share the things I look for when interviewing new Loan Officers for our company.

License. I know it seems like a no-brainer, but believe me, you would be shocked at how many people try to pose as a loan officer prior to getting a license.

• Knowledge. You don’t necessarily need someone who knows every possible detail, but there is no excuse for blatant ignorance. Think of your own job, you probably don’t know every single thing there is about your industry, but you probably know more than the average joe. Look for the same in your loan officer
• Honesty. I realize it may be hard to gage, but you need to find someone who you are confident will be honest with you. Getting a home loan can be difficult, and there are many variables that can cause problems or require changes. An honest loan officer will be up front with you about the challenges—particularly when underwriting conditions make things difficult.
• Responsive. I have some client who expect a phone call at least twice each day with updates, but most simply want to be kept updated with any changes or progress. Look for a loan officer who is quick to respond to your calls and questions.
• Descriptive. Loans can be complex, therefore, it is always a good idea to have a loan officer who can adequately explain any nuances or variances that may be applicable to your loan. If they can’t make it crystal clear for you there is a good chance that it isn’t crystal clear to them either.

When all else fails, or if you just want to skip the headaches all together, drop me a line.

Troubles at Countrywide?

They may be the nations largest mortgage lender, but that doesn’t mean that countrywide is immune from problems. By now we all know about the Sub Prime Meltdown and the apparent bursting of the Housing Bubble—every time I turn around someone is asking me about what to expect and how we got into this mess. Well, that is another story all together, and perhaps some time I will write my thoughts (HINT: Stop Blaming the Loan Officers for bad loans—if your loan rep didn’t give it to you someone else would have). What caught my attention today was the article on www.cnnmoney.com about Countrywide and their new PR campaign.

Countrywide has probably been hit the hardest with negative perceptions. Everyone in the mortgage industry, me included, has wondered aloud if Countrywide will survive. Well, apparently they are tired of everyone looking for their weaknesses. I, for one, am excited to see what kind of spin they put on the current mortgage environment. It isn’t the fault of anyone at Countrywide that home values have soared and fallen, nor is it the fault of anyone at Countrywide investors on the secondary market have slowed in the purchase of mortgage notes.

But you can’t tell me that Countrywide didn’t at least suspect something. When you are the biggest in your industry chances are you have as good an idea as anyone as to what is happening, and what to expect. The question I would like to ask someone in the Higher-ups at Countrywide is this: If you knew what was happening, why did you continue with your own loose lending practices—which, by the way, the majority of “wholesale” lenders follow like gospel—instead of trying to remedy the problems, or at least warn someone?

For those who don’t think they had some idea, why in the world would Countrywide Chairman and CEO Angelo Mozilo cash in $138 million in stock options over the last year—Before the collapse?

Maybe this can be added to the “I’m not saying . . . I’m just saying file.”

First Time Home Buyer: Income

A challenge frequently faced by First Time Home Buyers is the ability to prove sufficient income. Typically, a younger adult or couple will wait until they have their first “real” job after college. In other cases, these individuals may have waited until they receive a more stable managerial role with their existing company. In cases such as these, as soon as the increased income arrives, the individual or couple feels that it is now time to find a home. Well, they are right. As those of in my Inner Circle will tell you, 75% of those who are renting would benefit more from buying a home now rather than later.

The problem with individuals like this is that income may be hard to prove. Here are some things to keep in mind if you or someone you know is in this situation:

30 Days income is crucial to prove. In most cases, don’t plan on closing on a new home until you can prove 30 days at the higher pay level.

1. A Contract or Working Agreement is helpful. In many cases, a simple letter from your employer or HR representative will demonstrate your stability.
2. If recently graduated, expect your transcripts to be required. If you are working in a field related to your degree, it is helpful to have your transcripts as proof that you were being productive even if your income was lower.
3. Bank Statements may help. In many cases it is useful to show 12 months bank statements. In these cases the underwriter is looking for the average monthly deposits. If you are self-employed, work on commissions, or have a secondary income that is hard to prove this may help.

Understand that if you are purchasing your first home there may be a few extra hoops to jump through, but don’t let that discourage you. Every home owner had to buy their first home at some point. And I can tell you, in almost every case, it is better to get into a home earlier than later.

