Interesting Article in the WSJ

Entitled...

Attention Home Buyers: Lock in Your Rate

That headline grabbed my attention - I'm sure it did you.

Brett Arends makes some very good points in the article.   As you might guess he sees rates going higher, much higher, sooner rather than later.

Where have I heard that before?

Oh yeah.  My Twitter Feed for Bay Area Mortgage!

Seriously, there are some very serious events on the horizon that can and will have serious implications to long term interest rates.  Be prepared.

Dear Mortgage Insurance Underwriter,

I've got two perfectly good short sale negotiations that have been shot down by your Mortgage Insurance Company and I'm not happy!

I'm not talking about Mortgage Insurance that the Homeowner had.  No.  That would be too easy.  I'm talking about a dark, sinister, evil form of MI that is killing perfectly good short sales everywhere.

Once the loan was put into place, some (not all) Lenders bought a policy with you (which they paid for) on either the individual loans or an entire pool of loans.  Maybe you insured a tranched portion of those pools.  It doesn't matter.

The Homeowner doesn't know about this policy.  Nobody knows.  Ok, you do and the Lender at some level does.

And in the case of a short sale, the Listing Agent, the Buyers Agent, the Buyer, and all the parties concerned don't know about this.

Until what we thought was the "Decision Maker" at the Lender submits the deal to their boss for final approval we don't get to find out about the presence of MI or your involvement. 

So the Lender's Negotiator sent the approved deal to you.  It was a good deal.  It was inline with the comps.  It was a good offer considering.  But then you come back to me saying that you are requiring a Promissory Note of $XXX,XXX ?

Did you not read the comps?  Did you not see the hardship?  They don't have a job!  No Income!  They've drained their savings to make the payments.

Thanks for taking my call.  I weaseled your number out of the Lender.  I think they might have been a little tired of talking to me.  You were pleasant enough.  I understand your position.  If the home goes to Trustee Auction, your company is set to pay to the lender $xx,xxx.  In approving a short sale you are setting your company up for the same loss - ONLY if the Homeowner signs the Promissory Note.  I get that too.

My problem isn't in the business decision to insure the loan.  that's business.  My problem isn't that you wasted a lot of people's time, I can blame the Lender for that.

My problem is that there is no room is this business model for humanity, empathy, or compassion.  Your calculator shows either black or white - period.  The only loss you are concerned with is the loss your company will have in paying the claim.  If the home becomes an REO - you don't care.

You are forcing two perfectly good short sale transactions this week into foreclosure.  Two perfectly good deals.  Two family's who tried to sell, tried to refinance, tried to modify, and then finally tried to short sale, all in good faith.  And to you, their efforts mean nothing.

Shame on you!

Did you see Jumbo Rates Today?

They were down dramatically.  Really Dramatically.

Last Friday the difference between Conforming 30 year fixed rates (loans under $417,000) and Jumbo Conforming 30 year fixed rates ($417,001 and above) was roughly 5/8ths.

That was a big difference.  On a $417,000 loan the Payment would be somewhere around $2,400 a month.  Add a single dollar to the loan amount and that same payment would have jumped to $2,568.  That's an additional $168 each and every month. 

Today that difference was almost nil.  How about 1/8th?  The same example above would have been $2,433 for a $417,001 Jumbo Conforming Loan today.

That makes a big difference ($135 a month), but let me share an even bigger difference.

I have a loan for $925,000 on my desk.  It's a Jumbo - always has been.  You can only guess at the difference a couple days makes for them.

Sometimes Good News Gets You In Trouble

I just got off the phone with a local Real Estate Agent relaying this information.  He's always on top of the information game.  Reads all the papers, watches the news.  You know the type.

"When did this happen?  Why didn't I hear about this?", says he.

The Media has plenty to report on, they don't know and they can't catch everything I explained.  "Besides, I reported on it yesterday".  Ooops... thought I.

"I read your blog every day, I saw nothing about that." I could tell he was pulling up the latest post as he was talking.

