The Mortgage Porter

I can't wait!

For spring and our cherry blossoms...open! open! open!

We have three cherry trees in our front yard.  I'll have to post an "after" photo once they finally blossom.  Meanwhile, I'll try to be patient.

Friday's Rates are Leaping Lower: 30 Year Back Under 6%

It's highly anticipated the Fed will cut rates at their next meeting on March 18, 2008.  Please don't delay your mortgage for this event: mortgage rates will very likely be higher.  The Fed controls the Fed Funds Rate and the Discount Rate: not mortgage rates.   Mortgage rates are based on mortgage backed securities (MBS): they are bonds that are traded.  Just like the stock market, the values changes constantly and therefore, so do mortgage interest rates.   Mortgage rates actually tend in increase after a Fed rate cut as the "cut" is viewed as an inflationary action.  Bonds react negatively to inflation.    When the Fed cut rates by 50 bps at their last meeting on January 30, 2008; MBS lost 269 bps in 13 days.   When the Fed made the unscheduled rate cut on January 22, 2008; MBS dropped 144 bps in just 2 days.  Are you noticing a trend here?  Please don't delay your refinance or home purchase based on the upcoming Fed meeting.  As we near mid-March, mortgage rates are very likely to increase.   HELOCs benefit from when the Fed cuts the Funds Rate (the Prime Rate is based on the Funds Rate)...your mortgage rate does not.

Update 3:00 p.m.:  Rates have improved slightly this afternoon...updated rates are posted at Rain City Guide.

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" purchase 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: 5.750%.   (APR 6.021%).  Payment per $1000 = $5.84.

30 Year Fixed with 10 Year Interest Only:  6.00%  (APR 6.133%).  Payment per $1000  = $5.00.   Tip:  Check out the 10/1 Interest Only ARM  below if you are considering this product.  Both of these programs offer fixed rates for 10 years--the 10/1 ARM offers a lower rate by a full half point.

10/1 ARM Interest Only: 5.500% (APR 6.465%).  Payment per $1000 = $4.58.

10/1 ARM: 5.375% (APR 6.383%).  Payment per $1000 = $5.60.

15 Year Fixed: 4.875%% (APR 5.107%).  Payment per $1000 = $7.84.

7/1 ARM:  4.875% (APR 6.420%).  Payment per $1000 = $5.29.

5/1 ARM:  4.625% (APR 6.652%).  Payment per $1000 = $5.14

FHA/VA 30 Year Fixed:  5.875%% (APR 6.404%).  Payment per $1000 = $5.92.  (not including FHA mortgage insurance).

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.

10/1 ARM:  5.875%% (APR 6.656%).  Payment per $1000 = $5.92.

10/1 ARM Interest Only Payments: 6.625% (APR 7.164%).  Payment per $1000 = $5.52.

7/1 ARM Interest Only Payments:  6.375% (APR 7.203%).  Payment per $1000 = $5.31.

7/1 ARM:  5.375% (APR 6.668%).  Payment per $1000 = $5.60.

Prime Rate (what HELOCs are based on):  6.00%

Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR.  These programs all have the same closing costs so you can see APR is not a valuable tool.   If you were considering a conforming product that offered a 10 year fixed period with interest only payments and relied solely on APR, you would wind up choosing the mortgage with a higher note rate by 0.75%!  This is $250 more per month on a $400,000 mortgage.

This is just a small sample available of rates and products.  Rates are as of Friday, February 29, 2008 at 8:30 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.

Do I Actually Have Clients?

I just received this question from a Mortgage Porter reader:

"I'm looking for licensed, local quotes to refinance my house. My ARM is ending and I've been entertaining quotes from contractors to redo my kitchen this Spring. Do you actually have clients or just an advice website?"

I'm really glad she asked this question.  Mortgage Porter is web-blog where I dish out my 2 cents on the mortgage industry and what ever advice I may have.   You may notice that I do not have any advertisements on this blog as many other blogs do.  It's tempting...but I've steered clear of google ads and offers from various vendors.

My sole source of income is the origination of mortgages for those I assist with their financial plans.  My clients are the fine folks who with residential property anywhere in Washington State.  If your property is outside of Washington, I cannot provide your mortgage (I'm only licensed for Washington) however, I will try to find a Mortgage Professional who can assist you.

A majority of my clients are either returning clients whom I've helped before, referred to me from past clients or professionals (real estate agents, CPAs, CFPs, etc.) and I also have clients who read Mortgage Porter and decide they would like me to help them with their mortgage needs too!   I do not "cold call" or buy leads.

