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.