Subprime Wolves are Howling About Mortgage Rates and the Fed Funds Rate Reduction

Yesterday’s reduction of the Federal Funds rate to a range of 0.000 to 0.250 percent is the lowest record level in history. This news is certainly in the minds of many consumers but, as also explained by Dan Green, it is for the wrong reasons!

Every time the Federal Reserve reduces interest rates, I hear radio and television personalities (i.e.: agents and broker) rambling about how “The Fed reduced rates today and that translates into lower mortgage rates so now you can refinance/buy with an even lower rate.” Well….they are either a lying to you with that sales pitch, they don’t know how mortgage rates work, or both.

Now, let’s look at how all these rates really work so you don’t have to rely on a wolf howling to refinance your home. Read more

December 17th, 2008 · Filed Under Mortgage - Loan Information

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US Financial Crisis: Whose Fault Is It Anyways?

Yesterday Henry Paulson, US Treasury Secretary, announced a plan to spend $250 billion to purchase stocks in at least nine major financial institutions. This money infusion would give taxpayers ownership stake on these banks and guarantee a 5% return. It would also help banks build more reserves and in turn ease lending to consumers and businesses alike, at least that is what we hope banks will do.

The Emergency Economic Stabilization Act of 2008 H.R. 1424 is known in Main Street as the “Wall Street bail out” plan. However, in Wall Street it is known as the “rescue” plan. Regardless of the name; many people Read more

October 15th, 2008 · Filed Under Credit Information, Mortgage - Loan Information, Real Estate Information

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H.R. 3221 Housing and Economic Recovery Act of 2008 Passes New Permanent Loan Limits

The House passed the massive housing bill last Wednesday, the senate voted Saturday to send it to the president and today President Bush signed the “Housing and Economic Recovery Act of 2008 HR 3221.”

HR 3221 is intended to aid in stabilizing our economy, support first-time homeowners and provide mortgage relief for Read more

July 30th, 2008 · Filed Under Foreclosure-Short Sale Information, Mortgage - Loan Information, Real Estate Information

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Learning from Our Mistakes: Co-Signing Could Lead You into Financial Trouble!

Perhaps in the past you were in a situation where a close friend, a relative or even your own son asked for help in obtaining a mortgage loan, a credit card, a private loan, a student loan, a car loan, etc, etc by co-signing for them. And because of your good relationship with them or because you felt obligated to help them out, after all they are your family members, you agreed and put your financial future in jeopardy.

Statistically speaking, co-signers have a very high chance of Read more

June 12th, 2008 · Filed Under Mortgage - Loan Information

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Federal Reserve Rate cuts: How Will It Impact You and Your Money?

Yesterday, December 14, 2004….uuuhhh…wait…I meant yesterday March 18, 2008 the Federal Reserve lowered the Fed funds rate down 75 basis points to 2.25 percent. The reason why I mentioned December was because the last time the fed funds rate was this low was back in 2004 as you can see in the Federal Reserve Board: Monetary Policy, Open Market Operations chart.

I know you probably have read all the gloomy news in the newspapers, TV stations or perhaps you may have received calls from many mortgage brokers telling you that these great news will benefit you if you refinance now, but who is right and who is wrong?

Making the News

The truth of the matter is, Read more

March 19th, 2008 · Filed Under Credit Information, Mortgage - Loan Information

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New FHA and Conforming Loan Limits for California Released by HUD

Almost 1 month after the H.R. 5140 Economic Stimulus Package was signed by President Bush; the Office of Federal Housing Enterprise Oversight (OFHEO) released today the maximum temporary conforming loan limits.

The new FHA loan limits as well as Fannie/Freddie Government Sponsored Enterprise (GSE) loan limit will apply to loans originated between July 1, 2007 and December 31, 2008 for one, two, three and four unit homes as determined by the U.S. Department of Housing and Urban Development.

These great news will offer some hope to struggling homeowners in California, specially in Read more

March 6th, 2008 · Filed Under Mortgage - Loan Information

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H.R. 5140 Economic Stimulus Package passes New Conforming Loan limit

Although the Economic Stimulus Package was signed by President Bush yesterday, it could be a couple of months before the impact is felt in the mortgage markets. There are some kinks and details that still need to be worked out.

