The Mortgage Porter

Exactly 10 Years Ago Today

I was glaciating down Mount St. Helen's with my future Husband!  He looks too happy at me being horrified, doesn't he?

I just happened to glance up at my bulletin board in my home office and noticed my original permit to climb St. Helen's dated 6-30-97.   It was kind of an odd feeling and that was quite an adventure for me.   

Rob was "in to" mountain climbing at the time and had actually reached the summit of Mt. Rainier.  I just had to see what the thrill was all about and let's just say my happiest moment was getting off the mountain!  With that said, this is something that I'm really proud of doing...it's amazing to look inside the crater (yes, I made it to the top).   The clouds were coming in by the time we submitted St. Helen's...I was the last to reach the top and the first one down from our group.

Thank goodness Rob is now "in to" wines instead! 

Rain City Guide's Girls Night Out

Tomorrow (June 30th) night at 7pm, Ardell & Kim, Jillayne and I are welcoming one of the newest members to RCG and Seattle: Karen Kirr.   It is the official "Welcome Karen to Seattle Night" that will take place at the Roanoke Park Place Tavern in Capitol Hill.

Guys are welcome too!   If you plan on showing up, drop by RCG and let us know!

Friday's Rates are slightly improved

Rates are slightly improved over last week based on stronger than expected economic reports that were released this morning following yesterday's decision from the FOMC to keep the Prime Rate unchanged at 5.25%. The Core PCE and Chicago PMI came in better than anticipated indicating that inflation may calming down a bit.  Inflation has a negative impact on bonds so the mellow reports translates to improved mortgage rates for you and me.  Groovy!

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  Conforming rate quote below based on owner occupied with minimum credit scores of 680 with an 80% loan to value or lower.  Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below.   I'm including how much rates have changed since last Friday's rate post (in parenthesis).

30 Year Fixed: 6.375% (APR 6.533%).  Payment per $1000 = $6.24 (improved 0.125%).

30 Year Fixed with 10 Year Interest Only:  6.500% (APR 6.667%).  Payment per $1000 = $5.42 (improved 0.125%).

40 Year Fixed:  6.625% (APR 6.789%).  Payment per $1000 = $5.94 (improved 0.125%).

7/1 ARM:  6.125%% (APR 6.281%).  Payment per $1000 = $6.08 (improved 0.125%).

5/1 ARM:  6.000%  (APR 6.144%).  Payment per $1000 = $6.00 (no change).

5/1 ARM with 10 Year Interest Only:  6.125%  (APR 6.270%).  Payment per $1000 = $5.10 (no change).

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).   

30 Year Fixed: 6.500% (APR 6.669%).  Payment per $1000 = $6.32. (improved 0.125%).

30 Year Fixed with interest only payments: 6.625% (APR 6.779% ).  Payment per $1000 = $5.52. (no change).

40 Year Fixed:  6.625% (APR 6.781 %).  Payment per $1000 = $5.94 (improved 0.125%).

5/1 ARM:  6.000% (APR 6.155%).  Payment per $1000 = $6.00. (improved 0.125%)..

5/1 ARM with 10 Year interest only payments: 6.000% (APR 6.155%).  Payment per $1000 = $5.00.  (improved 0.125%)..

Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR.    This is just a small sample available of rates and products.    For your personal rate quote or loan amounts over $650,000, please contact me.

My Community is now more expensive

Earlier this month, Fannie Mae changed the pricing on their My Community program across the board to all lenders by 1% increase to fee.    If you're using a My Community program and you're transaction is not yet closed, you may want to check with your Loan Originator to make sure your lock is still valid.

I am currently working with a buyer who is purchasing a condo-conversion and the construction is taking longer than originally anticipated (this is not unusual, unfortunately).   I originally locked in the loan well beyond the first close date on the purchase and sale agreement...when we blew past the original agreed to closing date, I did the longest extension possible for my client.   Guess what?  The lock will expire on July 2 and the condo will not be ready for closing (according to our most recent update) until around July 13th.   Some lenders will allow you to continue to extend (for a fee) others only allow a one time extension, such is the case with this situation, and then you're at "worse case" pricing.   "Worse case" pricing means that if current pricing/rates is worse today, that's your new rate.   If rates are better today, the original (worse) rate, is your rate.   "Worse case" pricing is pretty much as it sounds...WORSE!

