FHA Home Buyers Seminar

Written May 12th, 2008

Two of Kitsap County’s finest Real Estate/Mortgage professionals have teamed up to offer a “Home Buyers Information Seminar.” Please join Sara Maddux, Associate Brokerwith Reid Real Estate in Silverdale, Wa. and Michelle Garcia, Branch Manager and Mortgage Professional with Indymac Bank located in Silverdale, Wa. for a FHA educational class for Home Buyers. They will share information regarding how easy it is to finance FHA & the possibility of using gift funds as down payment & negotiating with sellers to pay buyers closing costs. Not only for first time home buyers, previous homeownership okay too.

Only 8 seats available, please call Michelle at (360) 692-2892 to reserve your spot today! The FHA Home Buyers Seminar will be held May 31st & June 28th from 10:00 am – 12:00 pm.

About Sara Maddux: In the course of a diverse 22 year real estate career working in mortgage, title, escrow and sales, Sara Maddux, has proved to be an all around skilled real estate professional. .Sara holds an Associates Broker license in real estate and is a Washington State appointed Notary Public. She is a designated Home Staging Professional (ASR) and also a member of Realtors and IAFSP (The International Association of Home Staging Professionals). She can be reached at (360) 509-5710 (direct) or at (360) 692-4175 (office). You can view her listings HERE.

Should I Continue Renting?

 It still makes sense to buy versus rent. The benefits outweigh the negatives. Plus, what a fantastic time to take advantage of so many homes to choose from!

Nearly a full third of households are still renting…but if you are one of them, you could be paying a hefty price. Additionally, the children of the baby boomer generation are close to or at the home buying age, but these “echo boomers” could mistakenly decide to put off the purchase of a home because of all the noise about a “bubble” in home prices.

Is there a “bubble”? The simple answer is “no”. Even if interest rates move a bit higher, it won’t be enough to cause a nationwide slide in home prices. The key to a healthy housing market is the job market. If the payment on a new home might be slightly higher due to increased interest rates, it generally won’t stop someone from purchasing the home of their dreams…but if they feel their job is in jeopardy, it might be enough to stop them from making a move. So with the currently low levels of unemployment and the beefy gains in job creations, it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains that much of the country has seen, price declines are highly unlikely. Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good.

It is important to note that housing tends to be localized. So if the job market in your area is weak, housing prices could under perform the rest of the country.

But this talk of a housing bubble has been going on for a few years now, and those who were unfortunately victimized by continuing to rent instead of purchasing a home are painfully mulling over their missed opportunity. But is it too late? Even with the more moderate levels of appreciation expected…procrastinating on that home purchase could cost you a bundle.

Let’s look at an example. If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.

And speaking of having nothing to show for it – how about any improvements you might make to a rental property? It’s not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what…all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.

With the extensive variety of programs to help buyers obtain a mortgage with little to even zero down payment, the very same money could have been used towards home ownership. Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment – including property taxes and insurance – of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.

And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage would be reduced to $279,000, adding $21,000 to your net worth. Home appreciation can add an even bigger chunk. If your home appreciates at a modest 5% per year, the value of a $300,000 home would increase to $383,000 after 5-years. Subtract the remaining mortgage of $279,000 and you have a whopping $104,000 of additional net worth! Even if the appreciation level were at 3.5% or half the historical norm, the result would be $77,000 of additional net worth.

But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.

Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the effect a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.

Don’t be victimized by the bubble hype. Buying a home is a big step, but it is almost always one in the right direction.

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.

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.

What does todays Fed Rate Cut mean to my Mortgage?

The Federal Reserve surprised everyone Tuesday with an emergency intersession rate cut of .75%, the deepest cut in the Fed Funds Rate since 1984. The Fed Governors are acting in direct response to recent reports that the country is on the brink of recession.

If you have credit cards, auto loans, HELOCs, or an Adjustable Rate Mortgage, the Fed’s decision to cut this key interest rate is great news. For long-term mortgage rates however, this could signal the beginning of the end for the lowest 30-year home loan rate borrowers have experienced since 2005.

Let’s look at the impact of a few recent Fed Funds Rate cuts and the corresponding impact to home loan rates to see what this could mean for you:

Period	Fed Funds Rate Cut	Impact to Home Loan Rates
January to June 2001	Down 2.25%	Rose 0.10%
October to December 2001	Down 0.75%	Rose 0.45%
May to August 2003	Down 0.25%	Rose 0.78%

Rates are predicted to be cut again when the Federal Reserve meets at the end of this month. Many believe Tuesday’s action was taken because of a dramatic downturn in the stock market, where the Dow dropped 464 points, the worst single day drop since September 11, 2001. Since the Fed’s announcement, the Dow has recovered much of those losses but volatility is likely to remain a consistent theme throughout the week.

If you are waiting for long-term mortgage rates to fall further from here, don’t count on it. Your best chance to lock in the lowest mortgage rates since 2005 is now. Getting your application in process will allow you to capture a rate near all time lows and, with many experts predicting home values could continue to decline, waiting could kill your chance to capture a great rate if your home doesn’t appraise.

This is an unprecedented market and things are moving fast. Regardless of your current mortgage, please give me a call so that we can review your current financial situation in light of these market movements.

Social Lending Sites?

You’ve heard of social networking sites like MySpace and FaceBook…but have you heard of social lending sites?

