Fannie Mae is Broke!

When the news media boasts mortgage rates PLUMMET, it triggers a reaction. The phone rings and we become flooded with new applications. Great for us, but here is the real story!

The banking world has been turned upside down in the last 18 months. More rules more restrictions and more than half the operations departments have been let go or shut down across the nation so, something that used to take 3 to 4 days is now taking 3 to 4 weeks to get through underwriting. The process has become twice the work it used to be especially with many of the programs that have disappeared. No more second mortgages or lines of credit over 80% of the appraised value, the list goes on of the new crazy rules. But wait....there is more!!!!

Here are some of the reasons why: Fannie Mae and Freddie Mac are BROKE. If you did not know that by now you have been living in a cave. When companies like this are broke, they implement new policies to raise revenue. Some may call it better underwriting, I call it a drive by or just plain robbery, nothing more. When congress gets involved and dictates rules of why they think the mortgage world is in trouble or just plain broke, it leads to more problems.

Here are some examples, the obvious one first. We all know how important our credit report is as well as FICO scores. Well, if you score is under 720, you will get penalized a ¼ point in fee. This can be buried in the rate or just a flat fee. Now lets say this is a cash out refinance over 75% of your appraised value of your home, you guessed it, another hit to the rate or fee of 1/5 point. Say you want to wave your tax escrow and pay taxes on your own, yup that is a ¼ hit. We do the best we can to eat some of these fees or play the market and try to get better pricing on a rate to help the consumer. That is a service the client never even sees. So for what the client thought was an easy straight forward refinance and the client is going by what CNN reported that day rates are, you can imagine the surprise of the customer when they don’t get what they expected. In some cases this can equal a full .25% to .50% of an increase to your mortgage rate. You thought you were getting 4.875% and now you are 5.25% with all the hits. Not good, and your stuck, these are Fannie Mae rules, so they are just about with every lender out there. From the small bank to the large national investor.

These are the basic adjustments, as the credit scores, these adjustments get worse. Here are few more, have a 2, 3 of 4 family? That will cost you 1 point these days. What if you are buying a condo, it is a ¾ point adjustment, perhaps you are only putting down 5% on the purchase, that is a ¼ point. Tougher everyday and just one of the many more reasons clients need to approved before they look at a home. Other things to do is to be prepared, have you approval updated with each offer you make.

Buyer Beware: Have patience, I have been doing this since 1991 and I have never been at such a loss of what is going on or how frequent the rules change. If a rate or service seems to be to good be true, it probably is. Always ask for a Good Faith Estimate of Closing Costs upfront to see what the fees are going to be. If you cannot get one upfront…..move on to another lender, this takes us minutes to prepare and typically they are automated so they are not an extra work.

If you ever have any questions, please feel free to call or email me anytime. Even after all these years and the mortgage crisis, I still really enjoy what I do. I find myself biting my tongue a little more, but it is worth it.

Bill Nickerson
Vice President
Mortgage Network
bill@billnickerson.com

Apply Online Today

Greed.....for lack of better word is Good?

An iconic phrase from the 80's. It landed Ivan Boesky in jail after the 1980's investment guru let greed take him over, a part we all learned to love or hate through the eyes of Gordan Gekko. (click on Gordon, the classic Greed is Good Speech) An extreme example of what I am writing today, but none the less, something to consider. Greed, it is one of the seven deadly sins.

Fast forward to the struggling housing market, lay-offs, reduction in pay and the list goes on. A new culture has emerged, a thrifty, cost sensitive recycling consumer. Still infused with Greed! In my daily interviews with clients, I have to figure out what they want. What is the goal and why do you want to talk to me. In many cases it has been a warm referral, My Mother told me to call you, you took good care of her and gave her a good deal. We begin the dance of sales, what is your rate they say, I don't know, what is your FICO score. They say what are your closing costs, not sure how high is your debt ratio? After we get down to brass tacks, I tell them what the rate is based on there credit and loan to value ratio and this has been done reviewing rates from several of the top banks in the country. I then say, I am please to say you are approved and the rate is (today) 5.125% with 0 points. I think, hey, I am saving this person $281 per month....pretty good. When the response is. "Why is your rate so high?" they say. "Compared to what", I ask. I can do much better, I just saw a rate posted on Zillow for a full percentage point lower. ............ahhhhh, can you smell it? That's Greed!

