The Mortgage Porter

Clark Howard Suggests 5/1 ARMs for Refinancing

Yesterday morning on CNN, "Money Expert" Clark Howard recommended that home owners who are considering selling their home in the next five years investigate refinancing into a 5/1 adjustable rate mortgage.  Why would he suggest such a "risky" product? Interest rates for adjustable rate mortgages are extremely low right now and if you're not going to have the home for more than 5 years, you could save a significant amount of money.

I will be using worse case adjustments for this post, assuming that the index (12 months LIBOR) has climbed incredible to where the the rates have hit the lifetime caps (ceiling) of 5% at the first adjustment and have remained their at each adjustment.  The 12 months LIBOR is incredibly low right now and those who have ARMs setting at their first adjustment are probably in a good position.

These rates as of June 15, 2011 at 10:30 am based on 740 or higher credit scores and a loan to value of 80% or lower.  NOTE: We do have several programs available if for Seattle area home owners who have diminished home equity.   This scenario is based on a rate-term owner-occupied refinance and a loan amount of $327,500.

3.00% for a 5/1 ARM (fixed at 3.00% for 60 months) with a principal and interest (p&i) payment of $1,381. APR 3.285.  The "caps" that limit how much this rate can adjust are 5/2/5 so the highest this rate can ever be is 8.00% (worse case scenario) and the lowest is the margin (2.25%).

• At 61 months, assuming worse case scenario, the rate would adjust to 8.000% with a p&i of $2248 and an approx. principal balance of $291,600.
• At 85 months, assuming worse case scenario, the rate would still be 8.000% with a p&i of $2248 and an approx. principal balance of $283,228.

3.375% for a 7/1 ARM (fixed at 3.375% for 84 months) with a p&i payment of $1,448. APR 3.417.  The highest this rate could ever be with 5/2/5 caps is 8.375% at the 85th payment and the lowest is the margin of 2.25%.

• At 61 months, the rate is still 3.375% with the same payment of $1448 and the balance is approx. $293,122.
• At 85 months, assuming worse case scenario, the rate would adjust to 8.375% with a p&i of $2270 and an estimated balance of $277,650.

4.500% for a 30 year fixed rate with a principal and interest payment of $1,659 for the entire term of the mortgage.

• At 61 months, the balance is approx. $298,500.
• At 85 months, the balance is approx. $285,000.

NOTE: the above rates are from June 2011 - if you would like a mortgage rate quote based on current pricing for your Washington home, click here.

What is crucial when selecting your mortgage is considering what your financial goals are. If you're not certain that you'll be selling your home in 5 years and you do not want to risk the adjustment that will take place in 61 months,  you might want to consider the 7/1 ARM, which will "buy" you two more years of a fixed period for a slightly higher rate. If having an adjustable rate mortgage is going to keep you up worrying at nights, than a fixed product, like the 30 year or 15 year is probably a better option for you. If an adjustable rate mortgage is suitable for your financial scenario, the savings can really add up.

Personally, if you're considering an adjustable rate mortgage, I would recommend seriously considering the next longest term just to "buy" some wiggle room.  I was honestly a little surprised that Clark Howard was pushing a 5/1 ARM when the 7/1 is currently just a little higher.  Whatever choice is made, it belongs to the home owner and it is their responsibility to understand the risk, rewards and terms of what ever mortgage product they select. 

If you have questions about mortgages for homes located anywhere in Washington, please contact me.  By the way, if your mortgage originator is no longer in the business (many have found new careers with the higher standards now required), I'm happy to adopt your mortgage - no refinance or transaction is required - your mortgage does need to be on a home located in Washington.

RIP Mark Haines

Many of my mornings have been spent watching CNBC's Mark Haines with Erin Burnett and I'm saddened to learn that Mark passed away at the young age of 65.  I loved his wit, humor and ability to cut through political bolony.

Here's one of my favorite Mark Haines moments.

My heart goes out to his family and friends.

"Going Above and Beyond" is Doing Our Jobs

I received a really nice thank you card from Shannon Ressler at Findwell Realty last week that I want to share with you. We recently helped Shannon's clients buy a vintage bungalow that was a short sell in the Magnolia neighborhood of Seattle using an FHA insured mortgage. Being a short sell and an FHA insured loan, there was no shortage of paper work and the transaction was coming "down to the wire".  

Closing was set to take place on Friday...and early Thursday morning, I received a message from one of our buyers saying he was flying out at noon for a family event...he'd be back on Monday. Luckily Mike was able to reschedule his flight until four, however, we were still in a crunch to get docs out.  NOTE:  I normally like to have loan docs out several days before signing...but sometimes transactions (especially short sales) don't happen that way.

Extentending contracts with short sales can be a chore since in addition to dealing with a buyer and a seller, you also have the seller's lender.  Adding to this, I had renegotiated our clients interest rate lock lower and the lender I had the rate locked with charges a higher extension fee once a rate lock has been renegotiated.  We really needed to close on time.