We were using the My Community with a 100% loan to value 5/1 ARM using LPMI (lender paid mortgage insurance).   It was a great option for my client.   Having the loan repriced at "worse case" is not an option.   Not only are we factoring in the 1% increase in fee, we are contending with the mortgage interest rate increases over this past month.   

After reviewing the options with the buyer, we are electing to do an 80/20.   The first mortgage will have the same interest rate as what our original lock with the My Community Mortgage did.  The second mortgage has a slightly higher rate (as seconds do, especially with 100% ltv) so his payment is increasing a bit but not nearly as much has we stayed with My Community.  It's nice to have options when you have to "punt" in a situation like this.

All is all good...just not in My Community!

Buying a house when you have a lot of debt

A reader who recently moved to Seattle contacted with a question that I think many will relate to.   He contacted me offering his story:

"One idea you may be interested in writing about are house buying options when you have good credit and income - but a lot of credit card debt. We're paying off the credit card debt slowly -- very slowly, and seeing housing prices rise 15% or more annually. It's frustrating because as time goes by -- the dream house only gets further out of reach. We will be able to buy a nice house -- but not the dream house we could if not saddled with the credit card debt. The credit card debt also isn't tax deductible!"

I work with many families who have visions of their "dream home" while they're trying to manage monthly debts.   And as if buying a home wasn't stressful enough on it's own, many home buyers seem to feel panicked over our local appreciation with home prices.   It's a definite balancing act of buying as much home you can afford without "betting the ranch".   If you're over burdened with credit cards AND you take on a hefty new mortgage payment, you could be setting yourself up for financial (and emotional) disaster.   

I do not encourage using a mortgage such as an Option ARM for sole purposes of stretching into your dream home.   If you make the minimum payments (which most will opt for) the deferred interest will reach it's cap and you will be faced with a much higher mortgage payment.  If you cannot afford the mortgage payment using a fixed period ARM or fixed rate product, you probably cannot afford the home.   

It's very possible that home buyers may need to redefine what their dream home is.  Buying a home that needs a little TLC or is a little further out from the city may afford you more comfort when it comes to your monthly cash flow.   Plus, you may receive a better return on this type of property should you decide to sell it in 5 or so years, using the net proceeds (profit) to purchase your "dream home". 

For example, this 1800 sq. ft. completely remodeled rambler (now subject to inspection) was recently listed in Kent for $349,950.   It's on a corner lot, in a popular neighborhood with four bedrooms and 1.75 bathrooms.   I'm not a Real Estate Agent, but I would bet that similar homes in Seattle would sell for closer to $500,000.   Having the lower payment and more funds in the bank from a reduced down payment can translate into a higher quality of life.   I know...I know...you do have to factor in commute times with our traffic.   But once you're home, you are HOME.

I will go into more details about this families information in future posts.   They were gracious to share their information with me and their story is certainly not unique.

Mortgage Ripoffs and Money Savers by Carolyn Warren: a book review

I just finished reading Carolyn Warren's book, Mortgage Ripoffs and Money Savers. As  I mentioned over the weekend, this is a longer read at 222 pages...it is full of information that I feel is very useful.   If I had to be critical, I would say at times the book is a little on the sensational side...with that said, it does have me thinking.   I've only worked for one mortgage company and Carolyn, the author, has not only worked for several mortgage companies, but also varies types of mortgage companies (wholesale, subprime, bank, consumer loan, etc.).  She has been more exposed to various types of Loan Originators than I have.   I wonder how much of her experience is more subprime/consumer lending vs. working for an ethical mortgage company?

I do have experience with Loan Originators from my previous career in the title and escrow industry and I certainly developed an opinion of many in the profession.   Are there really that many bad Loan Originators out there?  I know so many outstanding Mortgage Professionals who I'm proud to be assoicated with...and I also know there are some giving our industry a black eye.  It will be interesting to see how many do not pass the mustard with the state's new licensing requirements (this law only applies to Loan Originators who work for Mortgage Brokers: not mortgage banks, credit unions or consumer finance companies).   Anyhow, back to the book review...

