Bob 's Blog

Mortgage Update November 16, 2009

Bob Chiodo (Equity Home Mortgage) — Mon, 16 Nov 2009 13:22:52 -0600

Estimated Rates for the week of November 16, 2009*

30 year fixed 4.50-4.75

30 year jumbo 5.50 to $500k; 5.75 - 5.875 above

7/1 ARM 4.00 - 4.25 various programs are available

FHA/VA 4.75 - 5.00

OR Vet 4.50 w/1.50 - 4.625 w/1.00

It's been a while since my last update but it's certainly not due to a lack of news in the mortgage world. As you can see, rates are still down and doing great. We all know that these won't last forever but we should remain in a narrow range for the next month or so. And since the 1^st time homebuyer tax credit was extended, I think buyers should immediately consider taking the necessary steps to get their first home.

I thought I would take a moment to talk about the impact foreclosures and the alternatives to foreclosure have on a consumer's credit. This is meant to be just a guideline - lenders can and will have their own rules and these rules change often. On the research that I have done, it appears that most lenders - as well as the credit bureaus - treat a foreclosure, short sale, or deed-in-lieu of as the same in terms of the impact it has on a borrower's credit profile. After speaking with an underwriter, it appears that FHA requires that a foreclosure or the alternative to be three years before new financing can take place. For VA, it looks like it is two years. Conventional is more convoluted. Per a recent Fannie Mae announcement, foreclosures have a 5 year time frame with additional requirements up to 7 years (principal residence only, 10% down and a 680 credit score). Deed-in-lieu of's are 4 years with additional requirements up to 7 years. It appears, however, that short sales have only a two year waiting period. Most of these rules do allow exceptions for extenuating circumstances - which, of course, is very subjective. Now, of course, all of these programs require certain credit scores - conventional being higher than FHA. If the credit bureau dings a consumer's credit hard for a short sale - as I heard that they do - the loan won't be able go through with the poor scores. So we are back looking at an FHA loan with the three year wait period. I have also heard that some of the banks are going after borrowers after the short sale is completed and requiring the borrower to cover the short fall. If the credit hit is considered the same and the bank tries to collect on the short amount, it makes one wonder why a borrower would do a short sale in the first place. In any of the above circumstance, the key thing for a consumer to do after completion of a foreclosure (or alternative) is to immediately start rebuilding their credit. Getting a secured credit card would be a great start and working with someone is specializes in this area could well be worth the time and effort.

For homeowners facing foreclosure in Oregon, the state recently passed a bill that requires lenders to meet with borrowers either by phone or in person to evaluate whether the homeowner qualifies for a loan modification. Oregonians should watch their mail for the new notice. They have 30 days to act from the date of the notice to request a loan mod. Once received, they should call their lender to set up a meeting, complete the request form provided in the notice and call 1-800-SAFENET and ask for a referral to a nonprofit foreclosure counselor to help with the modification.

There is a lot more going on then time and space warrant. Fannie and Freddie are about to tighten up on their debt ratios and FHA just published their new condo rules - spot approvals are still good through the end of January. Fannie just released their Deed-for-Lease program which will allow for homeowners to rent back their home after completing a deed-in-lieu of to Fannie. And, of course, a huge change is about to happen January 1 when the new RESPA guidelines take place. More about all of this later.

Thanks for reading and have a great week!

Bob Chiodo, CFP

Equity Home Mortgage, LLC

12550 SW 68^th Parkway

Portland, OR 97223

Ofc 503.670.7393

Fax 503.670.7062

www.ResCommLending.com

Apply Here

*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Credit scores, down payment, and other risk related issues may change the rate. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.

Mortgage Update

Bob Chiodo (Equity Home Mortgage) — Wed, 15 Jul 2009 13:44:41 -0500

*Estimated rates for the week of July 14, 2009

30 year conforming 5.00 - 5.125

30 year jumbo 5.75 to $600k

7/1 ARM 4.875 - 5.125 conforming and jumbo

FHA/VA 5.25 - 5.50

OR VA 4.75 w/1.50 or 4.875 w/1.00

Rates are down a little from my last report. We even had a few days last week with rates under five! It didn't last long but we are hoping that a new range is set - rates from 5.00 to 5.50. Based on the mixed economic data of late, many analysts are thinking that we'll stay in the low five's over the next month or so. No complaints here.....of course, market sentiment can - and does - change very quickly.