"Dave, it wasn't on the Blog.  It was on Twitter."  Ever get the feeling you shouldn't have uncorked the Genie?

"What's a Twitter?"  So for the next 20 minutes I walked Dave through Twitter.  Maybe I should have done that earlier.  My Fault.

For the rest - here's a simple way to get the same information that Dave does (now).

www.PatagoniaFinance.com/twitter

Will this pricing last?   If it doesn't how will you know?

Follow me, or the Bay Area Mortgage Report. 

Be informed.

Don't Worry

My good friend and highly ethical mortgage professional, Tony Gallegos shared a video he found on YouTube.

As he writes on his blog The Mortgage Cicerone,

 "Bottom line - It's BOZO's like Richard and friends that hurt our industry. Can you imagine being so proud of these sales tactics that you actually post it on YouTube?"

Personally, I liked the voice in the background, "Hi, I'm calling you on behalf of your current lenders wholesale department..."

We, the true mortgage professionals, know these people exist.  We fight their mis-information and unethical practices each and every day.  Does the poor homeowner know who they are talking to?  Not a chance. 

These people exist and they are numerous.  I had an office right next door to me, now thankfully out of business.  But there's still plenty of scum out there.  I had a client just yesterday come to me who had been dealing with these guys.

Remember, this is only a small snippet of what they do.  Don't work with telemarketers.  Don't work with people you don't know.  Don't work with someone hundreds of miles away.  Only work with a True Mortgage Professional!  If you don't know one - ask me! 

I referred a Wells Fargo Mortgage Loan Officer to two highly ethical people I trust in Florida this week.  Imagine that, a loan officer calling me, to do a refinance on her home, because she didn't want to work with anyone in her company or with someone like Robert.  Smart move if you ask me.

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Sometimes Holidays are for Worrying

With the Fourth of July holiday tomorrow I am looking forward to the Parade, the BBQ, and the Fireworks.

Holidays are times for us to slow down, to catch up with the Family, to reconnect with Friends. 

Holidays are also times when our busy day to day schedules take a break, allowing times for reflection and clear thoughts. 

Unfortunately for so many that break also means "those thoughts and worries" bubble up again to the surface.

You might recognize some of them:

• The "How am I going to make that next payment" worry.
• The "When my loan adjusts, where will it adjust to?" thought.
• The "How am I ever going to catch up?" worry.

Sometimes these thoughts and worries are so powerful they consume us. 

They make what should have been a relaxing day turn into an anxious, worry filled day. 

Catching a Frisbee while contemplating index and margin isn't what it's all about.

My recommendation to you, should you be one of those worrying types is this.

Go out and have a great time.  But make a promise to yourself and your family that first thing Thursday Morning you'll start being proactive.

Start by looking into The Foreclosure Report. 

Even if you are not in Foreclosure, it has some very valuable information for you!

• What to do before you are 30 Days Late
• "How To" Articles
• Scam and Fraud Alerts
• How to Conduct a Short Sale
• 7 Ways to Resolve Today
• Foreclosure Articles
• How to Stop Foreclosure
• Deed in Lieu
• Loss Mitigation

And so much more!

Make that promise to yourself right now - Then get out there and teach Uncle Bob that you are never too old to slip and slide!

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Neg Am Disclosures - a little too late?

"The Federal Reserve Board is considering potential revisions to Reg Z, including: (a) simplifying and clarifying Regulation Z's adjustable rate mortgage disclosures, to make them easier for consumers to understand and use; (b) requiring a "worst-case" payment disclosure; (c) requiring additional disclosures in connection with negatively amortizing loans; and (d) changing Regulation Z's timing requirements for transaction-specific, non-purchase loan disclosures."

The upcoming boom in foreclosures is being forecasted by many professionals.
Nothing new there.
But as I have said before, the underlying reasons for this upcoming boom is largely due to good people who were sold bad loans for all the wrong reasons by unscrupulous loan originators. It's a industry wide problem. Everyday I get countless mail and spam advertising rates as low as 1%. I'll bet you do too.