What is most valuable with Carolyn's book is that she teaches consumers how to shop for a Mortgage Professional...not interest rates.    She also has great points on how to compare good faith estimates and understanding YSP (Yield Spread Premium).   I do have some small issues with how she covers YSP.   I'll have to do a separate post to dig into this issue and being a Correspondent Lender.   

Bottom line, she is providing consumers with a lot of information to help them navigate getting a fair deal on their mortgage and I am all for that! 

What I hope to do this weekend

Besides visit my baby sister (baby, she's 36 years of age!) for her birthday on Saturday...I'm hoping to dig into a book that was graciously mailed to me.   

Carolyn Warren is the author of "Mortgage Rip-Offs and Money Savers".   She was kind enough to send me her book a week or so ago and I've only made it to page 16.  So far, it's a fascinating read, even for someone in the industry...me making it only to page 16 is not a reflection on the book!   I've had a very crazy week trying to help a couple of clients who had the misfortune of getting involved with a major internet lender (you know, the advertiser on TV who promotes having 4 lenders compete and beg for your business)...I promise to post about their stories will follow once their transactions are closed (names will be changed to protect the innocent and not-so innocent, of course).   

Carolyn's book is a bigger read than the last review I did, It's Not About Rate...so I'm contemplating reviewing the book in sections or just reading all 222 pages and then giving my 2 cents!   I'll figure it out and post the results soon.

Happy Birthday, Janette!

Friday's mortgage rates...slightly improved since this morning!

One my big beefs about posting rates is that... well... THEY CHANGE!   Not just daily... but sometimes, especially in our current market atmosphere, a couple times a day.   The rates I posted this morning at Rain City Guide are no longer valid...yet, a  potential home buyer or person looking for a refinance might view the rates and think, "boy, she's 1/8 higher than everyone else!".    That's life in the fast lane, I guess.   Just another example of why it's always best to get a good faith estimate when you're reviewing rates.

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  Conforming rate quote below based on owner occupied with minimum credit scores of 680 with an 80% loan to value or lower.  Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below.

30 Year Fixed: 6.500% (APR 6.648%).  Payment per $1000 = $6.32 (improved 0.125% from this morning).

30 Year Fixed with 10 Year Interest Only:  6.625% (APR 6.775%).  Payment per $1000 = $5.52 (improved 0.125% since this morning).

40 Year Fixed:  6.750% (APR 6.901%).  Payment per $1000 = $6.03 (no change since this morning; up 0.125% from last Friday).

7/1 ARM:  6.250%% (APR 6.392%).  Payment per $1000 = $6.16 (no change).

5/1 ARM:  6.000%  (APR 6.144%).  Payment per $1000 = $6.00 (no change).

5/1 ARM with 10 Year Interest Only:  6.125%  (APR 6.270%).  Payment per $1000 = $5.10 (no change).

JUMBO (Non-Conforming) Rates.   Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down).

30 Year Fixed: 6.625% (APR 6.779%).  Payment per $1000 = $6.40. (no change).

30 Year Fixed with interest only payments: 6.625% (APR 6.779% ).  Payment per $1000 = $5.52. (improved 0.125% since this morning).

40 Year Fixed:  6.750% (APR 6.903 %).  Payment per $1000 = $6.03 (no change since this morning, up 0.125% since last Friday).

5/1 ARM:  6.125% (APR 6.274%%).  Payment per $1000 = $6.08. (no change).

5/1 ARM with 10 Year interest only payments: 6.125% (APR 6.274%).  Payment per $1000 = $5.10.  (no change).

Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR.    This is just a small sample available of rates and products.   For a specific strategy for your mortgage needs, contact a qualified Mortgage Professional.

Rates are as of 12:30 p.m. PST and may very well change throughout the day.   

Something fun on Friday

...and you just might want to do this if rates keep up their upward trend!   Last Friday, my husband, some friends and I went to Castle Bridge Winery where you can make your own wine! 

