FHA Mortgage Insurance May Change!

HUD has announced a proposal to change the cost of both upfront and monthly mortgage insurance for purchases and refinances. This change is based upon loan to value and credit score. Their reasoning is that they want to be able to serve more borrowers and keep the opportunity for home ownership accessible to as many as possible. They have imitated a rate system that has been in place in the private mortgage insurance sector for years. Depending on how good your credit is and how much you put down or how much equity you have, your cost of the mortgage insurance will go down.

Why is this good? As the secondary market continues to shy away from maximum financing i.e. 100% loans someone needs to step up to the plate to keep the ability to purchase lower priced homes feasible for most working class people. When they want and can purchase the starter home or the lower priced home, then the person selling that home has the chance to move up, which keeps the process moving right up the price scale.

You can view the proposed changes and get information on how you to can comment to HUD about this change at this address; http://hudclips.org/sub_nonhud/cgi/nph-brs.cgi?d=FR07&s1=FR-5171-N-01$[NO]&SECT5=FR07&SECT1=TXTHLB&l=50&u=../cgi/newsdoc_run.cgi&p=1&r=1&f=G

For your comments about this blog or any questions for Chris Scheer, please contact him at cscheer@cornerstonestl.com.

Licensing for Mortgage Originators?

As a mortgage professional for the last 14 years, I have been against licensing for originators. My logic was purely self serving. If I was doing business in a professional and ethical manner, I didn’t want to invest the time and or money into getting licensed. I was licensed in Illinois and when the time came to renew the license, I was too busy to do the little things that were required for me to keep my license. So now that you know why I WAS against it, let’s try to find out why I have changed my mind?

In a nutshell, there are still too many individuals and companies that are taking advantage of the consumer! The “Dark Side” has been reigned in by the changes in the sub-prime mortgage market, but like any bad fungus, they are regrouping and reforming to begin their next assault on the homeowners and would be home owners in our marketplace. If I, a busy professional am too busy to renew my license, how much effort do you think the minions of the “Dark Side” will put forth the get licensed or maintain their licenses? This move alone will chase many of the financial rapists out of business.

Now I recognize that a thief will always look for the easiest access. See the article by Michelle Singletary in the Washington Post; http://www.washingtonpost.com/wp-dyn/content/article/2007/09/08/AR2007090800159.html. However, slowing them down is the key. It is in the time that they have to look for easier avenues to get into the consumers’ houses that we have more opportunity to educate the borrower and attempt to protect them. I also think that the investors who are purchasing these loans should be held accountable. Here is the Federal Reserves report on how well the Fed has done at monitoring companies who are purchasing mortgages; http://handle.dtic.mil/100.2/ADA270233 .

How do you feel about Mortgage Originators needing to be licensed? Contact Chris Scheer at cscheer@cornerstonestl.com with your comments.

Evolution of Credit

I had a very interesting meeting today with a gentleman who runs a company called Evolution Credit, www.evolutioncredit.com. He has started this company with the thought of helping people fight the collection agencies of the world that destroy peoples credit, most of the time without the people even knowing that this is going on. The story is best told by him, but I can surmise that at a young age he attempted to purchase a home and had challenges because of a collection account for a company that he never had an account with. Being somewhat intelligent and frustrated by the months of work to remove the information he decided to start a company to help people who were in similar boat as himself.

He has a very thorough working knowledge of Fair Credit Reporting Act, http://www.pueblo.gsa.gov/cic_text/money/fair-credit/fair-crd.htm, the The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA). Utilizing systems and with clients diligent work he can improve credit scores significantly with a 12 month period. With the heavy reliance upon credit scoring in the both the mortgage lending and automobile lending arenas, this can make a huge difference in your cost to purchase a home or a car.

So what does this mean for the average consumer? With the recent changes in mortgage lending, if you want to have flexibility in the type of loan you can acquire or even to be able to qualify for a loan, you are going to have to get your credit scores above 620 to get a loan and above 700 for the premium loans. To do so will take time to manage your credit no different than you would manage an investment. Those that recognize this will benefit and those that don’t will pay a heave financial price.

Which one are you going to be? For more information on credit scoring and home mortgages, please contact Chris Scheer at cscheer@cornerstonestl.com

Federal Reserve Throws A Punch At Housing Slump

Well when Federal Reserve Chief Bernake took his first swing it was a big one. As previously written a .50% rate cut was not the consensus of the Fed watchers. Now we have the cut and we have to see how the markets react. Initially the Dow took off, but the bonds were slow to follow. At this time the mortgage backed securities are up 13/32 on the day which is just shy of .5% in our pricing, not quite the equivalent of .125% to the consumer. Should make 6.25% a hard number for tomorrow, but the question will be what about the day after and the day after that. Too many people are trying to guess what the next move will be.

Here is a link to the comments from the Fed Meeting today; http://www.marketwatch.com/News/Story/text-fomc-statement/story.aspx?guid=%7B7BCD1FBF%2D03D6%2D4008%2D9F48%2D430A2BD55C6C%7D

Will this decision help the homebuyers; in all probability this move will not make a difference. It is the next move and the next move that will drive mortgage rates to a level where buyers can afford more house again and we can help eliminate the credit debt that is piling up. If we start refinancing people again to get them out of the mess that they have created, will they have learned their lesson or will they pile the debt back on?

