Are You Underwater?

Click on the title to link. This article says that 1 in 4 homeowners is "underwater".

Permit Fall Signals Housing Weakness

Click on the title to link. We believe it is premature and irresponsible for anybody to say we are out of this recession at this point. As we have said before, many of the positives out there are directly derived from stimilus efforts. Those are "false positives". And until they get the real estate market stabilized (and it is not even close) then we cannot and should not claim we are out of the woods.

Millions More Foreclosures Coming

Click on the title to link. This is nothing new, but another article on the continued wave of foreclosures that will keep rolling in. This will keep the real estate market in check.

Mortgage "Relief" Frustration

Click on the title to link. Did people expect a government originated "rescue" program to be smooth and easy? It is so rediculous what they want you to do to actually, possibly qualify for these "programs". Mainly, you must become late on your mortgage. So I guess those paying the mortgage, but struggling greatly, are screwed. It is like most government programs...good idea on the surface, but horribly executed and thought through.

The Foreclosure Breakdown

This was a very interesting statistical chart. I still think the major thing everybody continues to miss is that it was not so much sub-prime or 100% financing as much as stated income. Even still, the 100% financing problem arose due to the plummeting values and people just, basically, giving up and walking away. So I would be very careful to read into this that 100% financing is bad; I would take it with a grain of salt. The problem really stems from stated income loans and the floor falling out of home values. If you buy a house at 250K and it is now worth 150K, why stay? This is the rational of those affected by this. We are not seeing this so much here in ABQ.

The bottom line with all of this is what? If you are not working with a company that will educate you and advocate for you then you will get hosed. That is what we are here for. Call us and we will walk you through every step.

The Next Foreclosure Wave

Click on the title to link. It is funny because we were just talking with two of our closest friends about this at lunch. We are not near the end of the foreclosure wave, which is one of the reasons we contend the market is not even close to recovery. The peak of the recasting and coinciding payment shock has not even been reached yet. In other words, ARM's that have yet to adjust will not even peak until 2011. We may be underestimating the amount of those people who will already have walked away from their home, but this will still be a significant number that we think will further deepen the downturn in the real estate market.

Getting Things In The Mail To Refi?

Many of you are probably getting stuff in the mail making all these claims about rates and skipping payments. We continue to hear from our clients they are getting these things, and they typically talk about rates in the low 4's and getting to skip 2 payments.

Well, like you have heard before, if it sounds too good to be true then it probably is. You most certainly can get rates in the low 4's...if you are paying a fair amount in points and/or fees. And the whole skipping payments thing is just a ploy to get you to call. Any loan you do, no matter what type it is, you will "skip" at least a payment because you are paying interest at closing as part of your pre-paid fees.

Bottom line...if you care thinking about refinancing and want to see what reality is in an up front, honest, ethical way then you need to call us at 830-9685. Don't trust the letter you get in the mail, call us.

Don't Give Up

Click on the title to link. If you are like these people and ready to give up, call us first and let us talk it through with you. We are here for you and want to talk you thorugh all the options to see what is best for you. We have some possible alternatives for you so that you may not have to go down this road. It is a very, very last resort, and you need to chat with us first before you do anything so drastic.

Mortgage Bailout

So some of the details regarding this "housing rescue" came out today. As we had said, for those of you expecting help who are not deliquent or in foreclosure you are out of "luck" (although you should be very grateful that you are not in these situations).
It will be interesting to see how this works out. The servicer will get the DTI (Debt To Income ratio) to 38% (% of your income that goes to pay debt). The government will then pay to get it to 31%. But with rates so low there will be instances where they could not lower the rate enough. I guess they just adjust the loan amount? But, again, it is frustrating because those in these situations are being rewarded where as those of us who have paid the house are being penalized. There are cetainly people who will "deserve" this. But I also guarantee there are those working the system for this. We shall see...

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Socialist America?

Click on the title to link. Well, welcome to socialist America. We continue to slip into a socialist country at break neck speed. Here is our question about this proposed mortgage bailout plan, what about all those people who are also having a hard go with the economy who have made sure to keep their mortgage payment current? How does this give incentive for anybody to actually pay their mortgage? Why not just let it go so lenders will renegotiate to a lower payment? We are not saying we have all the answers, but this ain't it.

Broken Record

OK, I know we preach this all the time but...you MUST work with a lender who will educate you on your options, help you evaluate those options and help you analyze which option to choose that best fits your situation. We cannot express enough how critical this is.