The problem is that so many bay area homeowners have bought into loans like these or similar. They may have refinanced a couple of years ago into an adjustable rate mortgage with a 2 or 3 year fixed rate period. But that was a couple of years ago and now those fixed periods are running out and these same owners will now see there monthly payments rise incredibly. When that happens the first thing they will do is seek another refi. This time though they'll have a harder time qualifying. Many factors go into a qualification. Income, Debts, Debt Ratios, Loan to Value Ratios, and so on. If their house has declined in value, what was a good enough debt ratio and loan to value ratio may not be good enough this time.

In the last refi they may have had enough equity to pay off all their consumer debt.
This time they might not have the equity yet have run the credit card balances back up again.

They might be left with no choice but to sell or continue on paying their new much higher monthly payment. That's when we'll see the foreclosures really start!

So now that the cows have left the barn...
The fed's is thinking maybe the consumer should have a little more disclosure?

I'm all for that, but aren't they a little late?

How far will their Foreclosure drag you?

As I watch my list of Notice of Defaults / Foreclosures rise and rise each month, I have to wonder just how devastating the effect of this will be on surrounding homes.

Here is a quick overall picture on what usually happens.

As a homeowner starts to struggle the first thing that happens is sometimes what is called "deferred maintainence". We can call it neglect for lack of a better word.

As they continue down the spiral path towards foreclosure the yard goes unkept, the lawn unmowed, the weeds grow high, the garbage piles up, the windows go uncleaned.

They say the first thing that happens when you fall behind is you lose that "Pride of Ownership".

No matter what, one of three things are going to happen with with this house:

1. They might be able to refinance and catch up - maybe.
2. They might put the property up for sale - maybe a short sale?
3. They might let the property go to Foreclosure at which it will either be bought by a bidder or retained by the bank (REO).
   

OPTION 1, REFINANCE:

If they can refinance, perhaps they can also catch up on the Pride of Ownership items they've been neglecting.

OPTION 2, LISTED:

If the property is listed for sale, it's under duress, it's not because the owners feel the time is right and they want to move up to a larger home with better schools. It's a fire sale. They are looking at getting out as quick and cleanly as they can without spending another dime.

• It isn't going to have new paint and carpets is it?
• It isn't going to be neat and clean is it?
• And it certainly isn't going to be staged!
  

We all know, a staged home will generally sell faster and for more than a similar home - Right?

"Mr. and Mrs. Homeowner... I know you can't afford to pay your mortgage but I believe your home will sell faster if you pay $x,xxx and have it professionally staged". Yeah, that's a likely conversation that'll never happen!

OPTION 3, FORECLOSED:

Now what? Either the bank owns the property and lists it with a local broker or an investor type now owns it. While the Broker may pay to have the lawn mowed they are not going to spend the big bucks to bring the property up to snuff with the regular homes around it.

In Options 2 & 3 above - the home will be sold to someone eventually, but it will also be sold at something below it's true market value potential.

The home next door, the home down the street and the home a 1/4 mile away all will be unintentional and innocent bystanders.

The Sales Comparison Approach of Appraisal has to take into account the recent transactions in the surrounding areas. While a certain amount of explanation on the appraisers part may help shift the blame of declining values in the neighborhood to foreclosure activity, it's temporary at best!

The Truth is - your home's value is determined by and and can be positively or negatively effected by, the homes and homeowners around you. And unfortunately that is something you have absolutely no control over!

For related reading see: The Foreclosure Crunch

This isn't a Country Song...

I wanted to share a sad story I found this week.

It is from Chris Hendricks.

Chris runs a full service online printing company you've probably heard of, www.PsPrint.com. A large part of his business deals with the marketing that Agents produce.
Recently he was in Washington D.C. for the convention of the National Association of Realtors.

Chris had taken a taxi earlier and then coincidentally had the same driver the next day.
On the first trip they had exchange small talk as you might normally expect.
But the second trip was different as the driver spent most of his time on his cellphone.
Chris relates that while the man was originally from Yemeni, he could decipher some of the conversation.