I am a Licensed Loan Originator (510-LO-32047) with DFI and hold a CMPS (Certified Mortgage Planning Specialist) designation.

Sorry, too late for a quick answer:  Yes, I do have a mortgage practice and I welcome new clients.  You don't even need to refi or to be buying a home to be my client.  I am "adopting clients" who have been abandoned by their loan originator as well. 

Thanks for asking!

Did You Miss the Last Refi Burp?

Earlier this year, when rates dipped into the mid-low 5's, many home owners took action and locked in the lower rates to restructure their current mortgages.   Some "sat on the fence" speculating that rates would dip further or wanting to "gamble" the market.   Rates quickly picked up and closed the window of opportunity for those who did not secure a lower rate refinancing.   We could be approaching a second chance and this window may open and close just as fast.

Here are some quick rates I just provided to a home owner for a "rate term refinance" for a home valued at $500,000 and a loan amount of $400,000 with credit scores of 700 or better.  A rate term refinance means that any cash out is limited to $2000 or 2% of the loan amount (which ever is less) and that if there is a second mortgage or HELOC that is being paid off with the refinance, the second mortgage must be from when the home was purchased or it is considered a "cash out refinance" which has a higher rate or cost than rate term.  The rates below are priced with 1% discount/origination and the payments will include taxes and insurance (reserves).

30 Year Fixed:  5.750% (APR 5.897%)

10/1 ARM:  5.50% (APR 6.417%)

7/1 ARM: 5.25% (APR 6.608%)

5/1 ARM: 4.875% (APR 6.750%)

These rates are from 8:30 a.m. and will change...I guarantee it.  They may improve or worsen today.  Friday's rates will be posted tomorrow (on Friday).   

Will rates go down further?  Maybe - maybe not.  It is highly anticipated that the FOMC will lower the Fed Funds Rate at their next meeting on March 18, 2008.  As we near the date and when this happens, mortgage rates are likely to increase since this is viewed as an inflationary action and mortgage backed securities react negatively to inflation.

If you're considering refinancing, contact your Mortgage Professional and get ready.  During the last "refi burp" (wasn't quite a boom as it was over almost as quickly as it began) many lost out because they did not have their applications in and were not prepared to lock.   

If your Mortgage Professional is out of the business (many are) or they have neglected you by not keeping you informed of what's going on in the industry or touching base with you, I'm happy to "adopt your mortgage" if your property is located in Washington State.  If your home is not in Washington, I can try to refer you to a fellow Mortgage Professional.

Second Mortgages and "Low Down" Mortgages

SunTrust Bank, one of the lenders we work with, is joining the ranks of other lenders who are eliminating or shelving their second mortgage products, including their combos where they have the first and second mortgage (such as an 80/10/10).  Where we once had several options for second mortgages and HELOCs, we are down to just a few.

Another bank that is still offering second mortgages (fixed and HELOCs) are limiting the total loan to value to 80% if your mid-credit score is 680-699.  A 700 credit score will allow you to go up to 85% total loan to value.

We do have another option for second mortgages that will go to a higher loan to value with lower credit scores...you pay the price with rates up to 3 points higher than what the other bank offers (with the lower loan to value).

What are your alternatives if you do not have 20 or 15% down? 

• Seller financing for a second mortgage (private deed of trust subject to approval with underwriting).
• Private mortgage insurance.  Upfront, monthly or lender paid.
• FHA insured mortgages (subject to loan limits which will be changing soon)
• VA insured mortgages

If you are currently preapproved to purchase a home and you are using an 80/10/10 or 80/15/5, I urge you to contact your Mortgage Professional to confirm your preapproval is still valid and to develop a "Plan B" for your home purchase strategy.   Some private mortgage insurance companies are also pulling back on higher loan to value mortgages (this includes lpmi and Fannie Flex); if you're using less than 10% down with a pmi scenario--check with your Mortgage Professional for "Plan B" as well.

Qualify a Loan Originator with this One Simple Question

How do you track mortgage rates? 

If the person who will potentially helping you obtain a mortgage answers:

"I get rate sheets in the morning and later if they change during the day."

Run!  Anyone who is gauging interest rates by when lenders issue new rate sheets is behind the market.  The rates have all ready adjusted.

"I watch CNBC (or something along those lines) and keep tabs on how the 10 Year Note is performing."

Wrong again.  Mortgage interest rates are not based on the 10 year note.  However you will hear the media and other professionals incorrectly state this is what rates are based on.  If you or your loan originator are tracking the 10 year based on when to lock, it will cost you.