We just had a person walk into our office from our sign. That never happens. Literally, that is the first time in probably 5 years someone has done that since we are 100% referral based. This sweet lady was working with B of A and wanted to shop. We ended up meeting for about an hour analyzing in detail her situation. Here are some of her quotes from this meeting: "You guys are not typical loan officers, are you?" "You really help people understand their options." "I had no idea I could do that." "So that's what that means. I never understood that." "I will make sure and send anybody I know to you guys."

We are not tooting our own horn here (well, maybe a little) but want you to understand that traditional lenders are not in the business of helping you get the best loan for your situation. Traditional lenders are order takers, you tell them what you want and they do it because speed is king. They want you in and out as quickly as possible so they can be on their way. Folks, good service is not good enough. You must expect and demand unparalleled service. Service so good that you leave the meeting as that company's advocate. This woman would have gotten into a loan that was expensive and unecessary. Instead she left knowing exactly what her options were, and will end up structuring this in a completely different manner than she even knew possible. There is not much more fulfilling than having a client leave your office having watched the light bulbs go off all over the place. What a way to start the weekend.

Good Video On Refinancing

Click on the title to link to a good video about the refinancing going on right now. We agree with them that these low rates are not at all what is going to get the housing market back on track. Refinancing is booming right now; buying homes is way down. But, as we have continued to say, now is a perfect time to be buying a house because rates are low, and so are home prices. If you were to wait too long then you may miss out on both. It is not like the housing market is pushing up right now, but it is a "perfect storm" for buying a house also.
For those refinancing, just keep in mind that now is not the cheapest time to refi. Rates are very low, the lowest we can remember. But you must pay a point to get those rates. When rates were this low a while back you did not have to pay points to get those rates. So they are low, yes. But not cheap. However, what is different about rates this time is if you do not pay a point then the rate is way higher. So when you calculate the break even point by using the payment savings vs. the loan costs it is interesting to see that it is virtually the same whether you pay the point or not since the rate goes so far up if you do not. That said, it is essential then (and makes the most sense) to pay the point because then you are also saving more money due to the interest savings. Make sense? If not, call us at 830-9685 and we will walk you through it.
Lastly, remember this, you cannot get hung up the costs associated with refinancing. What, you say? There are two major factors in refinancing, rate and payment. Sure costs are important; we are not saying to ignor that because then you are paying frivolous amounts. But you could be paying very little in costs and not seeing much of a difference in payment and rate. You have to analyze how much it will save you, of course. But probably more importantly is how long will it take you to break even on the costs of the refinance. It is critical that you understand the importance of looking at the big picture of what the refi will do for you in the long run, and do not get so hung up on the costs. If a mortgage costs you a rediculous amount, like 30K let's just say for arguement, but you are making up that cost in 12 months then who cares what it costs. Do you see? If you make up the costs in a reasonable time frame then the costs are not near as relavant because of the savings you will experience long term. There are many, many factors that go into this analysis. So if you want us to run through your scenario for you then get in touch with us.

What is the Real Cost of Financing?

Annual Percentage Rate (APR) is a tool that you can use as a starting point to compare loan programs. However, it's important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon. Thus why shopping for loans can be so difficult and frustrating.

The point of calculating APR is to let you know what the actual cost of your financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give you a clearer picture of what your actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.

Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.

Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing.

Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.

If all lenders calculated APR the same way, you could make easy comparisons when deciding on what loan program to go with. Since they don't, however, you should know that APR is simply a starting point for comparison. You should rely on our skills as a well-versed Mortgage Advisor to assist you in obtaining the loan that meets your specific needs. The more important things to consider are how long the loan is needed? What are your long-term goals regarding the house? If you only expect to stay in the home for five years, there's not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If, for example, a young couple is buying a home, knowing they will refinance in eight years to pay for their son's college education, then once again, APR is not a realistic factor to take into consideration.

Any loan person should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the "amount financed" listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. You will get a clear definition about the fees associated with your loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower. And, unfortunately, that is how most lenders like it. So give us a call and we will walk you through it step by step.

Not Too Many Options For Those With "Pay Options"

Click on the title to link to this article. This article is talking about those with "pay option" arms. In our opinion, these along with the drop in housing values are the two biggest reasons for this mess we are in (on a very macro level). We preached to peope, "Stay away from these loans". The problem is lenders did not educate their clients as to the full story on these bad boys.