A follow up to last weeks post about the FHA Secure Mortgage. We now have one investor who has stepped up and will purchase these loans. As I listened to a conference call last Wednesday hosted by HUD, many companies across the nation where complaining that no investors were purchasing the loans. HUD had a presentation on Wall Street on Thursday to the top companies. Hopefully more will get into the game on this loan. This is the loan that will help all those people who were put into 2 year adjustable rate mortgages by the dark side figure out a way to hold onto their houses.

For more information on the FHA Secure Mortgage or any other mortgage information contact Chris Scheer at cscheer@cornerstonestl.com.

What Happens To Mortgage Rates When The Fed Meets?

With great anticipation the financial markets await the results of tomorrows meeting of the Federal Reserve Board and their plans on guiding our economy. As of this moment, most of the prognosticators believe the Fed will lower short term interest rates by .25%, to a rate of 5% from 5.25%. Some believe that they will lower them a full .50% to 4.75% and others, a small group believe the Fed will do nothing. But the bigger question that you, my readers have is; what does the Fed cutting rates have to do with my mortgage rate?

Here is the simple answer to that question:

1) If the Fed does what most of the market believes it will do, cut rates by .25% you will see little or no movement of the 30 year fixed rate mortgage. Depending upon the wording of the press release some in the market may read into the decision that the Fed will make further cuts. That sentiment will have no effect tomorrow, but will as the comments are dissected potentially lead to the market driving long term rates down in the coming weeks.

2) If the Fed drops rates by .5% or more, then you will see massive buying of bonds, including mortgage backed securities which will drive the yield or rate down on the bonds giving us lower rates by at least .25% and maybe as much as .5%. Don’t hold your breath on this concept, if it happens the market will be a seesaw for the next week as buyers and sellers try to make money quickly. Once that time has passed the implications of the Fed decision will be more in light across financial markets around the world and our bond instruments will be in less favor than those from other markets because their yield is lower. Thus the demand will drop off and the yield will rise slightly causing rates to come up from whatever low they attain in the first 72 hours.

3) If the Fed does nothing then the key will be the comments from the meeting. The important thing to realize is that the current rate you are seeing is based upon the current market belief that the Fed will lower rates. If they do nothing, then each word in their press release will give hope for future moves one way or the other. Trying to figure out Fedspeak is something that even most Fed watchers will admit is hard to do, especially with Bernake not having a track record that people can point to.

So if I had to get a mortgage now what would I do. I would lock my rate at this moment! I have learned that old country saying, “pigs get fat and hogs get slaughtered.” If rates get better tomorrow or the next day, then you can always look to take advantage of that in the near future. But if they get worse and you didn’t lock, it will cost you for months to come!

It finally happened!

So it finally happened! What you might ask? After 8 years of playing racquetball, trying to keep up with people half my age, I won a match at the Open level. I recognize how fortunate I am to get away with the victory, but this should give my son plenty to think about the next time he pops off about how he thinks he can beat the old man! Seriously, the ironic thing is that this was in a tournament to honor a great man and one of the things that this man did was to ride a bicycle for conditioning. This past spring I took to the bike and have averaged over 100 miles a week all summer long and my conditioning was the difference. Last year in the same tournament, I won my first ever Open game in the first Open match I played, but then lost the match. This year the first game went quick, 11-1. I found myself in a position I would have expected at the B level, not Open. In control and feeling refreshed. The next two games went fast, not as quick as the first one, but when I was up 8-1 in the third game I realized I had to focus to finish the win. At this level if someone gets hot, they can run off a bunch of points fast. I won the 3^rd game and the match 11-1, 11-8, 11-2. That was the great news, the bad news was that I had to play again in an hour and now I had played myself into playing the top seed in the tournament. I won’t waste much time or space on that match, but suffice to say that the scores were very similar to the match I won; only I was on the losing side this time. The thing I did notice is that my footwork in the second match was not as good as in the first. Thus, more time on the bike and better conditioning is needed. Other than that it was a great experience. I am only sorry that the victory had to come at the hands of a good friend. As I told his girlfriend later that evening, I was sorry that I had to beat him, but I owed him a good beating after the one he had put on me 2 weeks prior. It just was my night!

For more information on the results of the Mike Pohlman Memorial Classic or on racquetball in St. Louis, go to http://www.vettasports.com/.

Transactional vs. Relationship Selling

The Real Estate Mortgage industry has been plagued for the past 5 years with an epidemic of transactional sales people. Originators and companies who only cared about how much money they could make on each transaction. For those people living in St. Louis, we have the poster child for this with companies whose phone numbers end in the digits of 9999. They preyed upon the uneducated, uninformed, weak willed individuals and families. Often raping them financially while telling them what a good deal they were getting. With the collapse of the sub-prime mortgage market, these originators have fallen on hard times. Not as hard of times as the borrowers that they took advantage of, but some may yet feel that pain. I recently met with an owner of a sub-prime mortgage company who will soon have to sell his million dollar house and hope to break even on the sale to get out of the mortgages he has on it. With the current real estate market, he will probably end up in a short sale position. I don’t wish that pain on anyone, but remember “you reap what you sow.”