The correct answer:

"I keep a close eye on mortgage backed securities.  I am committed to my mortgage practice and this is why I subscribe to a service (such as Mortgage Market Guide) which allows me to do so."

Now here's my question for you:

If you are working with a Loan Originator who is not dedicated to their practice enough to subscribe to a service that allows them to track mortgage backed securities or (even worse) who does not know or care to track what influences mortgage rates: WHY?

Bait and Switch Mortgage Rate Advertisements

Bait and switch is when a consumer is offered something tempting (bait) that is no longer available and then they are offered something else (switch).   I see this over and over again when lenders of all types promote rates in main steam media such as the radio, print ads, bill boards, television...you get the picture.

Today I noticed a Wachovia ad on the TV promoting a low rate of 5.50%...home owners are dancing for joy.  If you watch real closely to the fast moving small print, it discloses that the rate is from January...um folks, February is almost gone and so is the rate that Wachovia is currently running on CNBC.   If you call them for 5.50% (bait) they're going to offer you something in the low to mid-6's (switch) per their website tonight.

Advertisements on the radio promoting rate are wrong too.  Even if the rate being broadcast is a live interview, the rate can change at any moment.  I have less issue with a live interview--advertisements are planned well in advance.  The rates you're hearing now are from a month ago.   Even if they're from yesterday, they are no longer valid unless the rates are unchanged.    If you call them for the rate (bait) they'll tell you they don't have it anymore but (here comes the switch)....

Print ads take at least a couple days to produce and when rates are published in a newspaper or magazine, odds are that rate is long gone as well (if it was ever available to begin with).

I publish rates too.  Every Friday here and at Rain City Guide.  This started at the request of ARDELL to help show a trend with direction mortgage rates are going based on a specific scenario and it's also based on a set time.  She also uses it to make sure her buyers are getting a fair shake from their lender.  You'll notice my disclosures in easy to read print on what it takes to qualify for the rate and the date and time the rate was published.   Rates change so constantly, that often times the rate I publish in the morning is no longer valid by the time I hit "publish".  This is why I will stagger posting rates on Friday here and at RCG.  If rates change this often, how can anything in print, radio, television or bill board be good for anyone to rely on?

It's my opinion that a rate should not be published unless it's available.  Promoting a rate that once was (a month ago) is nothing less than bait and switch. 

Skip Two Mortgage Payments when You Refi!

The promise of not having to write a check for your mortgage payment for two months seems so tempting that many home owners chomp on the bit when a Loan Originator dangles that bait to lure in a refi candidate.  The truth is you're not skipping anything.

Typically when your close on a mortgage, your first mortgage payment is the following month after 30 days have passed.   So for example, if your mortgage was closing on February 22, your first mortgage payment is due on April 1.  Although it seems like you're "skipping" a month, what's happening here is that the mortgage interest on the new loan is prorated from the day you close.  Based on this scenario, your interest is starting on February 22 and is prorated until the 28 (or 29 in a leap year such as we have this year).  The 6 extra days of interest is charged to you at closing under the prorated interest on your HUD-1 Settlement Statement.  Mortgage payments have 30 days of interest in arrears because of this and this is why your payoff is always higher than your monthly statements by about one mortgage payment (30 days of interest).

In order to do the "Skip Two Mortgage Payments" tango, your refinance needs to close as close to the 15th of the calendar month as possible and you, dear home owner, do not make your mortgage for that month.   So using our same example, if you closed your mortgage on February 15 and do not make a mortgage payment for February, your new mortgage payment is still not due until April 1.  You will have 15 days of prorated interest due at closing (half of a mortgage payment).   Did you skip anything?  No.  You only saved writing a check.  The interest is still there and nothing is free. 

When home owners try "skipping" payments, they also risk late fees being assessed by the bank who is being paid off.  If they do not receive the payment by the 15th, the borrower will have a late fee.  Even if the escrow company wires the payoffs to the underlying lender, there's no guarantee they will receive it in time. 

I was helping a couple with a potential refinance and they were very interested in skipping two month's payments.  This would have been especially costly for them as we were paying off a FHA mortgage.   FHA mortgages do not prorate the interest when they are being paid off.  It only makes sense whenever possible to close them at the end of a calendar month so that the home owner isn't paying double interest.   If they would have closed on February 15, they would have felt like they were "skipping" however their mortgage payoff would have had interest through the end of February AND they would have paid 15 days of prorated interest on their new mortgage. 

Loan Originators who use "skip two months payments" are hoping to skip all the way to the bank.  In fact the LO who was trying to lure the couple I helped last month was charging them 3 points for the same rate that I was offering priced with 1 point.  This lender is not from Washington State and has to rely on deceptive mailers in order to get new business...I'm sure it's because no one who has obtained from them would return or refer their friends and family to them.