In my last report I discussed the petition that is out there to reverse HVCC. If you haven't signed it, please check the site out and add your signature. Here's the site: http://www.hvccpetition.com/ There is no question that the intention of HVCC is good but the outcome hasn't been. The process has slowed down transactions and appraisal fees have significantly increased. And, although the HVCC calls for portability of the appraisal, most lenders aren't allowing it. That places a limit on brokers being able to shop a loan.

In addition to regular 'forward' mortgages, my firm and I originate reverse mortgages. These products have also gone through a lot of changes recently. These are great products for the right people. There is a much improved fixed rate reverse mortgage on the market now. The rate is only 5.56% - this lower rate allows for more money to the borrower. And remember, reverse mortgages can be used for purchasing a home too.

Recently, FHA has announced some major changes in their condo approval process. These changes are effective in October. Looks like the spot approval process is going away. Also, the list that we use for approved condo's is changing. It appears that anything on that list approved from October of 2008 is valid but all the others (and there is a lot of them) need to be approved again. When this occurs, we will all have to recognize the additional time and expense in getting the projects re-approved.

Speaking of changes, Freddie Mac just posted a bulletin last Friday which will significantly change some of their underwriting guidelines. Given the market that we are in, these changes aren't designed to loosen up things. Although these changes are mostly effective for applications dated October 1, 2009, lenders are recommended to begin implementing these changes immediately. I'll update you on the significant changes as we become more familiar with them. Why do I think we will see a similar memo from Fannie Mae? Thank goodness we are all adjusting very well to change. I think, in a past report, that I said that we need to embrace change instead of fighting it. Isn't it great that we have so much to embrace!

With all of the changes coming along, I would think that those buyers that are still on the sidelines would want to take advantage of the current market. Rates won't hold at this level for that long and we have just a few months until the first time buyer credit expires.

Have a great week!

Bob Chiodo, CFP

Equity Home Mortgage, LLC

12550 SW 68th Parkway

Portland, OR 97223

(503)670-7393

fax: (503)670-7062

bobchiodo@equityhome.com

www.ResCommLending.com

Weekly Update April 6th, 2009

Bob Chiodo (Equity Home Mortgage) — Tue, 07 Apr 2009 17:28:48 -0500

Estimated rates for the week of April 6, 2009

30 yr conforming 4.625

30 yr jumbo 5.750 (to $600,000)

7/1 ARM 4.875 (conforming and jumbo)

VA/FHA 5.000

Rates are still great. Anything that starts with a four in it is fine with me! You may notice that I have removed the Oregon State Bond loan and the Oregon Veterans Loan from the rates. The Bond program has stopped taking new applications. They mentioned in an email to us that, if they went to the market to borrow more money to lend, the rates would have to be higher than the current conventional rates. Rightfully so, they didn't see much of a point in it. Although the Oregon Veteran loan has funds available, their rates are higher than the current VA rates. And since the Oregon program requires mortgage insurance as opposed to the Federal VA's funding fee, I thought it better just to list an estimate for current FHA/VA rates.

Looks like the Making Home Affordable program is just starting to get underway. This will allow a borrower to refinance an existing loan that is owned by Fannie Mae or Freddie Mac to a lower rate even if the equity position has decreased. For the most part, the costs are the same as a regular refinance but there is a lot more flexibility. For instance, if a borrower originally put 20% down but now find themselves over 80%, the new refinance will not need to have mortgage insurance. Each agency has their own rules. To find out if the loan is owned by Fannie or Freddie you can use the following web sites:

http://loanlookup.fanniemae.com/loanlookup/

https://ww3.freddiemac.com/corporate/

Most originators can refinance a Fannie Mae owned loan. The Freddie Mac owned loans need to go back through the mortgage servicer. However, brokers may be allowed to broker those loans back to that servicer. Since my company has a relationship with Wells Fargo, I can send both the Fannie and Freddie refinances to Wells.

I have said many times before that there is money out there to lend. But there are still some underwriting changes occurring. Debt-to-income ratios are tightening up. On loans over 80% of value, we are seeing the mortgage insurance companies and the lenders reduce the maximum debt ratio to 41-45%. For most of our clients, this doesn't hurt at all. The vast majority of people I do business with actually qualify for a lot more than they can afford. There are those special circumstances, however, that the lower debt ratios will hurt.