03/06/08 Update: New FHA & Conforming Loan limits for California released by HUD

If everything goes well, and it is expected that it will, rates for loans between $417,000 and the (temporary) new Fannie Mae’s and Freddie Mac’s conforming loan limit of $729,750 will be Read more

February 14th, 2008 · Filed Under Mortgage - Loan Information

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New Conforming Loan Limit and FHA Loan Limit Could help Californias

With the housing market already receiving a little help from the federal funds rate cut made during the inter-meeting a few days ago and another possible rate cut coming up; buyers and homeowners will possibly feel more willing to take the plunge and buy or refinance due to the Economic Stimulus Package of 2008.

2/14/08 Update: H.R. 5140 Economic Stimulus Package signed by Presiden Bush raises Conforming Loan limit

3/06/08 Update: New FHA & Conforming Loan Limit for California released by HUD

Yesterday the House of Representatives signed off on Read more

January 25th, 2008 · Filed Under Keeping an Eye on the Market, Mortgage - Loan Information

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Interest Rates may Drop Lower

The Federal Reserve, in an effort to avoid a recession, surprisingly made an inter-meeting rate cut to the federal funds rate. This latest rate cut left the federal funds rate at 3.5 percent.

The next meeting, on January 29-30, is their formal meeting and it is expected Read more

January 22nd, 2008 · Filed Under Keeping an Eye on the Market, Mortgage - Loan Information

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I will Personally call You when Interest Rates Go Down!….Say What??

Recently a couple that had been dealing with another mortgage broker for a refinance in San Jose, contacted me because they did not feel very comfortable with him. The reason of their discomfort was the way the mortgage broker was pressuring them to obtain a loan he assured them would be the best choice.

I turns out this mortgage broker was pressuring the homeowners to refinance their home into an Option ARM loan also known as the Negative Amortization loan. He vaguely offered them Read more

January 2nd, 2008 · Filed Under Mortgage - Loan Information, Real Estate & Mortgage FRAUD

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FHA Modernization Act of 2007 passed by the Senate

Today’s news is that the Senate passed the FHA Modernization Act of 2007. Now, this bill will be debated in Congress then review by President Bush for approval.

FHA was created during the Depression to stimulate the housing market at the time when homeownership simply wasn’t a reality for most people, today it looks to aid homeowners who have fallen victims to the subprime crisis.

The FHA Modernization Act of 2007 would: Read more

December 14th, 2007 · Filed Under Mortgage - Loan Information

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Mortgage Rate Freeze Looks to Aid SOME Struggling Homeowners

Gov. Arnold Schwarzenegger announced on Tuesday November 20, 2007 a deal with four major subprime lenders Countrywide, GMAC, Litton and HomeEq. A deal that would freeze adjustable interest rates for California homeowners struggling with ARMs resetting to higher mortgage payments.

And today the Bush administration announced Read more

December 6th, 2007 · Filed Under Foreclosure-Short Sale Information, Mortgage - Loan Information

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Opportunity to Improve Home Affordability in California Remains Unchanged

Everyone one of us that live in California know that we live in a high priced home state. “California has the third highest home price in the nation” said California Association of Realtors President William E. Brown. And although we have seen home values drop in most areas, this has only helped a miniscule number of buyers obtain their first home.

Today’s U.S. median home price is at $221,000 in comparison to Read more

November 30th, 2007 · Filed Under Mortgage - Loan Information, Real Estate Information

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Over the Top Incentives for Buyers in Today’s Real Estate Market

If you are looking to buy a home today, you pretty much know that there are bargains almost in every corner. You as a buyer have the upper hand because there are many homes to choose from. Homes from sellers who simply are looking to move out of the area, others desperate to sell before their ARM loan adjusts and others because they are about to loose their home in Foreclosure and are trying to sell it as a Short Sale.

