How NOT to apply for a mortgage

Nobody expects you to know exactly how to apply for a mortgage if you have never done so before. Even if you have, chances are you have only applied a few times in your life - hardly experienced considering guidelines from 1 week ago are now old news!

Here is my list of 10 moves you should NOT make when applying for a mortgage:

1. Spend a few days calling 5-10 mortgage companies - mortgage rates change too fast to spend hours, let alone a few days!
2. Use the phrase, "I'll be making my decision within the next week." - my response will always be, "Well please call me when you are ready and we can discuss the mortgage again". Once again, the industry changes too fast.
3. Ask, "What is the best rate you can give me?" - rates can come with points, no points, adjustable rates, fixed rates, 10 years or 40 years. This is the equivalent of asking, "What's the best price you can give me on a car?"
4. Make the claim, "I can get X rate from Y company". Proooooooooooooooooove it! Get it in writing and we'll match or beat the offer. (Disclosure: I will bet that 95% of the time you will not be able to get the offer in writing)
5. Compare closing costs strictly based on the number - there are actual closing costs, then there are escrows & prepaids. If you don't understand the numbers, ask!
6. Ask to use "your" attorney - unless your attorney specifically works in real estate, you are probably wasting your time. This is like going to a brain surgeon for your ankle surgery.
7. Guess your income - you will over estimate. It happens all the time. Then you will provide documentation that shows otherwise and you will be upset when the loan is declined because your income is "only off by a few thousand".
8. Use all of your savings to purchase/refinance - you will need reserves. Plus, have you ever heard of an "emergency fund"?
9. Follow the "1% drop" rule to refinancing - hint: It does not always hold true. Try to tell me that saving .5% on your 300k mortgage doesn't matter.
10. Rely on newspapers, the news or Internet for current rates - you are wasting your time. It's old news.

There you have it folks, the 10 things I hate to come across in this industry. You may be guilty of a few, but it could always be worse!

Mortgage rates could go (back) down

The media caught on to the pitfalls of rising mortgage rates. As a result, more people are asking me if I think rates will go back down. The answer is a big "IF". However, I must credit Yahoo! Finance for this great article that documents why mortgage rates could fall.

Traditionally, my advice is, "If your 401k is doing well, rates probably aren't. If you're losing money, rates are probably falling." The article mentions this as one of the 5 reasons, along with widening spreads. Smaller spreads make it difficult to offer no points/no closing programs and limit a broker's advantage to knowing which lenders off the best rates on certain loan scenarios. Larger spreads will bring back that added incentive and allow brokers to present more competitive offers for borrowers. Sounds like a win/win to me!

Check back tomorrow for Tuesdays Tip! Make it a great day!

This is your warning...

Consider this your warning: Mortgage rates are the highest they've been in six months. If you missed the boat waiting for "4.00% rates", you may want to consider doing something with your 6.00%, 300k mortgage if rates drop back to below 5.5%.

The aforementioned article from the associated press is further evidence that the media is always a step behind the mortgage industry. Rates have been hovering just below 6.00% for nearly 2 weeks! Also, be aware that the 5.59% rate referenced in the AP article does not include points and closing costs.

I am using this opportunity to point out that you need to be ready if the opportunity to take advantage of lower rates presents itself. The window may not be open for long. More to come on the violent fluctuations in rates! Make it a great day!

Why Mortgage Rates are Rising

Did you get the memo? Rates are up nearly a full percentage point in the last 2 weeks. I hate to say "I told you so" (see the last paragraph). It certainly isn't pretty in the mortgage market the past couple of weeks. In terms of payment, a $300,000 mortgage now costs you an additional $240 per month.

You may be asking yourself, "what happened?" The answer: The global economy does not approve of the massive US debt we continue to acrue and there are concerns over inflation. The complete answer is material for a thesis, but the basic premise is here. The government has kept rates artificially low buy purchasing mortgage-backed securities. Inflation is on the minds of every economist and person on Wall St. We know that if the economy rebounds, inflation could soar. Mere speculation can torpedo mortgages rates - hence the impact of the last two weeks.

If you were planning to refinance or intend to purchase a property, there are a few moves you should make to put yourself in position to get the best rate. First, understand that internet and print advertising are archaic in the mortgage industry. Rates change too fast (in fact, every 2 hrs, 36 mins last week) to rely on tomorrow's newspaper for the "best rates".

Make sure you have someone looking out for your best interests. Know what you can afford. Do not hope for a rate to drop .125% if you know you cannot afford the mortgage if rates rise .25%. Rates rose .5% in 2 hours last week.

Lastly, focus on what you can control. You cannot change mortgage rates. Take the best rate and terms available because most lenders offer programs that allow you to re-lock a rate if it comes down.

Email me if you do not have someone watching rates for you. If you have any questions or further discussion, please feel free to leave a comment or contact me. Make it a great day!

The State of the Mortgage Industry

Dare I say the mortgage industry is worse than ever? One would think increased regulation leads to greater efficiency, better performing loans, and advantages for the borrowers. The Rolling Stones put it best - "You can't always get what you want!"

Underwriting turn-times average 3-6 weeks. Once an application is submitted, you will not hear anything for nearly a month. Tack on another couple of weeks to review any additional documentation required by the underwriter and your loan takes about 2 months to close. How's that for efficiency! Oh, did I mention we used to be able to close a loan in 1-2 weeks? (My record is 3 days!)