One quick reminder about FHA reverse mortgages. The loan limits have been temporarily increased to $625,500. This will allow those in the higher priced homes to tap more of their equity than current limits.

To end today's report, take a look at the following paragraph. Through the course of a week I receive and read a lot of different analyst's reports. This paragraph comes from Sigma Research, it's the Shirmeyer Rate Market Report (sigmaresearch@earthlink.net). There is a very wide consensus within the market that rates will have to increase. Pay particular attention to the last sentence....and get the word out, especially to the first time buyers.

"Today estimates from UBS, one of the 16 primary dealers, said over the coming month, the government will auction 10 securities and raise roughly $215B, more than net Treasury borrowing for all of the 2007 fiscal year. Just in the past two weeks, including the 2 auctions coming in the next two days, Treasury will have sold a total of $192B in notes---not including issues with terms less than 2 yrs. A massive hurdle for longer term rates to overcome, and likely will keep interest rates from declining much. And that isn't the end; the longer the US economy is in recession the more Treasury will borrow. Looking way out (after this recession bottoms) interest rates are going to climb rapidly as the deficits amount to unimaginable % of GDP. Now is the time to buy a home or secure long term debt rates."

Have a great week.

Bob Chiodo, CFP

Equity Home Mortgage, LLC

12550 SW 68th Parkway

Portland, OR 97223

(503)670-7393

fax: (503)670-7062

bobchiodo@equityhome.com

www.ResCommLending.com

*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Credit scores, down payment, and other risk related issues will change the rate. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.

Weekly Update March 17, 2009

Bob Chiodo (Equity Home Mortgage) — Tue, 17 Mar 2009 17:14:19 -0500

Estimated rates for the week of March 17, 2009

Conforming 30 yr fixed 4.75 - 5.00

Jumbo 30 yr fixed 5.75 to 600K

7/1 ARM 4.75 - 5.00 jumbo and conforming

Oregon Bond 4.50 conventional and FHA

Oregon VA 5.25 w/1.50 or 5.375 w/1.00

Rates aren't moving much - they are staying in a very tight range. My guess is that we will continue to see this range throughout the year. Looks like the market is thinking that the Fed likes the 3.00 (or below) rate on the 10 year Treasury. That's keeping our mortgage rates steady. Personally, I am very happy to see the rates stay in this range. Getting a rate with a four in front of it is great. The longer it lasts the better.

We have been seeing the beginning signs of an end to this recession. Housing starts throughout most of the country were up big - here in the West they down though. Better for us to get the inventory levels lower. The stock market may have put a bottom in. We are up about 10% from the lows and hit a monthly high today. We have had a number of the 'too big to fail' banks state that, so far this year, they are profitable. That's a good sign and one that hopefully means they could start lending more. The current 'mark -to-market' policy is up for a revision. That will definitely help the banks with their profitability and their desire to increase their lending. And yesterday it was announced that as part of the Financial Stability Plan, among many other items, there is now the ability for small business owners to carry-back their losses for up to five years, effectively allowing them a rebate on taxes paid in previous years. That could put some money into the hands of the self-employed. You add all of these together along with Mr. Bernanke's recent comments and one can see that things are starting to get better.

As for our mortgage business, it looks like most of the lenders are finally getting caught up. Transactions can be difficult but they are getting done. The Administration's Home Affordable program should be out to the masses soon and there's a good chance that it will prevent many foreclosures. Come April 1, FHA will limit cash-out refinances to 85%. There is talk about some mortgage insurance companies restricting debt-to-income ratios further for the loans that they insure. Looks like some will max it out at 41%. All the more reason to accept FHA financing - remember that FHA now goes to $417,000 in our tri-county area. As far as appraisals are concerned, it looks like the new Home Valuation Code of Conduct will be out and enforced in May. Come April 1st, all appraisals on Fannie and Freddie loans will be required to complete a Market Conditions Addendum. This form requires much greater detail on current marketing times, absorption rates and inventory analysis. Although I haven't heard from any appraisers, I wouldn't be surprised to see an increase in their fees and a small delay in the completion of the report.

That's all for this week. Please feel free to email or call if you have any questions.