In addition to benefiting from the increase of inventory in homes for sale, you may also benefit pretty soon from Read more

November 2nd, 2007 · Filed Under Mortgage - Loan Information, Real Estate Information

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Federal Reserve Cuts Rates Even More

The Federal Reserve faced with a slowing housing market and other factors, cut the federal funds rate to 4.5% this Wednesday. This is the second rate cut this year in an effort to bring more positive activity to the economy and it also aims to keep our country from going into a recession.

Consumer with Home Equity Lines will benefit because Read more

October 31st, 2007 · Filed Under Mortgage - Loan Information

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Warning Signs for Recognizing Predatory Lending

Just like in any other profession not all mortgage brokers and lenders practice business fairly and ethically. Some of these mortgage brokers and lenders typically takes advantage of vulnerable groups, such as immigrants, people of color, seniors and people with disabilities who are applying to purchase homes or refinance home loans.

Consumers are protected by federal and state laws. Unfortunately, these abuses are Read more

August 29th, 2007 · Filed Under Mortgage - Loan Information, Real Estate & Mortgage FRAUD

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Combating the Subprime Mess

Many borrowers who bought or refinanced in 2004, 2005 or 2006 and obtained a Adjustable Loan (ARM) like a 2/28, or a 3/27 (sometimes known as exploding ARM’s) probably did so because they had some credit blemishes. Or perhaps they were not well informed or may be they were taken advantage of during the purchase/refinance.

As these loans are coming due to adjust during this year, I’ve seen an increase number of borrowers wanting to refinance with an ARM that offers them a longer fixed rate period like a 5/1, 7/1, 10/1 or at best a 30-year fixed.

The problem many have encounter is Read more

June 12th, 2007 · Filed Under Mortgage - Loan Information

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How Meaningful is the APR??

The Annual percentage rate also known as the APR was implemented to inform borrowers of the “real” cost of borrowing. HOWEVER, this value is ONLY accurate for fixed rate loans.

The APR for ARM loans is virtually MEANINGLESS. Not only it is meaningless, it’s inaccurate and can be misleading.

Here is an example of what I’m talking about. Lets say you borrow $650,000 and you compare a 30 year fixed rate loan at 6.875% and a 5/1 ARM at 6.275%, assuming the costs for this loan total $4,500 with no points.

To calculate the APR for the 30 year fixed you do the following. First determine the monthly payment required to amortize $650,000 over 30 years. The monthly payment is $4,270

Next deduct the cost of $4,500 for getting the loan and 15 days of advance interest of $1836 from the original amount of $650,000. So we have 650000 – (4500 + 1836) = $643,664.

Now, if you are using an HP12C or a TI BAII plus calculator, use the same payment of $4,270 against the $643,664 and solve for the interest. For those without these calculators or something similar will have to trust me this calculation is correct. We have an APR 6.972%

To calculate the APR for an ARM loan is quite more complicated. You start with the same steps above but you calculate the first five year’s payments on the given start rate of 6.275% which gives us a payment of $4,012 and the remaining 25 years are calculated on the fully indexed rate payment.

To calculate the fully indexed rate, add the 2.60% margin to TODAY’s 5.67% index and you get 8.27%. Note on this example we are using today’s index rate and it does change so it wont be the same. We use this fully indexed rate to helps us calculate the monthly payment required to amortize the loan balance at the end of the 5th year ($606,872) over the remaining twenty-five years. The monthly payment on this example is $4,793

The total payments for the first five years are added to the total payments for the remaining 25-years, then divided by 360 to get the average monthly payment for 30 years. Then again using the calculator solve for the interest. The APR should be 7.86%.

So, according to these calculations, the APR for a 5/1 ARM seems more costly than a 30-year fixed. But the problem in these calculation lie on using today’s index to get to the fully indexed rate and assuming that rate will remain flat (very much unlikely) for the final twenty-five years of the loan.

Given that the Fed raised short-term rates this past June 29th and it is expected that it will do it once again in August, it is quite likely that the index in five years could be closer to 7.78% than 5.67%.

If you add the 2.60% margin to 7.78%, we get an interest rate of 10.38% with a monthly payment of $5,678 for the final 25 years of the loan. And when calculating the APR, it would be 9.47%

By all means this is much less advantageous to borrowers that the 6.972% APR on a fixed rate loan.