The HVCC (click here to sign the petition) guidelines are destroying the integrity of the appraisal industry. Would you like to wait 4 weeks for an appraisal that could have been produced in less than 24 hours? How would you feel if appraiser A came back with a value $110,000 less than appraiser B who was at your house one week earlier? The service has been horrendous and to make matters worse borrowers are paying more for the service. The average HVCC compliant appraisal costs a borrower an additional $100, and approximately 50% goes to the appraisal management company (AMC) for simply assigning an appraiser to complete the appraisal. (Note: Our appraisers used to charge $275 for a single family appraisal; AMC's charge $385 in most cases)

The volatility in rates must be driving rate shoppers insane. The average rate quote is only good for about 2 hours, then it's back to square one. I had a borrower turn down a 4.875% rate last week, needless to say his rate is now 5.5% -- a $163/mo difference! I am afraid that without government intervention, the days of rates below 5.00% may be gone and we are now on the fast track to "inflation period" rates...my best guesstimate is 6.5%.

To make matters worse, lenders do not seem to care. On Monday, I had an operations manager from a top 10 lender say to me regarding an upcoming deadline, "The seller can wait a couple of days to close. Does he really think he'll sell the house again in 2 days, we'll close the loan in a couple of days when we have time". (It cost that lender about $3,000,000 in business from us that we otherwise would have sent to them.) The statement shows no respect for contract law and put the buyer at risk of losing his deposit. The comment demonstrates the sentiment of overworked, underpaid representatives in the mortgage industry who are forced to comply with hundreds of new procedures and guidelines imposed by members of Congress that have zero understanding of the business. Would you want an attorney handling your brain surgery? Probably not. Then why would you allow a politician to set forth the guidelines that govern the mortgage industry. As if we didn't have enough problems!

There is a laundry list of problems that plague the mortgage and real estate industries. Unfortunately the list does not seem to be getting any shorter. Be patient. Do your homework. And understand to the best of your ability the process you are about to embark on before you dive in head first. Feel free to use me as a resource for updates on procedure changes, rate fluctuations, or trusted referrals. And as always, make it a great day!

How do you pick a mortgage professional?

Reputation of the company? Best rate? Lowest closing costs? Reputation of the mortgage professional? Customer service? Every person has their own criteria, but you may want to consider yours prior to entering the mortgage process.

Ask yourself, "How much do I really know about mortgages?" There are many articles and posts out there lately that discuss personal opinions on how to find the best mortgage. Some finance advisers recommend Bankrate.com, while others recommend a trusted professional they have worked with in the past. J.D. at Get Rich Slowly posted a great article on his advice and received dozens of comments from people regarding their experiences. The comments concern me. Here are a few comments from his post and others:

• "Don't be afraid to change to a different company" -- I couldn't agree more. But this only holds true if you minimize the upfront costs. Lock fees, applications fees, etc. are designed to prevent borrowers from going elsewhere and ensure the mortgage company cuts their losses. Be very cautious with any mortgage professional who says, "I need a credit card to get the application process going". At that point, you're pretty much stuck! If there is not something tangible you are paying for upfront (credit report, Fannie Mae findings, etc.) you should be able to pay for it at closing -- assuming you close, right?
• "Go with someone that holds the mortgage" -- You have no control over who owns the mortgage. Banks make money buying and selling loans. Regardless of what anyone tells you, a "promise" your loan will not be sold is a big lie. A bank can retain the servicing rights on a loan, sell the loan off, and you would have no idea the loan has been sold. Don't lose sleep over what you cannot control. Servicing rights can be sold just as easily.
• "Get educated" -- I couldn't agree more. Hopefully that's why you are reading this!
• "Relationships don't matter..." "It is strictly business" -- Garbage. I have seen more personal acquaintances and past customers get taken advantage of by other mortgage professionals in the past 2 months than I have in the previous 3 years. Tell me "relationships don't matter" when your closing costs come in double, your rate is higher, the loan isn't what you asked for, or you can't get ahold of your mortgage professional when a question arises.
• "I went with a company because they never wrote any bad loans or sub-prime loans" -- With mortgage delinquencies over 8%, if you believe that then I have some great swamp land I'll sell you for a few million!
• "If it sounds too good to be true, it usually is" -- Touche! This could not be more true for mortgages!

I always say that reading a couple of articles does not make you an expert, nor does owning a couple of properties. I know very little about cars, and I don't pretend to. But my approach has worked well and it applies similar to mortgages -- find someone (a mechanic) you trust, make sure everything is explained to you, compare costs, and make sure they're not going to jerk you around.

Yet somehow it amazes me there is still more "bad" information available than "good" info when it comes to mortgages. Ask yourself, how do you make your decision? I have seen alot of bad decisions the past few weeks and I'm at a loss for words trying to analyze the logic of the borrowers. Nonetheless, I realize people make stupid decisions (Myself included!). I'm just trying to help everyone make fewer of them!

Make it a great day!

Biggest Supporters of HR 1728!

Yesterdays tip focused on the potential destruction of HR 1728. Today, additional information was released regarding Barney Frank, the Massachusetts representative primarily responsible for supporting HR 1728.

Take a guess who his biggest campaign contributors are...

• Bank of America
• American Bankers Association
• JP Morgan Chase
• Morgan Stanley
• NAR - National Association of Realtors

Coincidentally, these parties are among those that will benefit the most if HR 1728 is passed.