Bob Chiodo, CFP

Equity Home Mortgage, LLC

12550 SW 68th Parkway

Portland, OR 97223

(503)670-7393

fax: (503)670-7062

bobchiodo@equityhome.com

www.ResCommLending.com

Weekly Update November 17, 2008

Bob Chiodo (Equity Home Mortgage) — Tue, 18 Nov 2008 19:33:35 -0600

Estimated mortgage rates for the week of November 17, 2009

30 yr conforming 5.750 - 5.875

30 yr jumbo 6.25% to a $600k

7/1 ARM 5.625 - 5.750 Conforming and jumbo

OR State Bond 6.250 FHA and conforming

OR VA 5.875 + 1.00/5.750 + 1.50

As you can see, rates are holding steady. We have seen rates come down a little over the last few days. Loans are still being made. In fact, the service levels are some of the best we have seen in a long time. We were able to close a transaction - from start to finish - in 6 working days. Considering that the last day was to have the deeds record, we really did it in five days!

News in our industry has been centered on borrowers' qualification standards, in particular, debt-to-income ratios and paperwork requirements. We are all aware that stated income loans are a thing of the past. However, both Fannie and Freddie have allowed us to use limited documentation for many of our better qualified borrowers. Looks like that is changing. Both agencies have announced elimination of reduced/minimal documentation and verbal verification of employment. Standard documentation will apply come the middle of December. This shouldn't have much of an impact for most of us. Many lenders have already moved in this direction and many loan originators (myself included) have already been requesting full documentation of income and assets.

The reduction in debt-to-income ratios will cause more concern, however. Freddie is implementing a maximum of 45% debt-to-income ratio (there is no word from Fannie or FHA as of this writing). Combined with more stringent documentation requirements, we can see that some borrowers won't be able to qualify for a loan that, just a month or two ago, they would have easily qualified. Not to be repetitive but we are back to the old days...again. I remember working with many clients over a three or six month period - even longer in some cases - to get them to be in a position to qualify for a loan. Helping clients make a budget, figuring out ways for them to pay off debts - and the right debts, trying to them to save money....these are things we all used to do. Personally, I enjoy assisting people in managing their personal finances. It does take more time but, thankfully, that is something that we have plenty of.

Have a great week!

Bob Chiodo, CFP

Equity Home Mortgage, LLC

12550 SW 68th Parkway

Portland, OR 97223

(503)670-7393

fax: (503)670-7062

bobchiodo@equityhome.com

www.ResCommLending.com

Weekly Update October 13

Bob Chiodo (Equity Home Mortgage) — Tue, 14 Oct 2008 20:01:34 -0500

Estimated rates for the week of 10/13

30 yr conforming 6.25-6.50

30 yr jumbo 6.125 to $600k

7/1 ARM 5.625 - 5.75 for jumbo too

OR State Bond 5.750 Conventional or FHA

OR VA 5.50 but we hear it could increase very soon

As you can see by the above, rates have moved up. We have two competing themes for the rate markets. The first is the slowing U.S. and world economies. That should be helping to ease rates down. The opposing side is that the U.S. Treasury needs to borrow a lot of money to fund the recent legislative bills. Treasury has to come up with around a trillion dollars. Using those basic Economic 101 principles of supply and demand and that interest rates determine the price of money, rates have to go up. So far, the latter is what we are seeing. It's still extremely volatile out there but it does look like we have turned the corner on the panic in the financial world. There is still much work that needs to be done but at least the light is back on at the end of the tunnel.

Let me assure everyone who reads my Update that we are still able to close loans. Although underwriting guidelines have gone back to the old days, we haven't had any issues on getting the money to close transactions. None. The mortgage business is still fully operating and "business as usual' is what we see. With the events that occurred over the weekend, many pundits are thinking that the worse is behind. Still too early to call but it definitely appears that way. It looks like all of the developed countries (and many of the less-developed countries) are all on the same page now. There is no question that the events of the last few weeks are destined for the history books and that there will be significant changes as to how the business world will operate. With that said, I for one am done dealing with all of the stress that this has brought on. It's time to go back to business and do what we all do best! I think it's also time for us all to take a refresher class on the basics. Regardless of what business we are in, we all need to focus on those basic business principles that we first learned....good customer service, personal discipline, and hard work.

Enough of the pep talk speech. Have a great week.