We were able to rush loan docs out to the escrow company.  As a correspondent lender, we prepare our loan docs at our main office in Kent and we make our own underwriting decisions (following guidelines, of course)...escrow was gracious receiving loan docs last minute AND THEN, their system crashes.  I have to say, I've never had this happen!  Mike's flight out was rapidly approaching.  We were running out of time and escrow's computers were not cooperating.

Marilyn Porter, President of Mortgage Master Service Corporation (and my sister-in-law) had an additional set of their loan docs printed and we arranged to meet our buyers at Sharps Roasters by SeaTac Airport.  While we were heading to Sharps, Mike and Mary obtained their cashiers checks for the estimated amount due for closing. Marilyn even had a couple orders of sliders and fries waiting for everyone...figuring with all the rushing around, they'd probably be hungry.

By the time we were done with the signing, escrow's system was back up and they emailed their docs (escrow instructions, estimated HUD-1 Settlement Statement) to our clients to sign and return. I created a video review of their estimated HUD since escrow was not able to review it with them.  

Our job wasn't over. Escrow needed the buyer's cashiers checks before 4:00 that day in order to have them in time for funding tomorrow. We wound up having the wire instructions emailed to our phones and we deposited the buyers checks directly into escrow's accounts.  

And, I'm happy to say that we DID fund and close on time. 

I am so proud of the crew I work with at Mortgage Master Service Corporation. 

Thank YOU Shannon, for your recommendation and thoughtful card!  Shannon was an asset throughout this transaction, it was a great team effort from all.

How Much Info Can Your Mortgage Originator Share - Part 2

I asked Jillayne Schlicke of CE Forward to chime in on a question (below) that I received from one of my readers.  I'm happy to say, she wrote an entire page and therefore, I'm sharing this post, written by Jillayne with you.  Part 1 of this article, where I address the question, can be read by clicking this link.

As a loan originator, is it ethical to deny someone for a loan and then turn around and share not only that the loan was denied, but the EXACT reason the loan was denied (for example: too many NSFs, large deposit in checking account, hours cut back at work, etc.) with the applicant's Realtor as well as the listing agent who in turn shares it with the sellers?

Jillayne's response:

When trying to figure out an ethical dilemma, many try to oversimplify for purposes of being efficient such as, "do the right thing," or "follow the golden rule," or even "if I won't be able to sleep at night I know it's not ethical." Some people turn to their favorite religious book for the answer. But with the above question, these tactics fall short. Not everybody agrees on the definition of the word "right." Regarding reciprocal treatment, sometimes people want to be treated BETTER than how we treat ourselves and sociopaths sleep just fine at night while committing mortgage fraud during the day. There are thousands of different religions in the world so whose religion would we follow as a group of loan originators? For example, we like it when others treat us with respect but respect in action form can look different from one religion and culture to the next. So what can a loan originator do when facing an ethical dilemma? Here is a methodology loan originators can use to solve ethical dilemmas:

(1) Define the problem and frame the issue.

(2) Collect facts.

(3) Reframe the issue if necessary.

(4) Is there a clear statement of law that directly addresses the issue?

(5) Are you a corporate manager? If yes, apply managerial ethics.

(6) Are you a partner in a partnership? If yes, you have fiduciary duties to your partners.

(7) If you are a member of a professional organization with a written code of ethics, apply those principles.

(8) Identify relevant principles (in and out of the code), look at possible consequences, identify intrinsic values (for example, honesty, responsibility, respect, justice, compassion, etc. and examine the relation between these values and the person you want to become.

(9) Are there any formalized policies and procedures or a code of ethics at your mortgage company? If so, apply.

(10) Consider all alternatives. Make sure all relevant considerations are addressed.

(11) Assess the rightness and wrongness of each alternative. Provide reasons for each justifiable alternative.

(12) Decide justifiable alternatives.

(13) Act.

(14) Reflect. Consider whether anything was lacking in the resolution of the case. Discuss objections to reasons offered. Consider how this problem or situation could be avoided in the future. Could policy changes or better communication prevent cases like this one?

To solve the above ethical dilemma, we pause at step 4 and consider the Graham Leach Bliley Act, also known as The Privacy Act: 

"Except as otherwise provided in this subchapter, a financial institution may not, directly or through any affiliate, disclose to a nonaffiliated third party any nonpublic personal information, unless such financial institution provides or has provided to the consumer a notice"

Going back to step 2, does the loan originator have written permission in the file to share the details of this loan with the seller and Realtor?

Moving back to step 4 we could also check state law. In Washington State, if the loan originator works for a mortgage broker, fiduciary duties are owed to clients.

 

"A mortgage broker must act in the borrower's best interest and in the utmost good faith toward the borrower"

But all loan originators are required to follow the federal SAFE Mortgage Licensing Act  See number 8 under 1502, Purposes:

 

"Establishes a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer."