Here is a run down of a pay option arm. You have the option to make four different payments every month. Remember the advertiing of 1.5% rates and stuff. Well, those were option arms. One of your options was to make a payment with that rate, a 30 year fixed rate (which was always way higher than the going rate), an interest only 30 year rate, or a 15 year fixed rate. The big, big problem with these loans was paying at a 1.5% rate meant your mortgage was actually growing because your note was not based on that rate but a higher one. So you were not covering all the interest every month and, thus, your mortgage would grow. Now for markets like CA, NV and AZ where housing values were sky rocketing, nobody cared. Unfortunately, when the market came crashing down those people were screwed for two reasons:

1. They were now way upside down on the house since the value dropped and their mortgage had increased.
2. The rates on these ARMS started adjusting and, suddenly, people could not make those payments because they did not realize how high the payment would go. So they thought, "I'll just refinance." Oh now you won't because the guidelines changed so fast that most of these people could not get a loan any more because they needed stated income. So what would they do? Walk and get foreclosed on; they literally had no choice because they were stuck.

A screwed up mess has sense unfolded, and this is a huge reason for it. Read the article and shoot us any questions.

The Foreclosure Mess, And We Can Help

Click on the title for the link to this article. It is talking about the fact that 1 in 10 people are behind on their payments by at least a month, or in outright foreclosure. We can help. If you know of anybody who is about to be late, is late or is in the beginning stages of foreclosure (pre-foreclosure) be sure and call us. We cannot necessarily save their house, but we can save their credit and get them in a house.

Reverse Mortgages

This is something we are learning more and more about. And we now have two people here in the office are are experts at it. This video is a bit cheesy, and don't you dare call these people because you will not get the experience through the process that you will absolutely get here. But check it out and call us with questions.

Some Helpful Loan Programs

We were just reminded of two programs we want to make sure you are aware of. Neither one of them is really new, per se, but we are not sure they are used much, and may help in the sell or purchase of a house.

One of the programs allows the seller to contribute up to 6% of the buyers monthly interest payments for up to six months. So the borrower would only have to pay principal, taxes and insurance with the bulk of their payment being paid by the seller due to the interest payments. This can really help the borrower immediately, can help the seller get the house sold by offering this and it can be recouped by the seller in the purchase price of the home.

The second program is similar, but will allow the seller to pay up to 6% of the borrowers PI payment (not just interest) for up to six months at 90% LTV. They can also go up to 97% LTV with the seller covering up to 3% of the borrowers PI payment for up to three months. Either way, just like above, there are benefits to both the seller and borrower.

Keep in mind also that this does not apply only in a situation where you are trying to sell your house. You can present an offer like this to a seller where the house may have been sitting for a while and they are motivated. Really any listed house will work. The key to any of this, as you well know, is educating all parties so they understand the net out can be the same. This is why working with a knowlegeable Realtor is key. Give us a call and we will refer you to one we trust.

We would be more than happy to discuss these programs in more detail. We are here to serve either way. Be blessed.

ARM Yourself Against Higher Payments

According to CoreLogic, nearly 300,000 subprime adjustable-rate mortgages (ARMs) were scheduled to reset throughout the summer months of 2008. For many borrowers, this meant higher monthly mortgage payments with a rate increase of 1 or 2 percentage points – or more in some cases – when their loan adjusts.
However, the peak month for the resetting of mortgages came this month (October) when, according to Credit Suisse, more than $50 billion in mortgages are scheduled to adjust to a new rate for the first time. If you or someone you know has an ARM, be proactive. Find out how much your payments will increase before your loan adjusts this fall.
Remember, while interest rate cuts from the Federal Reserve over the last year will definitely help some borrowers, many others could have trouble making increased monthly payments with food and fuel costs on the rise – especially if the Fed begins increasing its key interest
rates in order to fight inflation.
It's also important to note that credit guidelines have tightened dramatically in the last year or so, and it may be harder for you qualify for a fixed-rate product if we don't have enough time to address certain credit issues. So don't continue to wait if you have already. Give us a call today. We'll review your adjustable-rate mortgage with you and see what's best for your individual goals and needs.

"I Heard They Lowered The Rates Again"

This is a common call and statement we get whenever the Feds cut the prime rate. However, as the below article by Barry Habib explains, this does not necessarily equal lower mortgage rates. In fact it often has the opposite effect. This is a pretty technical article, so if you have questions do not hesitate to ask us. Also, it had all kinds of charts and graphs that we thought would be confusing. So when it references these just ignor that and keep going.

And Keep in mind that since Fannie and Freddie are now owned and operated by the government this may change slightly, nobody really knows yet. But the same principle applies for now.