Bob Chiodo, CFP

Equity Home Mortgage, LLC

12550 SW 68th Parkway

Portland, OR 97223

(503)670-7393

fax: (503)670-7062

bobchiodo@equityhome.com

www.ResCommLending.com

*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.

Weekly Update September 29, 2008

Bob Chiodo (Equity Home Mortgage) — Mon, 29 Sep 2008 20:27:51 -0500

Estimated rates for the week of September 29, 2008.

30 yr conforming                                           5.750 - 5.875
30 yr jumbo                                                  6.125 to $600k
7/1 ARM                                                       5.875 - 6.000
OR VA                                                          5.500
OR State Bond FHA                                        5.750

Obviously, most of the news today surrounds the House of Representatives failure to pass the bill that would have re-capitalized our financial system. Investors around the globe showed their displeasure by dropping stock prices in a very dramatic fashion. Hopefully, many of those who opposed the legislation will now understand what's involved if this bill - or one similar to it - is not passed. And it needs to be sooner and not later.

I have been asked a number of times today whether we can lend money. As I mentioned last week, there is still money out there to lend and we are finding it. The recent turmoil hasn't made it easier but we - and many other lenders - are still at it. Rest assured, if the buyer/borrower is qualified, we can get them financing.

For those who want to understand the how's and why's of the recent turmoil more than the local news can give you, I have attached an article for you to read. It comes from a gentleman who has an excellent grasp of the situation. It can be a little difficult at times, but it does a great job of covering how we got here and where we are going. It's from John Mauldin, Best-Selling author and recognized financial expert, who is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

****Since I can't attach the document to this blog, please email me and I will forward it directly to you. Sorry for the inconvenience.****

Of course, his isn't the only opinion of where we go from here....especially since the bill didn't pass the House. I am currently reading another analyst's opinion that states that it could be good that the bill didn't pass. Here is a quote from his letter : "Congress would be much better advised to take the extra few days or week it would take to structure a plan that the world is going to have to live with for a very long time" (1) Personally, I hope that Congress passes the bill and then allow the necessary regulation of Wall Street to follow.

Although the financial news is very unsettling, we will get through this. It will take some pain but we will come through it stronger and better. Don't let the financial issues of today take any more control of your life than necessary. Maintaining good personal health, keeping family relations strong, and doing the right thing for your clients and yourself is where our focus should be. Thanks for reading!

Bob Chiodo,
Equity Home Mortgage, LLC
12550 SW 68th Parkway
Portland, OR 97223
(503)670-7393
fax: (503)670-7062
bobchiodo@equityhome.com
www.ResCommLending.com

*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.

(1) Michael Lewitt of Hegemony Capital Management. Article titled "Haste Makes Waste" as printed in John Mauldin's Outside the Box. Vol 4, Issue 48, September 29,2008.

Weekly Update

Bob Chiodo (Equity Home Mortgage) — Tue, 08 Jul 2008 17:49:32 -0500

*Rates:

30 yr conforming 6.125

30 yr jumbo 6.625 (to 600k)

7/1 jumbo 5.875

OR VA 5.50

State Bond FHA 5.75

We are seeing some nice improvement in rates so far this week. After some negative comments from Lehman Bros about Fannie and Freddie on Monday, everything is looking better today. A regulator was quoted that Lehman's comments "make no sense". That's helped the rate markets along with a nice two day drop in oil prices and a corresponding increase in the value of the dollar. Let's hope a trend is starting to occur!

NAR reported pending home sales were down more than expected (4.7% actual vs. 3%) but I think most of us in this business already know that. We are seeing some very good buys come across our desk. Although it's tougher to qualify for financing, we are definitely seeing some excellent buying opportunities in our market.

Now for some changes: Fannie has announced effective with applications dated August 1, 2008, that their rules on converting a principal residence to a rental property are changing - and it's a big change. It's been typical in our industry that if you have a client who wants to purchase a home but hasn't sold their existing home and can't qualify for both the new and existing mortgage payments, the buyer would supply a rental agreement on the existing home. Lenders would typically use 75% of the rental income to offset the existing house payment. That dropped the buyer's total payments and made the debt-to-income ratio fit guidelines. It's been done a million times. But....come August 1st, it all changes. To use the rental income, lenders will need to legitimately calculate that the buyer has 30% equity in their current residence (using an appraisal, AVM, or BPO). Additionally, a copy of the executed rental agreement plus verification of receipt and deposit in the owner's account of the security deposit. If you can't verify the equity and the security deposit, the buyer will have to qualify for both house payments. Reserve requirements are also increasing in these situations. There is no question that this will make it tougher for some of our buyers to qualify for their new home. If you have a buyer that fits this description, get them in now. I'm certain that this new policy is trying to prevent those homeowners who are upside down in their current home from purchasing a new home and letting the existing one go into foreclosure. Freddie Mac hasn't made this change but, as is usually the case, will probably follow suit.