Over the past few years, several websites have sprung up that combine features of the omnipresent social networking sites, and commerce sites like eBay. These sites allow individuals to become either a borrower from or a lender to the online community. The website collects basic financial information from would be borrowers, as well as the intended purpose for the money. The site then posts a short profile of the borrower, so that other members of the community can choose to lend money to them or not.

The very first created was www.Prosper.com, which allows individuals to borrow and lend small amounts of money, for any variety of purposes. Recent posts include families wanting to start a small business and a father seeking to pay off his son’s medical bills…you can see their pictures and read their stories. The maximum loan amount is $25,000 – and lenders can borrow as little as $50 towards someone’s total desired loan amount, and determine what rate they are willing to lend at based on the individuals credit standing and risk profile. Prosper encourages lenders to fund small amounts towards many individuals loans, to help minimize risk of default. Why consider it? Although risk of default is certainly a potential – because these are generally individuals unable to borrow via more traditional methods – it is quite a learning experience, and the rate of return will be higher than via a traditional savings account.

Another similar site is www.Zopa.com – also a social lending site, but with a few key differences. If a borrower request is approved, Zopa funds it directly, raising funds by offering Certificates of Deposit (CD) to be purchased with attractive rates of return. If you purchase a CD, you are required to choose at least one borrower request to sponsor. By sponsoring a borrower you marginally reduce the interest rate earned on your CD, which in turn is used to reduce the rate that the borrower is paying. Best of all, your money and your rate of return is guaranteed and insured.

Perhaps the most intriguing of the social lending sites, www.Kiva.org is a blend of charitable giving and online lending. This site specializes in very small loans made to individuals in third world countries. The loans requests and photos are fascinating…who knew that a cow could be purchased for only $500, or that you could literally purchase tons of coffee and cocoa for $1000? The downside to Kiva is that the loan is not repaid with interest, and because it is a loan and not a charitable contribution, it is not tax deductible. But the upside – helping those in developing countries create and expand their businesses, provide for their families and improve their countries economy as a whole – well, this offers a substantial rate of return, just of a different type.

And consider getting your kids involved. Parents can use sites like these to help instill a sense of giving back, as well as a broader view of the economic world. Start with a small amount of money, and let them decide who to lend it to and why. When the loan is repaid, turn around and lend it again. It’s never too early to get kids involved in the process of understanding money, lending, and the world around them as a whole.

National Mortgage Licensing Registry Officially Launched

Written by: Chris Garcia, Team Business Manager
www.michellesgarcia.com

On January 2, 2008, the Nationwide Mortgage Licensing System (NMLS) was officially launched by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR). Based on the registry used to regulate securities brokers and dealers, the NMLS database, according to a presentation on its website, “is where state-licensed mortgage lenders, brokers, and loan officers have the ability to apply for, amend, update, and renew licenses.”

According to Forbes, “The [NMLS] database will include unique identifiers for each company, its branches, owners and loan officials. Similar to Social Security numbers, these identifiers will follow that firm or person throughout the industry.” Reports suggest that by next year, consumers will be able to check credentials of a mortgage loan officer or lender through this system.

Participating states include: Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York and Rhode Island. More than 35 states are reportedly slated to join by the end of 2009. In all, 42 states have signed a statement of intent to participate in NMLS, although NMLS anticipates participation from all 50 states eventually.While all states require that mortgage companies be licensed, licensing standards vary in each state. If you are a current licensee in one or more of these 7 “participating” jurisdictions, the NMLS says that you must transition your license information on the System according to the transition plan outlined for each state.

For more information, visit NMLS and watch its interactive overview presentation or call (240) 386-4444 from 9:00 a.m. to 6:00 p.m. EST.

To schedule an appointment with a Trusted Mortgage Advisor, please visit www.michellesgarcia.com to set an appointment.

What’s Going On?

Anyone watching or reading the financial news over the last few weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations recently. But why? What is happening, what does all this mean to you and most importantly… what should you be doing do right now to make sure you are protected?

Here’s the scoop.

Over the past several years, many loans were made to homeowners with somewhat non-traditional or “non-conforming” situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional “box” for home loans. These loans are often called “Sub-Prime”, or “Alt-A”, meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of “non-conforming” home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done – it’s called a “jumbo loan” – but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.

Most non-conforming loan product rates popped significantly higher recently. Here’s what happened.

The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise – partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher “risk premium” for taking on these pools of loans, as they see the rates of default are climbing higher.

But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans…and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a “liquidity crisis”, and is exactly what happened to American Home Mortgage – there was no mismanagement, but they simply got caught holding too many “hot potato” loans, forced to sell them at massive losses…and eventually they had to make the decision to close the doors and stop the bleeding.

Further, even when a lender is able to take some losses, they may be subject to a “margin call”. This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a “margin call” and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses…the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.

In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared – and likely over-prepared – for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can’t afford to take on any margin of risk.

What happens next?  The major damage is probably already done, and the present situation will likely settle out over the coming year.  Lenders will stop pulling products off the shelf, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize.  

But here are a few important things YOU should do right now:

ONE:  Even if you are not presently in the market for a home loan of any type, make sure that your credit standing is as solid as possible. Many people in the market for a home loan didn’t expect they would have a need, and didn’t plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side… why don’t we take a few minutes together and just make sure you are prepared, should a need arise down the road?  Call or email me right away.

TWO:  If you are in the market for a home loan, or know someone who is - understand that now is the time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true.

Your home and your financing are just too important, and times have changed. We are here to help and advise during these volatile times – and would welcome emails from you, your friends, family, neighbors or coworkers. Contact us at chris@MichelleSGarcia.com