"I discerned the words "scam," "house," "children," and that he had worked for 23 years to own his home and that if he worked 24 hours a day every day he could never make the new payment."

The taxi driver ended his call and Chris talked to him for a minute.

"He explained that last year he had been injured, spent time in the hospital, and refinanced his home to lower his payments. The mortgage he was placed in obviously had a teaser rate and, more obviously, had a rapid escalation back to market rates. He "thought" he was lowering his payments from $1800 a month to $1100 and that the refinance was a godsend to help him during difficult times with his health. This week he learned that his "new" payment was being adjusted to $3300 a month and that he will likely soon lose his home-- after 23 years"

You may have recognized the loan program as a Payment Option ARM.
While you may not personally hear many stories like it, this same situation is playing out each and every day.
It's happening all across the US.
It's happening here in the Bay Area.
It's happening right here in upscale Walnut Creek.

And it's not happening to just Cab Drivers.

I've heard the same story from Business Owners.
I've heard the same story from Government Employees.
I've heard the same story from Registered Nurses.
This story has no bounds.
It is not limited to lower income housing, in fact there have been studies suggesting that the hardest hit will be the upper middle levels, those with loans under $1,000,000.
I know we have plenty of those around here!
Here's a snippet from an earlier article, The Foreclosure Crunch

I did a little research locally.
I went to the County Records.
I asked for a list of homeowners who...

• Live in a single family home (no condos)
  
• In the Lafayette, Orinda, Moraga, Walnut Creek, Alamo, Danville, Pleasant Hill and Concord area.
• Who have an Adjustable Rate Mortgage at least 3 years old with A Paper lenders.
• I also limited the search to the first 1,500 names.
  

Surprise!
My list started in upscale Lafayette (just because that's what I listed first) and never left!

Read the entire Chris Hendricks Story Here

UPDATE: I wanted to make the link to Tony's story below live.
He writes an excellent blog called The Mortgage Cicerone
Those of us in the business know the true story behind it all, we're not easily fooled by the deceptive marketing practices.
Read Tony's Story: http://tgalleg.typepad.com/my_weblog/2007/05/are_you_paying_.html

MM

What's Weight Got To Do With It?

Living with a teenager is a learning experience.
If you are a parent you know what I'm talking about.

The latest happenings in the Mueller household is that my 13 yr. old daughter has discovered the sense of smell.
Ok, maybe it's more that she has discovered the stores in the mall that sell smelly lotions, bath beads, soaps, shampoos and conditioners.
We now have a bathroom fully stocked with smelly stuff.

In the mood for

• Passion Fruit / Banana?
• Guava / Cranberry?
• Green Apple / Hibiscus?

I'm sure we have it stocked in both Shampoo and Conditioner.

Which brings up a question - does the shampoo have to match the conditioner?
What if they clash? Dill Pickle Shampoo and Milk Conditioner?

I digress, back to the point.
While my precious daughter is consumed with one aspect, in this case how a product smells, she is also neglecting all other aspects.
I say this because I've noticed her hair looking less shiny, less clean, less bouncy lately.

How does this relate to mortgages?
Many times I talk to clients who are keyed into one aspect, (or two) of a loan.
Most times it's, "What's the Rate?"
Other times, "How much is this going to cost me?"
Or the extremely deadly, "What is my payment going to be?"

Like my teenager - they are blindly focusing on one part of the loan and not the big picture.

Let me say this.
If you were to focus on only one particular aspect of your loan...
There is one feature that I would rather you spent all your waking moments on rather than any other.
Want to know what that is?

The Weighted Average Cost of Capital.
Chances are this is something you've never heard of - right?
You see, Weight has everything to do with making the right choices!

WACC generally is talked about in conjunction to corporations and investing but when applied to home ownership it is an invaluable tool.
Only by determining the weighted average can see how much real interest the borrower has to pay for every dollar they finance.

In any purchase or refinance transaction -
Ask your mortgage professional about the WACC.
If they don't know (and you'll be surprised how many do not), maybe you should be working with someone who does?