The Mortgage Porter

Happy New Year from Mortgage Porter

The Mortgage Master family and Mortgage Porter wishes you a very happy and healthy  New Year.

Mortgage Master will be closing by 2:00 p.m. on December 31, 2007 and reopening for business as usual on January 2, 2008.  Remember, many offices will have reduced staff during this holiday season.

Thank you for your patronage and for reading Mortgage Porter this past year.   Your support means the world to me and I look forward to sticking around for 2008 and beyond.

Happy New Year!

The Difference in Rates Between Conforming and Jumbo

This is the last question that a reader had emailed me regarding qualifying for Jumbo mortgages:

"I was wondering if you can provide me with some information regarding loans.  We are looking to buy a house in the next 6-12 months with a price range of 1.1 million to 1.3 million.  We plan to put 20% down on a 30 year fixed mortgage and our credit score is between 760-790. 

1)  What type and duration of income documentation is needed for a full doc loan in the current lending environment?
2)  What is the debt to income ratio that most lenders are using for loans of this size?
3)  What is the typical interest rate differential for a loan of this size compared to the jumbo rates that you quote on Rain City Guide?"

The price differential between Jumbo and conforming mortgages has increased since the mortgage meltdown began back in August of 2007.   Prior to this, it was pretty safe to assume that a Jumbo rate (loan amount over $417,000) would be approximately 0.25% higher than a conforming rate for a 30 year fixed. 

Since mortgages over $417,000 are not backed by Fannie Mae or Freddie Mac, they are considered to be a bit riskier to investors.  With what has transpired over these past few months in the mortgage industry, the spread between conforming and non-conforming rates is changing constantly.

Here's a snapshot of rates I've posted for 30 year fixed conforming (conf) and non-conforming (jumbo):

• May 11, 2007:  conf 5.875% - jumbo 6.125% (the spread was predictibly at 0.25% prior).
• May 25, 2007:  conf 6.250% - jumbo 6.250%
• June 7, 2007: I published an alert to lock in your rate (99% of the time, I encourage borrowers to always lock in their rates).  The next day, we had conf. and jumbo rates at 6.500%.
• July 27, 2007: conf 6.375% - jumbo 6.625% (back to the "normal" 0.25% spread).
• August 3, 2007:  conf 6.250% - jumbo 6.625%.  This is "Friday's Rates"...however rates changed so dramatically in August that I was compelled to post Mondays rates:
• August 6, 2007: conf 6.250% - jumbo 7.125% (0.875% spread)
• September 7, 2007:  conf 6.00% - jumbo 7.25%  (1.25% spread)
• October 19, 2007: conf 5.875% - jumbo 6.500% (0.625% spread)
• November 30, 2007: conf 5.625% - jumbo 6.750% (1.125% spread)
• December 21, 2007: conf 5.875% - jumbo 6.750% (0.875% spread)

The difference between conforming and jumbo rates in our current market can range anywhere from 0.75% - 1.25% based on recent trends.   With that said, this can change at any time.  This is a volitile market for mortgage interest rates.   

Plus, effective January 1, 2008, many lenders are switching to credit risk based pricing for conforming mortgages.  This may narrow the gap between conforming and jumbo, depending on your credit score (bringing the conforming rate up which is not the way most of us would like to reduce the difference of rate).

I do recommend checking out my rate posts on Fridays (either here or at Rain City Guide) just to make sure they're in reason with what you're being quoted by your Mortgage Professional.   Some lenders may not have other resources (like a broker or correspondent lender has) and therefore are limited with the rates they can provide.  Some Loan Officers (or the mortgage company they are employed at) may be padding the rates during these times to.  I was just over at another local blog and the rate spread they're currently quoting for jumbo vs. conforming is 1.125%.   I don't believe she's padding the rates, she works for a bank so it could just be all she has to offer.

I will do a follow up post on loans for million dollar homes after the New Year.

Last Mortgage Rate Post for 2007

Following the tragedy in Pakistan with the assassination of Benazir Bhutto, mortgage backed securities are becoming a safe haven for investors as they seek a "flight to quality".   World events such as this which causes political uncertainty impact mortgage rates which is why it's difficult to predict where rates will be in the future.   Mortgage rates during the week had bumped up and due to the recent events, they're back around to what I posted last Friday.   