There's nothing wrong with scheduling your closing so you have the illusion of skipping two payments, just know going in what it takes to make this happen and what your risks are (late fees).

Mortgage Interest Rates: 30 Year Under 6% (right now)

Mortgage interest rates continue to be very jumpy.  Just a few days ago, the 30 year conforming was around 6.25% -- at this moment it's below 6.00% again.  However, Dallas Fed President Richard Fisher (known as "Loose Lips Fisher") is scheduled to speak today.  Fisher has earned the nick name of Loose Lips as he will often spurt out inflationary comments which causes bonds to react.   During his last speech on February 7, his comments caused a significant sell off causing mortgage rates to increase.  Mortgage rates, products and guidelines may change at any moment. 

Updated rates for Friday afternoon are posted at Rain City Guide.  Rates have increased by approx. 0.125% across the board.

Some of the different rates I'm showing below are from reader request.

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" purchase 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 6.019%). 

30 Year Fixed with 10 Year Interest Only:  6.250%  (APR 6.394%). Check out the 10/1 Interest Only ARM  below if you are considering this product. 

10/1 ARM Interest Only: 5.500% (APR 6.465%).

15 Year Fixed: 5.375% (APR 5.627%)

7/1 ARM:  5.00% (APR 6.479%). 

5/1 ARM:  5.000% (APR 6.804%).

FHA/VA 30 Year Fixed:  6.000% (APR 6.529%)

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%)

10/1 ARM:  6.000% (APR 6.740%)

10/1 ARM Interest Only Payments: 6.625% (APR 7.164%)

7/1 ARM Interest Only Payments:  6.375% (APR 7.205%)

5/1 ARM:  5.500% (APR 7.036%)

Prime Rate (what HELOCs are based on):  6.00%

Please do not select your Mortgage Professional by interest rates alone and do not shop rates by APR.  These programs all have the same closing costs so you can see APR is not a valuable tool.   If you were considering a conforming product that offered a 10 year fixed period with interest only payments and relied solely on APR, you would wind up choosing the mortgage with a higher note rate by 0.75%!  This is $250 more per month on a $400,000 mortgage.

This is just a small sample available of rates and products.  Rates are as of Friday, February 22, 2008 at 8:30 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.

Review Your ARM Before You Refi

There is a lot of media and mortgage hype about getting out of your dangerous adjustable rate mortgages.  Mortgage companies stand to benefit every time you refinance and the media thrives on drama.  I'm contacted often by consumers who are horrified of their adjustable rate mortgage--depending on your terms (margin and index) your ARM may be fine!

One of my clients, Scott, who I helped with a refinance almost five years ago just contacted me curious about refinancing out of his current ARM into a fixed rate.  He heard on the news that mortgage rates are low right now.   

Scott obtained a 5/1 ARM with a start rate of 3.75%.  His fixed period is over around July of this year and his caps are 5/2/5 with a 2.25 margin and the index is the 12 Month LIBOR.   His current balance is about $121,500.   

Scott expressed an interest in doing another 5/1 ARM.  He's not sure how long he will retain this property.   Currently, I can offer the following (both refi's have closing costs of $1900):

• 5.25% at 1 point (APR 6.965%) with principal and interest of $717.  Should Scott decide to pay the point, it will take 3 years to break even on the cost.
• 5.625% at 0 points (APR 7.018%) with principal and interest of $748.

He can also elect to not refinance his ARM and wait to see what the payment will adjust to in July.  He still has a few months to wait this this out, however, if his ARM were adjusting today, here is what his payment would look like:

1 Year LIBOR = 2.85% plus the margin of 2.25% = 5.10%.  Rounded to the nearest rate, the new rate for the next 12 months would be 5.125%.   Taking his current balance of $121,500 at 5.125% for 25 years (the remaining term) would create a principal payment of $719.15.  This is without refinancing or additional cost (out of pocket or equity) to Scott. 

If Scott is comfortable allowing his ARM to adjust and making his payment of $719.15 for the next 12 months, he should not refinance.   Some home owners are "up in arms" over their adjustable rate mortgages and if it's something that's going to cause to lose sleep, you may want to check out what your options are for refinancing out of the ARM.  Regardless of what you do, it's crucial that you understand your mortgage, the terms and how it operates and what your options are.   

If you need help, ask your Mortgage Professional to review your Note with you.  If you need a new Mortgage Professional because they've either left the business or have forgotten about you, I'm happy to adopt your Washington State mortgage.