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The national mortgage industry has experienced unprecedented change during the past two years, which has resulted in a number of popular consumer misconceptions regarding the availability of home financing.
Mortgage Misconception #1: “There’s no money available for home loans.”
While it’s true that the recent credit crunch temporarily affected the mortgage markets, the 2009 credit market has progressively improved for homebuyers.
In fact, many established homeowners have already seized upon the opportunity to refinance to lower interest rates. These refis prove that savvy consumers can do more than survive in a tough market – they can improve their long-term financial outlook and save thousands over the life of their home’s financing.
Mortgage Misconception #2: “The days of low down payments are gone for good.”
While it’s true that “no money down” loans are almost exclusively restricted to VA loan qualifiers with full entitlement, FHA loans with down payments beginning at 3.5% are available and popular. Some FHA loans allow borrowers to use gift funds from family members, friends or employers to help cover the down payment.
Mortgage Misconception #3: “Buying a home in a high-cost area is almost impossible.”
Real estate prices on the West Coast have traditionally been some of the highest in the nation, which translated into a need for a large percentage of non-conventional Jumbo loans over $417,000.
Although jumbo loan figures fell in 2008, similar to many other financial statistics, perhaps surprisingly, they’ve made a comeback in the first quarter of 2009. According to a recent issue of Inside Mortgage Finance®*, the Jumbo sector’s production figures were up 109% over the 4th quarter of 2008. While credit requirements for Jumbo loans have become somewhat more restrictive, they’re still available for qualified borrowers.
Mortgage Misconception #4: “In today’s market, closing on a loan is difficult and complicated.”
The majority of loans closing in 2009 are no more complex than they were in the past. Keep in mind, even in boom times, there were still a great number of disclosures and necessary paperwork associated with closing a conventional “full doc” loan. This hasn’t changed.
Although first time homebuyers may find the process a bit overwhelming a first, the truth of the matter is, most of this paperwork is mainly designed to protect the consumer. A reputable lender will take the time to go over all closing documents with buyers before the day arrives, making the experience as fulfilling and exciting as any other major life event should be.
Mortgage Misconception #5: “Low interest rates are a thing of the past.”
Even though mortgage rates are beginning to creep upwards, today’s numbers are still some of the lowest in years. As of August 5th, 2009, Bankrate.com’s weekly Interest Rate Roundup reported that the average 30-year fixed rate for mortgage lending rose nine basis points, to 5.65%* – still a highly competitive rate.
What exactly is the problem today with banks, financial institutions and the financial markets?
Problem #1 – Over-Leverage
During the last several years, financial institutions borrowed more money to engage in their business activities than at any point in the history of the United States banking industry.
If a 30 dollar asset prices fall by just 3% ($1 in this case) the financial institution’s equity in the investment asset is wiped out and they need to raise more funds to restore their 30:1 leverage ratio! When you hear about “capital requirements”, that is exactly what it means. In other words, financial institutions need to raise more funds in order to meet their minimum capital requirements of having $1 of equity for every $29 of leverage. Every time asset prices fall, financial institutions need to raise more money to maintain their minimum capital requirements. Now here’s the billion dollar question: where are the financial institutions going to get the money from?!
Yep. You guessed it! They are forced to sell even more of their investment assets!! If they sell off their investment assets, prices decline even further due to supply and demand. After all, prices always decline when there are more sellers than buyers in any marketplace. This creates a downward spiral in prices, causing the financial institution to sell even more assets into an already depressed market. A bad situation quickly becomes even worse and that is exactly what has been happening among financial institutions since July 2007.
There are two other ways for financial institutions to raise funds:
-Sell stock in their company or merge with a larger institution
-Borrow more money
Problem #2 – Lack of Liquidity
Financial institutions will continue to try and raise funds to meet their obligations and continue running their businesses. Although it is scary to think of the various doomsday scenarios that could result from the high leverage and the lack of liquidity, these worst case scenarios are unlikely to occur for two main reasons:
Foreign investors and governments, sovereign wealth funds and other large investors have too much invested already in the US to allow the US financial markets to collapse. If the financial markets and institutions collapse, these investors would lose enormous amounts of capital. Not only that, but their own economies would crumble because US consumers would no longer be able to afford to purchase their products. Therefore, foreign investors are likely to continue being an important source of funding for US corporations and banking institutions.
The Federal Reserve has been very active in providing liquidity to financial institutions throughout this crisis and will likely continue to do so.
Problem #3 – Ineffective Regulation
The financial industry regulatory structure in the United States is, to a large degree, over 100 years old! Various government officials have proposed certain reforms that are currently in the process of being considered and debated. Although the reform process has started, it will take several years to fully reform the regulatory structure of the US financial markets. As a participant in the CMPS Institute I have been very active in helping to reform and shape the future of the US financial regulatory structure.
Conclusion:
It is always advisable to consult with a Certified Mortgage Planning Specialist TM (CMPS®) when navigating today’s turbulent mortgage and real estate marketplace. As a CMPS® professional, I am committed, qualified and equipped to help you evaluate your options!