December 31, 2007, many offices, including Mortgage Master, will be closing early and January 1, 2008 is a holiday.  Should you wish to lock in your mortgage interest rate, please do so today or be prepared to wait until January 2, 2008.   2007 has been a historic year in the mortgage industry and I am really looking forward to what 2008 may bring. Happy New Year!

Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties).  The conforming rate quote below is based on owner occupied, "full doc" with minimum credit scores of 680 with an 80% loan to value or lower, a loan amount of $400,000, and with reserves (taxes & insurance) not being waived.   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: 5.875% (APR 6.021%).  Payment per $1000 = $5.92.

30 Year Fixed with 10 Year Interest Only:  6.125% (APR 6.256%).  Payment per $1000 = $5.10.

40 Year Fixed:  6.375% (APR 6.512%).  Payment per $1000 = $5.86.

5/1 ARM (2/2/6 caps):  5.625% (APR 5.768%).  Payment per $1000 = $5.76.

5/1 ARM 10 Year Interest Only Payments:  5.750% (APR 5.886%).  Payment per $1000 = $4.79.

FHA/VA 30 Year Fixed:  6.1250% (APR 6.779%).  Payment per $1000 = $6.08. (not including MI for FHA).

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: 6.750% (APR 6.901%).  Payment per $1000 = $6.49.

30 Year Fixed with 10 Year Interest Only Payments: 6.875% (APR 7.027%).  Payment per $1000 = $5.73.

5/1 ARM:  6.375% (APR 6.522%).  Payment per $1000 = $6.24.

5/1 ARM Interest Only:  6.375% (APR 6.522%).  Payment per $1000 = $5.31.

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.  Rates are as of Friday, December 28, 2007 at 9:30 a.m. and may change at any time.  Available programs may change at anytime as well.   This is not a guarantee nor is it a commitment of interest rate.  For your personal rate quote or for loan amounts over $650,000, please contact me.

Private Mortgage Insurance deduction extended through 2010

Included in the Mortgage Forgiveness Debt Relief Act that President Bush signed just before Christmas is the continuance of being able to deduct private and FHA mortgage insurance if you meet certain criteria through 2010. 

• The mortgage must be used for "acquisition indebtedness" which means for purchasing your home or a refinance doing substantial improvements.  This also includes refinancing the mortgage you used to purchase your home, however the amount is based on what the original loan amount was when you purchased your home.
• The deduction applies to "qualified residences" which is your primary residence and a second home that is not a rental.
• Adjusted gross incomes up to $109,000 qualify for the deduction.  Adjusted gross incomes of $100,000 or less are allowed to deduct 100% of the allowed pmi.  AGI's of 100,000.01 - $109,000 are on a sliding schedule (the higher the income, the lower the deduction).
• You must itemize your taxes in order to obtain the deduction (you need to do this in order to claim your mortgage interest deduction as well).

Consumers should meet with their Mortgage Professional to help them consider all options before selecting a mortgage. 

Debt to Income Ratios (aka DTI)

This is a follow up to the email I received asking several excellent questions.  I addressed what is required for a full doc loan in my previous post.   Now it's time to answer Question #2:

1. What type and duration of income documentation is needed for a full doc loan in the current lending environment?
2. What is the debt to income ratio that most lenders are using for loans of this size?
3. What is the typical interest rate differential for a loan of this size compared to the jumbo rates that you quote on Rain City Guide?"

Let's begin by addressing what a debt to income ratio is.  It's pretty much like it sounds.  It's factoring in your monthly payments plus the proposed mortgage payment (PITI = principal, interest, taxes and insurance) and home owners dues, if any.   Your monthly gross income that is used for qualifying is divided into the monthly debt which produces your DTI (debt to income ratio). 

Borrowers have a front DTI and a back DTI.  It may look something like 28/38.  The front ratio is the proposed PITI (total monthly payment) divided by your gross monthly income.  The back DTI is really the most important and is essentially the bottom line.  It's factoring in your total monthly debt plus your proposed new PITI (new mortgage payment) divided by your gross monthly income.

For simplicity sake, let's assume that you have a minimum of two years employment and are paid a salary of $60,000 before the government takes their portion, insurance, 401k, etc.  $60,000 is the figure that we will use for your gross annual income/12 = your gross monthly income.  Your gross monthly income is $5,000.

For our example, let's say you have the following:

• $300 car payment (those car payments can really impact your home purchasing power)
• $150 in credit cards (minimum monthly payments)
• $50 in student loans
• If you are paying child support and it's continuing for 3 years; this is factored into your DTI as well.