For some of my readers, please note that with almost 30 years experience in the Real Estate and Lending fields, I am well versed in many areas of our business. Keep that in mind if you ever have the need for a speaker to come out and address your group. I would be happy to accommodate your requests.

Final comments from one of the analyst reports that I receive:

There is continuing chatter from The Street that GM may file for bankruptcy; that would be a difficult thing to accept for those older than 45 0r 50. GM in the days of yore was considered the embodiment of US industrial and manufacturing strength and prowess, the envy of the world in the 50s and 60s. Sitting here thinking of the possibility is a very unsettling thought. The economic world has changed and the US is no longer the leader of the economic parade---except in spending.

Have a great week!

Bob Chiodo, CFP

Equity Home Mortgage, LLC

12550 SW 68th Parkway

Portland, OR 97223

(503)670-7393

fax: (503)670-7062

bobchiodo@equityhome.com

www.ResCommLending.com

*Rates quoted are for the use of Realtors and others in the real estate/financial service industries. They are not meant to be a quote for an individual situation. Rates change daily and those above are only listed to assist market participants by keeping them informed of current interest rates. Quotes are usually shown for a 30 day lock period and a 1% origination or discount fee.

Back from Italy with THE report..

Bob Chiodo (Equity Home Mortgage) — Wed, 02 Jul 2008 15:42:43 -0500

Rates:

30 yr conforming 6.125

30 yr jumbo 6.625

7 yr ARM jumbo 5.75

OR VA 5.375

I apologize for another late Update but I just returned from a 2 week vacation in Italy with my son. A high school graduation and college send off gift for him (and me). Time sure flies by. Wasn't it just yesterday when he entered school? I'll talk a little more about the trip in future updates but we had a great time.

I am almost caught up on my emails and all of the analyst's reports that I receive. Looks like over the last two weeks the market's volatility remained intact. Interest rates benefitted from the drop in stock prices. The analyst's call these "safe haven' moves. When stocks prices are dropping, traders sell stocks and buy bonds with the proceeds thus helping to drop the rates. One report suggested that if the stock market recovers, interest rates would jump a 1/4 of a percent. Personally, I don't think another 1/4 or even a half of a percent increase in rates will hurt our market. From a historical perspective, rates would still be quite low. There are signs that the housing market is strengthening and that the bottom might have passed. There are some very good buys in real estate today and we are starting to see some savvy buyers and investors enter the market. We still have a ways to go though to work through the inventory levels and the foreclosures.

The Fed met last week and didn't change the rates - that's what the market anticipated. All are curious as to when they will start increasing the rates. There is a lot of opinion as to whether they should increase rates or not. Increasing rates will help strengthen the dollar and help to ease the price pressure on oil and commodities, yet it could hurt employment and our business, in particular. This topic can be a very confusing and complex issue. Since I don't have any input with Mr. Bernanke, we'll just wait to see what he and the Fed does.

I hope everyone has a great and safe 4th of July. I'll tell you this, you can gain a greater appreciation for our country (especially the Northwest) when you spend some time outside of it.

...THOUGHTS?

Good Faith Estimates cont. (part 3)

Bob Chiodo (Equity Home Mortgage) — Wed, 25 Jun 2008 16:43:03 -0500

*Rates:

30 yr conforming: 6.25%

30 yr jumbo: 6.625% (to $600k)

7/1 jumbo: 5.875%

OR Vet: 5.50%

State Bond FHA: 5.75%

This installment of comparing Good Faith Estimates strays from its main theme but covers a topic that all borrowers need to understand. Look at the below loan quotes and decide which is better (let's assume that the garbage fees are similar).

6.00 with 1 point; 6.125 with 0.50 points; 6.25 with 0.00 points.