So this is not an ethical question, it is a legal question. Hopefully the consequences of having private information shared were not too severe for this consumer. Loan originators do make the mistake of believing the Realtor is their primary client. Having a direct, open discussion with Realtors about client boundaries and what a loan originator can and cannot do is important because this sets up a relationship grounded in respect. Licensed real estate brokers should understand this concept anyways because it is a part of their real estate agency relationship.

I am struggling to come up with a good reason when sharing private information regarding adverse action on a file would be in the best interest of a consumer or a client although I'm sure we could stretch and reach some outlier reasons. Since the home seller is in an adversarial position from the homebuyer and the homebuyer may wish to seek financing from another lender, it is best to keep private client information private.

Thanks, Jillayne!

Dad's Services

 
Dad's services will be on Monday, December 13, 2010 at Nativity Lutheran Church in Renton at 12:00 p.m.  Internment will be at Greenwood Memorial Cemetary.

Update:  Here is Dad's obituary as printed in the Seattle Times.

My Notes from Class

Just over a week ago, I was invited by Professor Richard Green to participate on a panel at USC Lusk Center for Real Estate.   One of the wonderful  benefits about blogging is that I've met so many people and have had amazing experiences that without my blog, odds are I would not have opportunities such as this.   Richard and I have had conversations via social media over the past few years but this was our first time meeting "IRL" (in real life).  

This was an evening class with around 100 students of all ages and backgrounds.  Some are full time students, others have day jobs and a few admitted to being former mortgage brokers.  I was on the panel with two gentlemen.  One is a private banker from Beverly Hills with Wells Fargo.  He originates high end mortgages and he has worked in wholesale too (wholesale reps call on non-bank mortgage originators, like mortgage brokers and correspondent lenders to send their bank loans).   The other gentleman is more on the "after" the mortgage is originated scene.  He deals with "scratch and dent" mortgages.  Basically, a "scratch and dent" mortgage is one that the intended lender/investor refuses to buy due to errors made on the loan or possibly even fraud.  It's very expensive for banks and correspondent lenders wind up with a "scratch and dent" mortgage in their credit lines.  His company purchases scratch and dent mortgages (at a discount).  They may then review the issues causing the mortgage to be considered "scratch and dent" and may try to correct or improve the issue with the goal of being able to sell the mortgage.   I represented a "classic" residential mortgage originator...almost sounds a little boring compared to my fellow panelist! 

Professor Green had a few questions cued for us to answer and class participated with their questions as well.   The discussion ran from underwriting issues with residential mortgages to how guidelines were influenced by what Wall Street would buy.  By the way, it sounds like reserves (how much liquid assets are remaining after closing) is carrying more weight than credit scores when potential investors are looking at purchasing mortgage backed securities.  Reserves are becoming a more important factor with forecasting the performance of a mortgage (the higher the reserves equals lower odds of default).   This was probably one of the most surprising nuggets of the evening to me.  

Professor Green asked me to address why I never originated an Option ARM when so many other mortgage originators did.    Students question how effective the current credit scoring modules are and if larger down payments should be required with FHA insured loans. 

The closing question caught me off guard a bit.  Professor Green asked if we see ourselves in our current careers five years from now.  I'm very concerned that we could see only a few choices for American consumers with regards to their mortgages--meaning the banks (3 or 4) have it all.  Without competition, mortgage rates and fees will be higher.  Congress all ready holds mortgage bankers to a lower standard than a non-bank originator per SAFE Act requirements.  Many banks are touting the newer compensation structures of their LOs as a benefit to consumers but if the LO is making less and the rate is the same or higher -- is it better for the consumer if they pay more (and the bank is making more)?   

My hope is that I can continue doing what am doing.  Originating residential mortgages at a non-bank mortgage company.   Mortgage Master Service Corporation has been a family owned company since 1976--this is where I belong.  My father-in-law, Bob Porter, retired from Mortgage Master Service Corporation in his seventies.  I would like to do the same. 

I am very honored that Professor Green invited me to participate on the mortgage panel for his class.  Over the years, I've received plenty of attention and speaking opportunities regarding my social media efforts (which I'm thankful for)... to be selected to share my knowledge of residential mortgages and my opinions with a room of students from USC is a true highlight for me and something I will always remember.  I wish I could have recorded the entire event.

PS:  Be sure to check out:  Richard's Real Estate and Urban Economics Blog

Mortgage Porter is in the Pink

Your eyes are not playing tricks on you.  My blog is pink and will be pink throughout the month of October for National Breast Cancer Awareness Month and in honor of Michelle Brown, my friend and co-worker who lost her life to this disease.

Happy Father's Day

 

Me with my Dad.  Check out the encyclopedias tucked away in the corner.

Happy Mother's Day

 

This photo could have been very close to my Mom's first Mother's Day.

Get Your Dirty Car Washed Today in Issaquah and Do a Good Deed

Dawn Appel is a former employee of The Talon Group.  She has been couragously battling leukemia.  From 8:00 am - 4:00 pm today in Issaquah, you can get your car washed to help raise funds in her honor and to help support her family.

 

If you can't make it to the car wash but would still like to donate click here.