So how do we teach the public to recognize the difference between transactional vs. relationship sales people? I think the first thing that has to happen is that the consumer needs to not view the mortgage originators services as a commodity. When this happens they have all ready set themselves up to be used. Conversely, when the consumer views the mortgage originator as a financial professional they stand a much greater chance of having their immediate needs met while gaining a trusted advisor to help them manage the largest investment they will probably make in their entire life. However, because the mortgage industry has been filled with snake oil peddlers looking to only take advantage of people, it is very hard to get people to trust in the originator. Once the consumer is no longer worried about getting the lowest rate, least amount of fees, best deal and focuses on what their real long term goals are they will have a better chance of not ending up at the closing table with a higher interest rate, more fees, no money, no loan officer to close their loan or worse yet, loan terms that are unacceptable to them but they feel that they have to close in order to keep their house of their dreams.

To learn more about having a mortgage originator be a trusted adviser for you, please contact Chris Scheer, Your Residential Lending Expert at chrisscheer@msn.com.

What is the Delay?

Here we are, one week after the announcement by the President to try to help homeowners who are struggling, http://www.foxnews.com/story/0,2933,295369,00.html

Yet not one investor, i.e., Chase, GMAC, Countrywide, Citi Mortgage, or any of the other major national mortgage banks is ready to start selling these loans. Who is going to step up to the plate to start rescuing homeowners? Right here in St. Louis there are over 600 properties in St. Louis City and County that are for sale from Foreclosure. That number has tripled in the last 6 months. We are at the beginning of the problem. At that rate, next March we will have over 1800 homes for sale that have been foreclosed upon.

If we are a snapshot of the country, why are the major mortgage banks dragging their feet?

Most people in the industry know that HUD will insure these loans, however until HUD gives written guidelines no one is will to stick their neck out and originate a loan that may not be insured. Meanwhile, people who are late on their mortgages continue to struggle with the situation. Most are taking the ostrich approach and burying their head in the sand hoping the problem will go away. While they do this their credit gets worse and their credit scores continue to fall. The guidelines that HUD will issue will dictate a minimum credit score, so while HUD drags their feet, scores are falling and people that should get relief won’t due to governmental and political delays.

I Challenge the top executives at the major mortgage banks to step up and use common sense. We all know about what the guidelines will be. Start originating these loans and let’s start helping people. You may end up with a few loans that can’t be insured, but how many people will be helped? How much goodwill will be created? How much will your servicing portfolios increase in value as you help stop the decline of delinquencies? So what if you end up with a few million in loans that you can’t sell. Get them to perform for a year and then refinance them out of the loan that wasn’t insurable. It will cost you less than what it will to have to foreclose!

Change is in the Air!

Well it has happened! After months of showing up, doing the work, telling the truth and not worrying about the outcome; I have accepted the position of Branch Manager for Cornerstone Mortgage, www.cornerstonestl.com. I have spent the past 10 months reflecting upon a life plan that went awry, what I liked about it and what I didn’t like about it. Ultimately, I came to the conclusion that I truly love coaching and mentoring loan officers and sales people. Unfortunately, in my previous position prior to First Integrity I had made some business decisions that went the wrong way and I stopped working for the right reasons and only for the wrong reasons, which was to chase the almighty dollar. Somewhere along the way I forgot the old adage, if you help enough people get what they want, you will get what you want.

I have spent many hours reflecting on what gives me joy and energy. I realized that I need to surround myself with other people who are goal orientated, are looking for opportunity at every turn and have a sincere desire to help people. When I do that, I flourish with ideas and tap into the wealth of knowledge of sales that I have acquired over the years. Ideas and concepts are refined, sales opportunities are faced with enthusiasm, and everyone achieves their dreams. This is what made me a successful salesperson and sales manager to begin with. I am going back to being the originator and manager that led previous companies to greatness.

I am humbled and honored to be chosen for this position with the many talented people that are looking for work in our industry at this time. I also want to thank the management at First Integrity. Joe Bayer, the president of the company for treating me with respect and allowing me to leave a positive imprint on his company. Paul Turin, for being the great friend that he is and providing me with a place to let me practice my trade while I took the time to lick my wounds and recharge my batteries. I would be remiss to not mention all the other staff at First Integrity who each and every day work to make “each closing a celebration.”

So as I make this change, be aware if you aren’t all ready that the mortgage industry is changing. But it is a change that is long overdue and those of us with the experience know how to handle this change and make it a great opportunity for all of our clients and referral partners. As I told someone earlier today, in your mind, roll the calendar back to 2000. The programs and underwriting guidelines that we had then are the same ones we will be embracing today. Yes, the crazy loans are disappearing, but if you have credit, income, assets and collateral, you will still be able to get a loan today and for many years to come.