REMINDER: For information on my next First Time Home Buyer Seminar give me a call, or email me. As always, you can reach me at 801-256-0904 or jayhart@cottonwoodmtg.com

OPTION ARM's and Minimium Payments

In spite of all the talk of “bad loans” recently, I still see large numbers of people who can benefit from one of the Cash-Flow Mortgage programs available. Sometimes referred to as an Option Arm or a Pick-A-Pay loan, these programs can provide great opportunities for the right borrower. The problem is that for the past few years Loan Officers have been putting every possible borrower into an Option Arm and selling the benefits of the minimum payment. Not everyone should have a Pick-A-Pay loan.

The Pay Option ARM is a loan that was created to allow homeowners to have more control over their payments, and therefore over their cash flow. I have a very informative report that I have sent to my Inner Circle with detailed information about how the Option Arm loans work, and how to tell if it is right for you. If you are not a member of my Inner-Circle, email me and I will add you, then you too can have the information.

Essentially, you are given payment choices each month. Each month you have the choice between four different payment options: A Traditional 30 year payment, a 15 year payment, Interest Only, and a Minimum Payment

The most important thing to remember is that if you make the minimum payment you are actually paying less than the interest due. In other words, you are deferring interest—or adding to your loan balance. For some this sounds horrible, yet for others it is a good idea.

As a general rule, if you fall into one of the following categories it may be worth considering the possibility of the Option Arm and the minimum payment:

1. If you are in a rapidly appreciating market
2. If your income will increase substantially over the next 3-5 years
3. If you don’t anticipate staying in the home for longer than 5 years
4. If you have another place to put your money, such as an investment or debt payments.

The key is to consider the possibilities. I have several clients who have saved thousands by utilizing these loan programs—but I will be the first to tell you, it isn’t right for everyone.

For more information, drop me a line. I would love to answer any questions you may have. As always you can reach me at jayhart@cottonwoodmtg.com.

One Way to Save Money on Your Mortgage

I know this sounds too simple, but you wouldn’t believe how frequently I remind people of the importance of paying their mortgage on time. If you only have enough money to pay one thing, let it be your mortgage. As detrimental as late payments of credit cards or car loans may be, nothing hurts worse than a mortgage late.

Additionally, make your payment by the first of the month. Yes, mortgages are due on the first of the month; Yes, lenders will have a grace period of anywhere from 5-15 days before they will access a late fee; And, Yes, technically, as long as you pay before you are 30 days late you won’t be listed as late. But you will have late payment fees. I had a client who called me needing to refinance. He told me he just needed an extra $150 per month. After talking, I discovered that in addition to his Monthly Payment he was paying $85 each month in late fees because he never paid until the last week of the month. I know it doesn’t seem like much, but $85 over 12 months is the equivalent of a monthly payment for many home owners.

And don’t forget that next time you look to purchase a home or refinance your loan; the payment history is a key factor in determining your interest rate. Zero late payments translate to lower interest rates, which typically mean a lower payment.

Well, that’s it for this week. Enjoy the weekend. Email me if there is a topic you want me to shed some light on. As always, you can get me at jayhart@cottonwoodmtg.com

After all: We Make It Easy . . . Every time!

Zillow is a Fraud

For Utah Real Estate, Zillow is a fraud. A great big hoax! If you are one of the 2.8 Million Americans who logged onto Zillow within the first month of its launch, or one of the countless others who have used the service since April, beware.

I know what you’re thinking: Are you crazy, I use zillow all the time, it’s not that far off. Well, I’m not crazy, but you are if you put any credence to what you’re “zestimate” tells you about your home.

Case in point, I just had my own home appraised by a licensed and certified appraiser. I used an individual with whom I have worked for years, he has over 25 years experience as an appraiser and I can assure you he is one of the most conservative appraisers out there (no worries of appraisal fraud and inflated values with this guy). His appraisal came in nearly 10% higher than then my “zestimate.”

Here is another example: I have a rental property in a nice neighborhood on the south end of the Salt Lake Valley. I had another Appraiser, one who tends to be more aggressive with values, appraise the property. His value, which I will admit may be a bit higher then I could ask on the market, came in $31,513 below the Zillow Value.