To conclude, the APR calculated on an ARM loan is very inaccurate because its calculation is based largely on today’s index. It cannot be guaranteed this index will remain flat. In fact as I mentioned above, today’s indexes are almost certain to rise into the future. So you cannot rely on getting an accurate APR with an ARM loan.

It should also be noted that this article talks about the accuracy of the APR not about good or bad ARM loans. That is a personal decision that will be resolved with your mortgage consultant because there are NO bad loans available. ONLY bad loan officers that want to make a quick buck and put their clients into loans that don’t fit their financial needs with no way out but to refinance again.

July 5th, 2006 · Filed Under Mortgage - Loan Information

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To Doc or Not to Doc, That is The Question!!!

Many borrowers shopping for mortgage loans are pretty well informed about the different types of loan products available. A qualified & competent Loan Consultant can guide and advice borrowers through some of the options: 40, 30 and 15-year fixed, 10/1, 7/1, 5/1, 3/1, interest only, or option ARM. But many borrowers and even a few Real Estate Agents are not fully informed about the different levels of documentation required.

Different lenders name and describe these levels of documentation differently, but in general they all fall into these categories: Full Document Loan (Full Doc), Stated Income Loan Verified Asset Loan, and No Document Loan.

The fully documented loan (Full Doc) give borrowers the advantage to obtain the most competitive rates, highest loan amount, widest band of lenders, and a lot more variety of loan products. The “Full Doc” loan requires detailed documentation supporting income and assets like: 2 or 3 months of asset statements (savings, checking, 401K, etc, etc), 1 or 2 months of pay-stubs and W2’s for the most recent 2 years. Self employed borrowers must document their incomes with the last 2 years of Federal Tax returns and a year-to-date profit and loss statement.

The Stated Income Loan is for borrowers who either cannot or prefer not to provide documentation of their income with W-2’s or tax returns. An example might be a self-employed individual who writes off a lot of expenses. Lenders will charge a higher rate for these types of loans.

The No Document Loan depends heavily on the equity in the property and the borrower’s credit. This type of loan invariably carries a higher interest rate.

The important point of this article is to know that all these different types of loans exist to serve the interest and requirements of virtually every borrower.

June 27th, 2006 · Filed Under Mortgage - Loan Information

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Confused About ARMs and FRMs??

A year ago if you were planning to get a 30-year fixed loan and compared it to a variable loan, you might of chosen what seemed as the best choice at the time. This choice would have been a variable (with a fixed term of course) loan. Today that decision for many homebuyers and homeowners is not as simple.

Today’s variable mortgage rates are very close to the fixed mortgage rates. Why is this happening? Since a year ago the Federal Reserve has raised the Federal Funds rate (short term rates) from 2.75% to 5%.

The Fed’s action has pushed the rate for short-term mortgages higher while long-term rates have kept relatively with out any major changes. Interpretation of these actions is that inflation is threatening to holders of long-term debt and increasing short-term rates is designed to prevent inflation.

What difference does it make to me and what does it mean to potential homebuyers? Obviously it presents a more difficult decision as to what type loan to use when purchasing or refinancing.

A year ago the difference in payments of a 30-year FRM loan was substantial compared to the monthly payment on an ARM loan. Today the difference is not as significant.

A simple solution to the dilemma of a low payment, which could rapidly increase at the end of the fixed term of an ARM is 30-year fixed rate mortgage with an interest only option for 10 or 15 years.

A year ago a 5/1 ARM loan (first 5 years the rate is fixed) at 4.75% for an amount of $650,000 had a payment of $3,390.71. Compare that to an interest only at 6.5%, which has a monthly payment of $3,520.83. This payment is slightly higher but knowing that the interest rate is fixed for next 30 years is a great peace of mind. By fixing a rate for a long term with an option to make interest only payments eliminates the danger of payment increase due to rising interest rates. And to add icing to the cake, when the borrower makes principal payments, the monthly payments are reduced.

This is a great safe option for many homeowner and homebuyers.

June 2nd, 2006 · Filed Under Mortgage - Loan Information

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