Note:  Installment debts with a term of less than 10 months remaining may not be calculated in your DTI ratio.

We have a sub-total of $500 for monthly debts (300+150+50).

The debts are 10% of this persons gross monthly income.   If the allowed total DTI (as referred to as the back ratio) is 45%; then the most this borrower could have for a mortgage payment is 35% of their gross monthly payment (45 allowed - 10% of their current obligations = 35%); they would qualify for a PITI of $1750 (remember, this is including principal, interest, taxes, insurance and any home owner association dues).

Different programs will allow for different DTI ratios.   And (at this present time, although this could easily change in our current mortgage climate) automated underwriting (AUS) dictates a majority of what is allowed for a DTI ratio based on the other strengths of the borrower (down payment, credit, assets, employment, etc).  For example, the less money you put down towards the property, the lower your DTI will be.

Here are some basic DTI ratio guidelines:

• VA Loans:  41%
• FHA Loans: 43-45%
• Conforming 45% plus (depending on the AUS response).
• Non-Conforming 45%
• Second Mortgages 45%

More important than what mortgage guidelines will allow you to have is what is comfortable for you and your household.  Just because you qualify for a higher mortgage payment does not mean that you must have it.   Consider paying yourself first with a monthly allotment going towards funding your retirement or child's 529 for college tuition.  Leave yourself some wiggle room because life happens when you least expect it.

What will 2008 bring to the local mortgage industry?

To start with, there will be a significant reduction in those who can legally take  a loan application in Washington.    Effective January 1, 2008, if a loan originator works for a company that is registered with the State of Washington Department of Financial Institutions (DFI), the loan originator must have:

• Passed their competency exam.  (Most who take it do pass...many are simply opting to not take the test).
• Attended two DFI approved 3-clock hour courses (one must be on ethics).
• Renewed their license if it expires by 12/31/2007.

The last stats I've heard is that out of the over 15,000 Loan Originators who registered with DFI, fewer than 2,000 have taken and passed the exam.  That's reduction of just over 85% of Loan Originators working for mortgage brokers in Washington State. 

Originally I assumed that LOs who do not want to take the steps required to work for a mortgage broker, would decide to work for a mortgage bank where they are not held to these standards by the state of Washington.   This is not going to be the case.   After talking with a few of my mortgage banking brothers & sisters, I've learned that many banks are "googling" Loan Originators names before hiring and if they were rejected from DFI, the bank sales manager is able to see the nitty gritty details of their disqualification of being a Licensed Loan Originator.   Bank Mortgage Sales Managers also visit DFI's site and run an LO's last name to see if they were rejected, withdrawn or licensed.     Add to this equation that there are going to be fewer jobs for Loan Originators with some local banks, such as Washington Mutual, laying off employees and closing some of their retail loan centers.

A majority of the 13,000 or so Washington Loan Originators who have elected not to take the three simple steps I've referenced really don't have a lot of options in the mortgage industry.  Yes, a bank will hire a good producer who has not been rejected from DFI...but there's only so many of those and no reason for a bank to hire someone who's a marginal producer.

Let's also not forget that it's been an amazing ride for the mortgage industry since August.   Some LOs will decide this job just ain't worth it.  You really need to know your guidelines and various programs these days and be prepared to forget what you just learned because the guidelines just changed (again) or the program is discontinued.

So after the New Year celebrations pass, if your Loan Originator is still around to help you as your preferred Mortgage Professional, give 'em a pat on the back.  There will be fewer of us left standing when it's all said and done.   

I personally cannot wait for this year to end and to start new in 2008!

Happy New Years!

Merry Christmas from Mortgage Porter

Merry Christmas from Mortgage Porter, Rhonda Porter and Orson

A Letter to Santa

This is from my youngest sister many years ago (she is now a Wholesale Rep for EverBank).  This is just so cute, I had to share it with you!  Merry Christmas.

Mortgage Master will be closing early today at 1:00 p.m.  I'm taking the day off to finish making Pear Gingerbread Triffle for Christmas brunch at my other sister's home and Roasted Asparagus with Pancetta and Goat Cheese for my inlaws tonight for Christmas eve.

JP Patches Statue Update

I just received this email from Urban Sparks.  If you're a reader of this blog, you know JP Patches is my childhood hero.   I was fortunate to have him surprise me on my birthday this year when he showed up at my home.   Fundraising is still actively taking place for the statue to honor JP and Gertrude in Fremont.  It was recently announced that JP is fighting blood cancer.  He still managed to show up at the Seattle Aqaurium to the delight of locals and do a fundraiser a few weeks ago for Channel 9 (our public television station).