Of the 62 Million homes researched by Zillow, only about 40 million property records are detailed enough to provide the company with information needed for its “zestimates.” However, in practice, Zillow values do not appear to be consistent with recent sales trends and in some cases are equal to the assessed value assigned years ago at the time of a home's last purchase.

Look folks, just because your founder is the former CEO of Expedia.com (can’t you just hear the little expedia jingle in your head), and just because you were bankrolled with over $32 Million in Venture Capital Funds doesn’t mean you are qualified to hand out property values.

So here’s the thing, I use Zillow. I keep track of trends in my neighborhood or in neighborhoods where I am considering investing. I compare data from Real Estate Agents and Appraisers with similar data on Zillow. I use it as a resource, but it is only 1 resource out there.

If you want to know the value of your home your first stop should be to a licensed appraiser. This may cost you a bit, but you can be confident in the accuracy of the report. If you want to save some money, or you are just slightly curious, contact a Realtor—just be ready for their efforts to “earn” your listing.

If you must use Zillow, go ahead. But use it at your own risk. Remember, just because a web site tells you something doesn’t mean it should be taken as gospel.

LET ME LOOK INTO MY CRYSTAL BALL . . .

I cannot tell you how many times a day I am asked about the future of interest rates. Actually, I can. At least 5 times. Crazy thing is, I always give the same answer: I don't know! Truth is, nobody knows.

Last week, after the Federal Reserve met and lowered the Fed Rate by a half a point (0.5%) I started getting calls from people who were so relieved to be able to get a lower rate on their home. These same people were confused when I told them that since the Fed announcement we have seen interest rates increase.

So, here is my point: Most people have been mislead in their understanding of what causes interest rates. I have business owners, Financial Advisor's, Accountants, even people with their MBA's and PhD's who don't understand what determines interest rates. To be honest, many industry insiders and loan officers don't fully understand.

Now, I am not an economics professor, and I don't claim to know every aspect of the interest rate system, however, I am convinced that a little bit of good information goes a long way in understanding what is happening with interest rates. There are 5 main factors that affect interest rates: Supply and Demand, Monetary Policy, Inflation, The Bond Market, and The Federal Reserve. No one factor has a greater affect. In truth, all factors are related. When one struggles, the others react; When one is succeeding, the others react.

I wrote a report as a part of my 5 THINGS series that covers the 5 things affecting interest rates. In it I give some explanation of how those things I listed actually affect how much it costs you to borrow money. It's a good report, as those on my Inner Circle Email list will attest.

If you would like more information send me an email and I will send you the report (maybe at some point I will figure out how to link to the report from here, but hey, we just started this whole Blog thing--I am still learning how to post basic messages). Email me at jayhart@cottonwoodmtg.com

As always, remember We Make It Easy . . . Everytime!

Welcome to the 21st Century!

Well, I must admit, I have been hesitant to jump into the whole Blogosphere as of late. It seems like every time I consider something to make me more "cutting edge" I end up taking time away from my clients.

This time will be different. I really feel that I can use this blog to give more time to my clients. I decided that instead of spending a few hours every day responding to emails with important questions regarding the mortgage industry in Utah, I would take that same time and post information where more people can access it. Don't worry, I will still answer each of your questions, however, instead of sending the same email to multiple people each week I will try to post answers that can be beneficial to everyone.

For those of you in my email circle, don't worry. I am still saving the best information for your newsletters. Don't be surprised if some of the information you get in your emails is similar to what I post here, but don't worry I take care of my circle first!

In case you are new, or just stumbled across my page feel free to send me an email. You can email me at jayhart@cottonwoodmtg.com to be added to my email circle. Don't worry, I DONT SPAM. My Inner Circle receives periodic updates on the mortgage industry as well as access to my Special Reports with information that can save you thousands of dollars and years off the life of your loan. From time to time the Inner Circle will get special offers regarding refinancing for them or their referrals.

As always, if you have a question you can email me at jayhart@cottonwoodmtg.com or you can call my office at 801-256-0904.

And, of course, remember our motto: We make it easy . . .every time!