Feds just cut rates, should I refinance?

This is a question we get asked a lot, especially lately. The media has done the mortgage industry an injustice by promoting this without telling the whole story. What are even worse are the unscrupulous mortgage companies that try to advertise on the same lines, “Feds just cut interest rates, NOW is the time to refinance!”

Is a Fed rate cut really good news for mortgage rates? The answer may be surprising. The Feds can only control the Discount Rate (The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility–the discount window.) and the Fed Funds Rate (The federal funds rate, also known as the “fed funds” rate, is the interest rate charged when banks lend funds to one another. This is a short-term rate, or a rate that is two years or less in maturity.). This is very different from mortgage rates. Mortgage rates are affected by investors of mortgage-backed securities (Bonds). So our answer is no, if you have just read that the Feds have cut rates then it is historically not a good time to refinance.

So when is a good time to refinance? Only a professional Mortgage Advisor can truly help you with that question. One who watches the Stock Market and has their finger on the pulse of the industry. We pride ourselves in our ability to save our clients money by advising when and when not to refinance based on historical indexes and Bond Market activity.

If you have additional questions we welcome your calls (360.551.1819). Thanks for taking the time to visit.

Life After Bankruptcy

By Michelle S Garcia, Mortgage Advisor

Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.

Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.

One of the worst things people can do in this situation is to borrow more money to try and pay off their debts. On paper, this is clearly an unwise financial decision. In the real world, however, it is very common for individuals to pursue this strategy in an attempt to buy time and hold off on filing for bankruptcy. On the surface, this is certainly a noble notion; however it can often compound the problem and serves only to delay the inevitable.

For many homeowners in the midst of this upside down cash flow, speaking to a qualified mortgage professional is a much better option. An experienced loan officer can objectively look at your finances and help you determine if restructuring your mortgage would not only help, but possibly even alleviate any need for bankruptcy.

If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.

When filing for bankruptcy, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.

Here are some additional steps you can take to make the bankruptcy process as painless as possible:

• Save all paperwork regarding your bankruptcy, and keep it organized. This will prove beneficial after your bankruptcy as you now have all of the pertinent information in one place. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.
• Establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
• Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.
• Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.

Tips for Rebuilding Credit:

• If you must buy a car, focus on transportation as opposed to style. Buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what your budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
• Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Missed payments result in deductions from the account. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
• Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.

While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to you within a year or so after a bankruptcy. If you’re in serious financial trouble, the trick is to get the help and advice you need from professionals you trust.

How great is the Stimulus Package really?

After researching the Median Home Prices and doing a little math I was unpleasantly surprised. As usual, the media has done it’s job of blowing things way out of proportion and has blasted us with the hopes of a FHA Loan Limit increase to $730,000. I knew it was too good to be true but technically, if you are in the major metropolis of California or live in Hawaii you are pretty much good to go.

So how do we in the Puget Sound Region fare? Take a good look:

H.R. 5140 – Increased Loan Limits
State	CBSA/MSAD Code	CBSA/MSAD Name	Estimated Median Value	Adjusted Conforming Limits: 125% of max median price and <= 175% *current conforming limit
WA	42644	Seattle-Bellevue-Everett, WA	$394,700	$493,375
WA	45104	Tacoma, WA	$394,700	$493,375
WA		San Juan County	$381,884	$477,355
WA	14740	Bremerton-Silverdale, WA	$380,000	$475,000
WA		Jefferson County	$350,000	$437,500

Is this a bad thing? I think not. No matter what we will be able to help clients of ours with the slightly increased limits. Stop by and take advantage of our FREE Mortgage Analysis and see if we can save you some money!

NOTE: THESE ARE NOT THE OFFICIAL GUIDELINES FROM HUD. THE OFFICIAL CHART OF LOAN LIMITS WILL NOT BE DELIVERED BY HUD UNTILL 30 DAYS AFTER THE PASSAGE OF THE LEGISLATION.

Should I care about my credit score?

It’s not just banks and lenders that rely on credit scores to help make important credit decisions. Landlords, employers, insurance companies, and even cell phone and other utility companies all reportedly utilize credit scores to help determine their business and credit relationships with consumers. This means that your credit is the most important component of your entire financial portfolio. Because of this, monitoring and managing your FICO score is vital, especially if you’re looking to buy or refinance a home anytime in the near future.

The FICO scoring system was created in the 1960s by Fair Isaac Corporation and has been the standard for lenders since the 1980s. FICO credit scores typically range between a low score of 350 and a high score of 850. Under the FICO system, securing credit becomes less expensive for borrowers with higher scores (those who represent the least risk) and more expensive for borrowers with lower scores (those who represent the most risk). In fact, when it comes to a mortgage, a lower credit score could easily cost a consumer hundreds of thousands of dollars more in interest throughout the life of the loan, compared to the same loan with a higher score.

FICO Scores	APR	Monthly Payment
760−850	5.75%	$1,751
700−759	5.97%	$1,793
660−699	6.26%	$1,849
620−659	7.07%	$2,009
580−619	9.17%	$2,449
500−579	10.19%	$2,676
Source: Myfico.com (30 year fixed−rate mortgage on $300,000)

The above chart from MyFico.com clearly reveals the relationship between higher FICO scores and lower interest rates and monthly mortgage payments. According to Experian®, one of the three main credit bureaus in the US, FICO scores also accurately reflect “the likelihood of a borrower becoming delinquent on a loan or credit obligation in the future.” In other words, the FICO scoring model looks to the past to “predict” the future risk a borrower represents to a bank or lender, and then prices the loan accordingly.

Not long ago, a FICO score of 680 was pretty good. In a tough credit market like today’s, however, a 680 could be devastating to the bottom line of consumers looking to buy or refinance a home. In fact, thanks to Loan Level Price Adjustments (LLPA) from Fannie Mae and Freddie Mac, having less than a 720 in today’s credit environment will cost you big: up to a 2% increase in your interest rate! LLPAs are mandatory surcharges based strictly on credit scores. They are additional fees paid to Fannie Mae or Freddie Mac, not your mortgage professional. Analysts suggest that imposing these “penalties” is a blatant effort to recoup – and to help lessen further losses – on foreclosures. The surcharge could mean thousands of dollars for borrowers who do not monitor and maintain a good credit rating.

If you’re thinking about buying, selling, or refinancing a home, you have to be credit ready. Give us a call today for a free credit consultation. We’ll pull your credit and see where you stand. Remember, effective credit repair, if necessary, could take up to 3−6 months, so act now and be credit ready in no time.