As you will recall from my first installment in this series, since .125% in rate equals .50% in points, all three of these quotes are pretty much the same. So which one is best?

The answer isn't a simple one because it depends on a number of factors. You can over-analyze this too and, believe me, I have done that. Let's first look at a what I call a cash-on-cash comparison. Assume the loan amount is $200000. The first option has a payment (fully amortized) of $1199.10 with a point cost of $2000 (1%). The 2nd option is $1215.22 w/cost of $1000, the 3rd is $1231.43 with zero points. The difference between each option is $16 per month for every $1000. Take that $1000 divided by $16 and it takes 62 months to break even. That's a little over five years. This is a very simple analysis. So I always ask client what would you rather have - a payment of $32 more per and $2000 in the bank or vice versa. The problems with this analysis: the lower the rate the more that goes to principle at the beginning of the loan. The first option has about $199 going to principle, the 3rd option has $189. That can impact the breakeven point. Tax deductions play another role. The first year deduction will be much better with the first option on purchase loans (assuming you deduct all of the points up front - on refi's you usually amortize the points) but in subsequent years the deduction will be lower (since the rate is lower). Opportunity cost of the money paid up front can come into play. If you spend the $2000 on the points, it's gone. If you kept it you can earn some interest on it. More importantly, if you kept it and needed it later to spend and didn't have other funds you might need to resort to using a credit card - which obviously has a much higher rate. That is one main reason why we tell our clients that we want to see them keep money in reserves after buying a home. I'd rather see a client take the higher rate and payment and keep the $2000 in the bank if that was all they had.

On a purchase loan, having the seller pay costs can impact this decision. It might make sense to use the seller's money to buy the lower rate. Obviously, the borrower's monthly budget needs to be taken into consideration. Can they handle the higher payment. Normally it's not that big of an issue but what if the buyer is buying at the very top of his or her limit?

As I said before, you can over analyze this - and I pretty much did with all of the info above. I tell clients if they get confused then take the middle ground - the .50% point option. That's easy. But, if they are only going to keep the loan for a short time period (less than a couple of years) then the zero option is always best. As always, send me a note if you have any questions.

AHHH! The return of the "Good Faith Estimate" post!!

Bob Chiodo (Equity Home Mortgage) — Wed, 18 Jun 2008 16:02:07 -0500

Rates:

30 yr conforming 6.25%

30 yr jumbo 6.625%

7/1 jumbo 5.75%

OR Vet 5.5%

OR Bond FHA 5.75%

There is still a lot of volitlity in the market place. The rates down a little off of this weeks high. We are still expecting the Fed and ECB will lead the way to higher rates in the future, we don't look for any central bank to begin tightening until later this year. The action in the bond market yesterday and today is taking back a lot of the selling that was instigated by the view last week the Fed was about to move.

In this week's installment on Good Faith Estimates (GFE) I am going discuss my take - and that's my take only - on Annual Percentage Rate or APR. First of all, I think that the APR, even though it's a regulatory requirement, is a terrible way to compare loan programs. APR's are very difficult, if not impossible, to calculate without a computer. In fact, I don't know anyone in our business who can calculate an APR by using only a calculator. I have been in this business for almost 30 years and, although I learned how to a long time ago, I can't calculate one without my processing software program. I would say that most in our business don't truly understand what goes into the calculation and how it relates to the Truth-In-Lending form. To me, though, it doesn't matter. The last two previous Weekly Updates clearly explained how a borrower should compare GFE's and not once did I mention APR's. I think that most in our industry understand that the APR disclosure needs to change but getting a consensus on how it should change has been very difficult to accomplish.

A couple of problems with the APR. As I previously mentioned, if most don't understand how then APR is calculated, then how can they tell if it is accurate and what changes it? The APR takes certain costs and fees charged on a loan (Prepaid Finance Charges) and includes these certain charges into an amount called Finance Charges (which also includes the interest paid on the loan over it's term). These Prepaid Finance Charges are removed from the loan amount with the remainder being labeled the Amount Financed. Then the Finance Charges are calculated back into the Amount Financed and you get your APR. Sound confusing? You betcha! There are things that will change the APR. Prepaid interest can change the APR - which means that the date the transaction closes will change it. What we estimate for some third party fees (escrow charges) will change it. I do primarily purchase transactions. If the seller contributes money to the buyer's closing costs, this will change the APR. I just ran one scenario where the seller paid most of the buyer's closing costs (this happens frequently) and the APR came back lower than the actual interest rate. That's because the seller paid an amount in excess of the prepaid finance charges - part of the closing costs aren't considered Prepaid Finance Charges.