The funny part, if the client was willing to work with a lender and understand the process, you will find that rates are pretty much the same from place to place. Closing may be a Little higher here but the rate is better, rate may be better here but there some additional fees. This is when the Greed sets in and consumers are blinded it. They must get what their neighbor has or else. Not knowing the neighbor has stellar credit and lots of equity might help or the neighbor was not greedy and acted on a good deal.

Since Thanksgiving, mortgage rates have been hovering around 5.00%, plus or minus a .25% depending on which way the wind was blowing or which way CNN's ratings were going might be a better analogy. Clients across the country have decided to hold off from refinancing because they feel rates are going to drop even more! I always ask "why do you think this?" The answer is because they read an article or they saw it on TV or a rate was posted on the Internet. I tell them, I do this for a living, I fully understand mortgage back securities and have all the live charts that tell me which way rates are going, I compare 20 or so lenders daily, price out mortgages taking into consideration the Fannie Mae and Freddie Mac Guidelines, read and analyze daily all the economic indicators. You know what, I can't tell you what rates are going to do, how the hell is the general consumer going to do this?

My point is, if you refinanced back in November or early December when rates first dipped to 5.00% to 5.25% (I speak in ranges, there is no time in life to nickel and dime anything, it gets you know where) and you were saving $300 or more on your payment, you are doing very well. BUT, here it comes......But there are clients that are still holding out because they know rates are going to drop more! That's right, we have consumers amongst ourselves that can predict mortgage rates....BRILLIANT, BLOODY BRILLIANT! Here is the math question of the day, pay attention: If you closed in November 2008 at a savings rate of $300 per month, you would be currently making your 5th payment on April first....you with me? You would save $1500 so far, almost paying for the closing cost outright. Now for the tricky Math, You the consumer wants to hold out for an 1/8 maybe a 1/4 percent more to save that extra $22 or $44 more a month and still have not refinanced yet. Ready.....by holding out for the extra $40 or so bucks, and not taking advantage of the rate a few months ago it will take you over 34 months to make up that savings you could of had in November. For those that are a little slow: I took the assumed extra savings of $44 you think you can get and divided it by the $1500 you could have saved. It comes out to 34.09 months to make up the last 5 months of savings. That is nearly 3 years to get back your savings potential!

Just in case, you will have this same test again when you turn 62, the Govt will give you the option of taking Social Security at a said amount, then they give you a teaser....If you wait until your are 65, we will give you a little more....hehehehehhe. Big Brother knows they win every time, its like thinking you can beat the tables at Foxwoods. Even at the lower amount at age 62, that revenue takes years to make up if you decide to be greedy and take the larger amount at 65. You know what, that was a bad example, we won't have Social Security 20 years from know....sorry, my bad. One more reason to refinance now.

Again, if you have the opportunity to save money and create a better cash flow on a monthly basis, take advantage of it. If rates do decide to plummet into the the low 4's or even 3's I heard somewhere, then refinance again! Too many consumers got caught in the refi greed of a few years ago. You did well, you did not increase your loan, but you refinance if the rate dropped by 1/2 percent. Savings is Savings, and if you save $100 or more a month then do it. Don't try to outsmart the markets or the economy. We have some of the top people in the world that can't figure this out.

Stop being so Short Sigthed, lock in a good rate today and begin saving. If rates drop that much again, refinance the mortgage again. Please don't lose this once in our lifetime opportunity to save hundreds of dollars a month!