Standardizing the mortgage planning process through participation with the CMPS community of experts.
Dani McDonough, CMPS ®
Market Conditions Got You Down?
Join us for our upcoming happy hour event to learn new condo sales techniques aand have some fun!
Thursday, Sept. 25
Master Builders Association
335 116th Ave SE
Bellevue, WA 98004
For directions to the venue, please visit www.masterbuildersinfo.com.
Market conditions making it difficult to sell your condo project?
Join us at Master Builders Association for a Happy Hour meet & greet, as well as to learn about important market updates, including:
• Sales strategies
• The national lending climate
• Local and national economic factors
• New construction/existing home market trends
• Standing inventory and profit erosion
• Buyer demographics and life-cycle marketing
• Recent Fannie, Freddie and mortgage insurance condo reforms
• Legal and structural strategies
This free, fun and informative event is the perfect place to network with industry experts and hear new approaches to sales and marketing!
Meet the Speaker
Anthony Grasst is the Regional Builder Manager for MetLife Home Loans. He is the sales production manager for all builder business, manages more than 36 sales offices in the Northwest, and works with hundreds of builders.
Anthony’s region is one of the company’s most successful builder territories, accounting for nearly $1 billion in annual sales.
Anthony is a regular speaker at Home Builder Association meetings, and teaches new construction realtors, single family and custom builders, and national multi-family developers how to adjust and sell homes in today’s market. He is an accomplished real estate finance professional with
more than 17 years of experience in construction and real estate lending, investment and development, single, multifamily and commercial real estate, and consultative selling techniques. He holds a BA in Economics and MBA in
Business Management, and is a licensed Real Estate Broker.
*Please RSVP contact Andy McDonough at (206) 818-5191 or amcdonough@metlifehomeloans.com
Green Mortgages Equal Larger Loans and Efficient Homes
Tired of heat and energy prices skyrocketing out of your budget? Now you can do something about it…and your mortgage can help!
Energy-efficient improvements, such as installing double-paned windows and additional ceiling insulation, can save you money every month, not to mention pay for themselves in the long run. But how do you come up with the cash to pay for those projects up front or to buy a slightly more expensive house that already has them? One way is with a “green mortgage.”
What is a Green Mortgage?
Green mortgages actually come in a couple of different formats. Officially these loans are classified as either Energy Efficient Mortgages (EEMs) or Energy Improvement Mortgages (EIMs).
An Energy Efficient Mortgage essentially allows you to purchase a home that is already energy efficient – even if the price of that home is larger than you would normally qualify for under your debt-to-income ratio. Energy Improvement Mortgages, on the other hand, allow you to take out a larger loan to make energy efficient repairs and improvements to a house that is not currently rated as energy efficient.
The main benefit of both of these mortgages is that they help you to qualify for a larger loan amount and help make it possible for you to live in a better, more energy-efficient home. The basic principle behind this type of financing is that the money you save from the more efficient home will offset the larger mortgage payments.
Qualifying for a Green Mortgage
To qualify for a green mortgage, you typically need to have a Home Energy Rating conducted. This rating provides the lender with an Energy Savings Value, which is the estimated monthly energy savings and the value of the energy efficiency measures.
Depending on your unique circumstances, you may qualify for a conventional, FHA, or even a VA green mortgage. Each type of loan is designed to fit specific situations and, therefore, each loan has specific requirements that must be met.
You can learn more about the differences between conventional, FHA, and VA green mortgages at the Energy Star website. And for more details about green mortgages in general, visit the HUD website.Whether you’re looking to add energy-efficient improvements to your current home or want to purchase a new energy-efficient house, green mortgages offer benefits that are definitely worth looking into. Call today to discuss your options in more detail.
Dani McDonough, CMPS®
Certified Mortgage Planning Specialist
First Horizon Home Loans | Magnolia
Phone 206.251.7976
Selling Green Homes:
How to Turn Green Features into Assets that Sell Homes
Green Homes are becoming the hottest new trend in homebuilding today, but what does that mean to a Realtor, and how can you capitalize on it?
Come learn how green features, including site development, resource utilization (energy, water and waste reduction), light, indoor air quality and the aesthetic benefits of green features can be translated into assets that sell. The instructor, Brenda Nunes, is the developer of an award winning Built Green TM Home at Suncadia, a member of the Master Builders of King and Snohomish County Built Green TM Executive Committee, as well as a member and supporter of several other Built Green TM programs and committees.
This Clock Hours Course is FREE of charge and attending Real Estate Agents will earn 3 clock hours upon completion of the class.
Thursday, August 7th — 9:00 a.m. to 1:00 p.m.