YOUR THOUGHTS?

Good Faith Estimates and "Garbage Fees"

Bob Chiodo (Equity Home Mortgage) — Wed, 11 Jun 2008 17:19:09 -0500

Rates:

30 yr conforming 6.125

30 yr jumbo 6.375 (to 600k)

7/1 jumbo ARM 5.625

OR Vet 5.250

State Bond FHA 5.625

As you can see, we had an increase in rates for conventional loans. The bond market dropped over the last few days taking mortgage rates up. I mentioned a few weeks ago that ARM's were much lower than 30 year fixed. The big rate difference has changed. With our Fed commenting that they are more concerned with inflation rather than the economy, the Treasury and rate markets jumped. Especially at the short end - and that is where the 3 and 5 year ARM's are priced. This week's consensus is that rates will start a new range - from 6.00% to 6.50%. Of course, that consensus can change next week.

Underwriting guidelines are still being restricted but we are hoping that we have seen the end of the tightening. Fannie and Freddie recently announced their changes and the MI companies have already announced theirs (some of the effective dates aren't until next month). Hopefully this is the end for them as there are signs that things are stabilizing. The recent pending sales report from NAR showed an unexpected large jump and a foreclosure report showed that the rate of foreclosures has slowed two months in a row. This is leading many to think that the bottom, if we are not already there, is just around the corner. Some of our lenders, however, have placed new restrictions on their guidelines. One large national bank has just announced loan-to-value restrictions (max. 90%) for our Tri-County area and another national lender has cut their second mortgages down to a max of 85%. We will still see some tightening by individual lenders but most of us think that the big guys (Fannie, Freddie, et al) are finished.

This installment on my Good Faith Estimate (GFE) theme deals with what I call "garbage fees". Personally, what I call garbage fees are all fees charged by a lender or broker that are not points. As you may recall from last week's discussion on the different terms used for points (origination, discount, mortgage broker fee), I consider points as part of the interest rate comparison. Garbage fees have many, many names. Some are very legit, others are ways to increase the bottom-line (for the lender, of course). Fees for credit reports, tax service and flood certs are legit. The total of these are usually about $100 or so and are charged by practically everyone. Appraisal fees are part of this too but those can range from $150 - $600 or more, depending on the type of transaction. Title insurance, county taxes and recording fees, total escrow charges, property taxes and hazard insurance costs are from third parties. These charges often show up as different amounts when comparing GFE's but these are just estimates of what others will charge for their services. When comparing a GFE, these latter charges shouldn't be included in your analysis. When a GFE is completed, we lenders estimate what these other service providers will charge. Regardless of our estimates, those other providers will charge what they need for their services. Typically, lenders have nothing to do with those charges. So, to complete a comparison of a GFE, you review rate, lock term, points, and garbage fees. When I review a GFE, I look for fees labeled as processing (almost all lenders have some form of processing fee), underwriting, document preparation (doc prep), warehouse, administration and review fees. Sometimes, you'll see other creative fees. It's very common to see a lender charge a processing fee and a doc prep or underwriting fee. For instance, a mortgage broker will normally charge a processing fee to package and process the loan. Once completed they will forward the file to a wholesale lender who will underwrite the file and disburse the funds. The wholesale lender will always charge an underwriting or document fee of their own. Seeing those two fees would be normal. Some lenders can and will charge excess fees. For example, I reviewed a GFE recently and the broker had charged .50% origination (which is fine), a processing fee of $595 an underwriting fee of $495, an Administrative fee of $295, and a document preparation fee of $495. When all totaled, it was on the high side. Although the .50% origination fee sounded good, when all of these other fees were added, the total cost of the loan made it uncompetitive. On a loan of $100,000, those fees added up to be almost 2%.

When talked with last week's update, a borrower should be able to make a complete and accurate comparison between two or more GFE's. As always, if you have questions just shoot me an email.

PLEASE FEEL FREE TO GIVE FEED BACK. I WOULD APPRECIATE IT.