Here's a shot of our group mixing our fruit...and in just 20 days, we'll be racking the wine off the lees and degassing the wine (something I'm sure my husband is a natural at).  The entire process will take about two months.    It was a lot of fun...my assignment is to design our label for our wine which is similar to an Amorone.   Castle Bridge has several different wines to chose from if a hearty red isn't your cup of tea, or should I say, glass of wine! 

 

Castle Bridge Winery is located 2 blocks west of Ikea where Renton, Kent and Tukwila meet.   If you don't want to go make your own wine, they do have a retail store as well.   I know we're enjoying the process so far and hope to have our wine ready to bring over to the family for the holidays.    It's not Quilceda Creek, Pride or Insignia...it is fun!

Watch for more post on our wine making adventures for something fun on Fridays.  Cheers!

When an appraisal comes in low

Luckily this hasn't happened often to me...last week we closed a transaction where the appraised value came in lower than the agreed sales price on the purchase and sale agreement.   Ugh! 

The property is a nice home in south King County that was originally listed for $275,000. Shortly after going on the market, a bidding war commences and my client "wins" the home after it is bid up to $300,000 which includes building in $6,000 of closing costs to be paid from the seller.  My client is putting zero down into the transaction (100% loan to value).

The appraiser is faced with many challenges in this scenario.

• How can he justify the significantly higher sales price over the list price?
• Finding like properties, also referred to as "comps" or "comparables" (a small split entries with similar square footage of 700 on the main floor) that have recently sold and closed.
• Finding these comps within a radius close to the subject home.
• Stacking in a significant amount of closing costs into the sales price. 

From the appraiser's point of view:

"It's a touchy issue because a sales price over and above the listing price is difficult to deal with.   If you look at it objectively, why would anyone pay over the listed price in the absence of a bidding war, especially if the property has been on the market more than a couple of weeks.   If it was worth more than the listed price, one would think it would have sold right away.   In the present environment (sub-prime problems) the appraisal is getting scrutinized more than ever before.   This makes the adding on closing costs issue harder and harder to deal with."

The home in this scenario appraised for $285,000.  So what happens next?   When it comes to determining the value of a property, the lender is going to use the lesser of the sales price or appraised value.   If the home would have appraised for $320,000; the lender would use $300,000 for the value; with the home appraising for $285,000 this is now what the lender will base the loan on when factoring loan to values.

The buyer has a couple of options from the lender's standpoint.

1. The sales price can be reduced to the appraised value of $285,000.   Since this loan was 100% financing, the loan amount was also reduced to $285,000.   If the loan amount was not based on 100% of the value, the loan can be restructured.   For example, if the buyer was planning on putting 20% down on a $300,000 home, their loan amount would have been $240,000.   Now with a value of $285,000 their new loan to value is 84%.   The buyer either reduce their loan amount to $228,000 to keep the same program and pricing that an 80% ltv loan would have, or they can opt for a different program (such as LPMI, PMI or do a piggy back mortgage) with the 84% loan to value.  The loan would be repriced accordingly.
2. The buyer can bring in cash to make up the difference.    If the seller will not reduce the price to the appraised value, and the buyer still really wants that home, the buyer can bring in the difference between the appraised value and sales price, in this case $15,000.   The loan amount would remain $285,000.   The $15,000 (difference between the sales price and appraised value) would need to be sourced and seasoned.
3. The buyer (or seller) can decide to not close the transaction.   Depending on how the purchase and sale agreement is written and what contingencies have been removed, the buyer may or may not receive their earnest money deposit back in this scenario.   
4. The Seller can elect to obtain an appraisal.  The appraisal must be from an appraiser who is approved with the lender and be the correct type of appraisal based on the loan approval.

In this case, the seller agreed to lower the price to the appraised value (it was still more than what they had listed the home for even after factoring in the seller paid closing costs).   The buyer wound up with a lower sales price and lower mortgage payments. 

Just because a buyer is willing to pay a certain amount for a home, does not mean that the lender will finance it based on the purchase and sale agreement.   Not all appraisals come in "at value".   Often they may be a little above the sales price and once in every blue moon, they even come in lower.