"So the Federal Reserve cut rates again. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during recent 5 Fed rate cuts. In fact mortgage rates are now higher than they were before the Fed began cutting rates by in January. This is difficult to explain to many consumers who have watched a 2.5% reduction by the Fed with no benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.

Another common mistake is in thinking that 30-year Treasury bonds or 10-year Treasury notes are directly pegged to mortgage rates.

Those are government securities that are backed by the full faith and credit of the U.S. government and have no direct effect on mortgage rates.

So what are mortgage rates based on? As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.

We know that inflation will always be a negative for any long-term bond because it eats away at the future returns. Since the bond will pay a set amount over a long period of time, that amount will be less valuable if inflation is high. Over the past
several years, one catalyst that seems to be working in the opposite direction
of MBS prices is the Nasdaq and broader stock market.

As bond prices rise, interest rates fall. As bond prices fall, interest rates rise. The charts accompanying this article show the Nasdaq Composite Index and the Fannie Mae 6.5% mortgage bond tend to follow paths that are almost mirror images of each
other. The consistency of this behavior is astounding.

As the Nasdaq moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall.
Additionally, and unlike common opinion, Fed rate cuts have had virtually no
direct effect on mortgage rates. Moreover, it appears that since Fed rate cuts
act to stimulate the Nasdaq, they have a negative effect on mortgage rates.

The bottom line is that it appears mortgage rates will get better if the Nasdaq sells off and will get worse if the Nasdaq rallies. So it is not necessarily what the Fed does that affects mortgage rates, it's how the Nasdaq and broader stock market interprets the Fed's action that will ultimately influence the direction of mortgage rates. This is because money managers and mutual fund companies typically keep funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

On the chart of the Nasdaq Composite Index above, notice how the price movement higher on the Nasdaq seems to correlate to mortgage bond price deterioration (shown below) and vice versa. Once again, lower bond prices translate to higher mortgage rates and higher mortgage bond prices mean lower mortgage rates.

The chart below shows how the Fannie Mae 6.5% mortgage bond has performed during the same time period. The green circles indicate Fed rate cuts and the area circled in red shows when the Fed hiked rates.

A closer look at the 5 rate cuts by the Fed this year shows that mortgage bond prices deteriorated after each Fed rate cut. This means that mortgage rates rose after the Fed had cut rates while many consumers were expecting their mortgage rates to decline. Worse yet are the consumers who missed the opportunity to obtain a lower rate because they mistakenly waited for the anticipated Fed action to cut short-term rates, thinking that longer-term mortgage rates would decline as a result.

Predicting the future is tough, so nothing is written in stone. Keep an eye on the Nasdaq, and keep in mind that the best rates may be behind us. But, mortgage rates are still low and could have some quick dips so make the most of them while they last."

Bernalillo County Property Taxes

We had an email exchange with some people regarding a question about property taxes in ABQ. As some of you may have noticed, if you have bought a house in the last couple of years, your taxes probably (undoubtedly) went way up for no apparent reason. Well here is our response to the question sent to us, and what you can do about this problem.

Their Question?

"I don't know if this applies in the Albuquerque Metro area or not (South to Belen, the East Mtns, Bernalillo, Corrales, RR or Albuquerque proper). Do the property taxes vary between these areas? And are there site(s) online where you can put in an address and get an estimation of your property tax liability for buyers looking at various neighborhoods/cities?

(Out in California (where I live today) the taxes can vary dramatically depending on location, that is why I am asking this question)"

Our Response:

"Everything said here is correct (somebody else had already chimmed in here). It is going to be different from neighborhood to neighborhood. In fact, it is often way different from neighbor to neighbor now due to an idiotic tax law that was passed by our state (primarily Ben Lujan in 2001). The summary of this is...we used to be a non-disclosure state. We are now not full disclosure, but we have to certainly disclose more. One of those things is the value of a house when you purchase it.
The problem is they are unfairly hiking people's property taxes after they purchase a home. It is a huge ordeal that is now being fought at the State Legislature. I have clients where their taxes went from $2,500 to $5,000; they doubled. Yet their neighbors are grandfathered in because they already owned the house before the law passed. I can tell you from personal experience with clients that people have gone into foreclosure over this because they cannot afford the increased payment. And I had one client completely back out of a purchase because the taxes had just gone up from when the house was listed to when it was under contract (they learned it half way through the transaction).
If you or somebody you know is negatively affected by this you need to call State Representative Mark Bointano at 505-299-6275. He is spearheading this fight.
Lastly, regarding a website to visit for property tax info, click here and you will be taken to the Bernalillo County site where you can look up tax info on any home by address in Bernalillo County."