I have added a link on the left side of Mortgage Porter so you can easily donate any  amount you would like or purchase a Patches Paver.  This link featuring this handsome clown will remain until we have enough funds raised to complete JP and Gertrude's statue.  Still looking for last minute Christmas Gifts?  A Patches Paver is the perfect present for Patches Pals!   

View photos from when the statue model was unveiled at Fremont earlier this year.

Hi Patches Pals,

Let’s boost JP’s and Gertrude’s spirits for the Holidays.  They still boost spirits all year round and they’ve done it for 50 years!  Think of the joy they’ve brought you.

Let’s give them a boost for the holidays; let’s finish the statue fundraising now, before the end of the year, so they can dance around it in early 2008.

J.P. and Gertrude still give to community by making increasingly-rare public appearances that touch kids of all ages.  And they do it with clown makeup.  As sweet as Gertrude is and as dedicated as she is to winning J.P.’s heart, she’s pretty tired of putting her face on and washing it off again before bedtime. 

This year, J.P. and Gertrude have worked extra hard with a team of “youngsters” at NATAS-NW and Urban Sparks to support the gift of the statue to generations of grownup kids and to generations of kids that they hope will get to grow up after spending time at Children’s Hospital. 

They know that they can live long beyond their mortal lives as role models of humor, kindness, and generosity and they know that the donations that the ICU2TV will collect for years to come will help Children’s Hospital serve kids who need more than a good laugh.  So they’re ignoring their advanced ages and pushing on to support this effort – not for ego but for their love of kids. 

Depending on whether you were 7 years old in 1958 or 1981, J.P. and Gertrude are 23 to 46 years older than you.  Think about that for a moment.  Let’s cut ‘em some slack....

Chris Wedes and Bob Newman and say “Thank you from all of the kids who teamed up to honor J.P. Patches and Gertrude.  Together we made bronze.  You can relax now and stand forever.”

...If we go beyond bronze and raise extra money, that extra money will go to J.P.’s favorite charity – Children’s Hospital.  So we can’t go wrong.  No need to pull your pie!  Donate here

Please help push this fundraising effort over the top right now so we can finish the statue and give J.P. and Gertrude the recognition they so richly deserve.  Then join them at the unveiling in 2008.

Thanks so much. Your Patches Pals at:

NATAS Northwest and Urban Sparks

P.S.  Here is a recent article on J.P.

http://seattlepi.nwsource.com/local/338485_patches06.html

See the Mayor of the City Dump get honored by

Seattle’s Mayor and City Council:

(Fast forward to 10 minutes.)

http://www.seattlechannel.org/videos/video.asp?ID=2020745

Does Santa qualify for a Reverse Mortgage?

If Santa and the Mrs. would like to add a steady tax-free income each month while he's volunteering, making toys and traveling around the world, he may want to consider how a Reverse Mortgage could benefit their lives.

Reverse mortgages can be a financial tool for Seniors who would like to have access to additional funds.   A reverse mortgage is essentially a loan against home equity for borrowers who are at least 62 years old.

Unlike a traditional mortgage where you make monthly payments, a reverse mortgage pays from your equity.   Instead of paying down your balance every month, your loan is actually growing as it provides tax free income to the Senior.  The mortgage is paid off when the last senior leaves the home.  Here is a calculator to see how much cash you may qualify for utilizing a reverse mortgage.

Reverse mortgages are easy to qualify for as long as their is enough equity in the property:

• Youngest borrower must be 62 years of age or older.
• No income or credit score requirements.
• Counseling is required from a HUD approved agency (no cost to the borrower).
• Property must be the primary residence.  (It does not need to be mortgage free).

In addition, reverse mortgages are non-recourse (the borrower can never owe more than the appraised value).

Santa and Mrs. Claus can use a reverse mortgage to:

• receive a lump sum of money (with no payments due until the last borrower leaves the home).
• receive a monthly tax free payment.
• purchase a primary residence.

The money can be used for anything they wish from bridging the financial gap between what they planned for retirement and the reality of retirement to vacationing or what's on their Christmas list.

I'm pleased to be able to offer Reverse Mortgages and the Family Opportunity Mortgage programs both designed to help Seniors. Questions?  Please contact me or your local Mortgage Professional.