Where:
The Q Café, 3223 15th Avenue West (just south of the Ballard Bridge) For more information, or to R.S.V.P.,
please contact Dani McDonough at (206) 251-7976 or email dani@danimcd.com
The biggest risk for today’s home buyers is interest rates not price depreciation. Yes, home prices are under pressure and there is inventory in the market, but waiting to define a “bottom” in a real estate downturn that is 24 months old and where prices have already adjusted, is very difficult.
The bigger issue and real risk to buyers are interest rates. A sudden rise in interest rates can easily erase the benefit of finding a home at a “bargain”. Long term interest rates are directly impacted by the health of our economy and inflation. If the economy if struggling or if there are rising expectations of inflation, long term interest rates will rise. Both of these factors are at work in the market.
Why are rising interest rates so “bad” for me? Because most people finance the purchase of their home and any increase in interest rates will decrease what you can borrow. The impact is significant. Here’s an example:
During the past 45 days (May 1, 2008 to June 15, 2008) interest rates on 30 year fixed mortgages have increased up to 0.75%. Now, this doesn’t sound like a large increase until you examine the impact on a borrower. A 0.75% increase in interest rate for a borrower who qualifies for a $400,000 loan would reduce their qualification to $369,900. This is a decrease of -7.6%. Unless the home has depreciated 7.6%, or the seller cuts you a “deal”, you’ve lost by waiting. You’ll qualify for less or pay significantly more in interest over the term of your loan by waiting.
No one can accurately predict the future of real estate values, but historical trends tell us that over the long term, real estate is a great investment. In addition, prices have already adjusted in many markets. If you are considering buying a home, now is great time. Interest rates are still relatively low and the risk of rising interest rates is real.
The “Broker Out” Advantage
The current mortgage world is truly a stormy sea. Rates rise and fall in nauseating waves. Loan programs crash and splinter like wayward boats crushed against rocks. Promising policy announcements turn out to be like false sightings of land after queasy months in the open ocean. As a home buyer, a potential refinancer, or as a realtor helping a seasick shopper, where do you find a safe harbor?
Me.
Why? Because as rough and as shark-ridden the home loan waters may become, I have the resources to guide you safely to a great loan product. The McDonough Group has given me two big advantages: 1) Great rates and great service on the loans we do well, and 2) Broker-out ability to find the right lender for out-of-the-box transactions.
Here are some observations from my “crow’s nest” at The McDonough Group:
-Conforming Fixed Rates while violently unpredictable are really quite good right now! The McDonough Group’s in-house safe haven takes the form of fixed rate loans under $417,000. Our rates are great, our service is superior, and in this calmer part of the mortgage world our local processing and closing gives us a great edge over our competitors. My advice to anyone: LOCK YOUR RATE! If you’re buying or refinancing and a see a rate that works, don’t even try to second guess this volatile rate environment.
-Rate Watcher Tool is my way to keep an eye on rates for you. Let’s analyze your situation and I’ll use an Excel spreadsheet to keep track of daily rate movements. When (if) we get to the rate you need, I’ll contact you, or better yet, we’ll make a pre-determined plan to take action. Call for details.
-5/1 and 7/1 ARMs have disappeared like ships in the fog. For market reasons that are beyond my comprehension, the secondary market recently collapsed around “intermediate” ARM loans. Last night my research showed that almost all major lenders charge a higher rate for a 5/1 ARM than they charge for a 30-year fixed, effectively eliminating the intermediate ARM as a viable program. But stay tuned, these ships could re-emerge at any time!
-Jumbo Rates are high, qualifying guidelines are tight, but several lenders offer unique and very competitive solutions for the customer needing a loan over $417,000.
-Rising “Conforming” Limit thus far appears to be mostly a false hope. We’ve been waiting eagerly for Fannie Mae to raise the bar for “Conforming” loans to $567,500 in King County. Instead, they’ve created an intermediate tier of loans in King County from $417,000 to $567,500 and it appears that these loans will be priced significantly higher than loans under $417,000. If you fit in this category, we’ll find the lender offering the best terms for you.
-Fed Action to lower short term rates almost always causes fixed mortgage rates to RISE! It seems crazy, but long-term mortgage rates rejoice in bad news, the type of stuff that causes inflation to go lower. When the Fed lowers short-term rates, the stock market usually rejoices, but bond investors fear inflation and often bid the mortgage rates UP rather than down.
If you find yourself sailing in the waters of a new home purchase, or are lost trying to navigate your refinance, don your survival suit and give me a call (206) 251-7976. I’m glad to throw you a life ring, and will put our in-house and broker-out resources to work for you!
Finally, some GOOD NEWS from the Mortgage World!
—————————————————————–
Suffice it to say, I certainly have been working my RESILIENCY
muscle a lot over the past few months. Thankfully, we have found
a new source for LOW RATES on Jumbo loans ..but this is for a
select group. The “Over Qualified!”
* 700+ credit scores
* Strong assets
* Full Documentation
* Owner Occupied
Today I was able to secure a loan for $1,000,000 at
4.75% on a 5 year fixed rate mortgage. What a deal!
From all the research I’ve done….this is substantially below
market.