If you would like to comment or email me, please do anytime. I truly love what I do and I have been writing mortgages since the early 90's. I can not say I know everything in lending, but I am very surprised of how many know more than me!

Bill Nickerson
Vice President of Hand Holding
978-264-4803
bill@billnickerson.com


Apply Online

Adjustable Rate Mortgage

Did the Media tell you your rate was going to adjust into the 10's? Even the 9's....8's? We all know how the news media gets a hold of something and then wants to make sure they scare the bejesus out of you when you don't listen to them. Well, read on....this is about how your Adjustable Rate Mortgage is going to Adjust DOWN.


Do you have an adjustable rate mortgage? Did you obtain one through a conventional lender, bank or mortgage broker? Chances are your rate will drop when it goes to adjust.

The conventional lending world has many programs in the adjustable world and almost all come with a security blanket of some sort. "Caps", this is the limit your rate can adjust up or down from your existing mortgage rate. Typically this number is 2.00% for adjustments and then you will have a life time cap, this could be 4, 5 or even 6.00%. If your rate started at 5.5%, when it goes to adjust for the first time, it could not go lower than 3.5% or as high as 7.5% and over the life, it will not move more than the lifetime adjustment, we'll use 5 for the example and this would give you a rate of 10.5%. Chances are in the life of this loan, you will not reach this rate, ARM's have not been over 7.00% for 15 plus years.

Word of caution, I am speaking of Fannie Mae and Freddie Mac mortgages, these are the mortgages that are offered by mortgage and banking professionals. If you actually got a sub-prime mortgage, read your paperwork of how it will adjust.

Ready for the good news?!?!?!?!!!! IF your rate is going to adjust today or in the next few months, it will go DOWN. All banks and lenders use an Index and a Margin to figure out what your rate will be going forward and you signed paperwork on this. Typically the index can be a One Year T-Bill, Maybe the LIBOR or the COFI (click any of these for charts and definitions) these indexes run pretty close together and all are under 1.00% today. You will now add the Margin to this index. "Typically" the margin will be 2.75% and this could range on the lender or bank by a 1/4 percent. We are talking a few assumptions here but the norm will all lenders is 2.75. The language will say, Index plus margin rounded up to the nearest 1/8th. This will be your new rate for the next 12 months.

So, add the 1.00% and the 2.75 margin and what do you get? 3.75% is the average 1 year adjustable right now.

So before you run to the nearest bank or mortgage company to refinance out of your ARM, think of why you got it in the first place. I have one, it now adjusts every 6 months and has dropped the last 3 adjustment periods. My goal was to be in my house for about 5 plus years, but knowing full well I could be here for 8 years. A 5/1 ARM, no matter how the rate goes, will be cheaper than a 30 year fixed up to its 8th year. This is assuming it goes up every year and then the 8 year marks is the break even point.

If you thought you were selling in a few years, think this through. Your rate drops this year to somewhere in the high 3's even low 4 for the next 12 months. Worst case, in 12 months it goes up by 2.00%, now you are back to high 5's maybe low 6's. Your average monthly payment for 2 years will come out less than a 30 year fixed with the closing costs every time. Even if your rate goes up to 7.00%, it is still cheaper to keep this ARM into the 3rd year compared to the 30 year fixed. Remember, this is if you are still looking to sell your house in the coming 2 to 3 years.

You are probably reading this saying....this guy is nuts! He is actually talking us out of something that provides food for his family. This is true, this is how I make my living writing mortgages, but it is why I am still writing mortgages because of sound financial information like this. My career in mortgages is in consulting first and finding ways to help my clients. (so please do not tell my higher ups!)

Would you like more information on your adjustable rate mortgage? Even if I did not prepare your mortgage for you last time, send me an email or call me. A 5 minute phone call could save you thousands!

I look forward to hearing form you and your comments on these articles. The best way to get a hold of these days is via EMAIL.


Bill Nickerson
Vice President
Mortgage Network
email
website