Someone Finally Heard the Message!

Stop the presses! After attempting to brand myself as “Your Residential Lending Expert” for over the past 2 years, one of my past clients has finally heard the message. Dave Simons who hosts the “Dollars and Sense” money show on KMOX 1120 AM radio has asked me to join him on Wednesday, May 21, 2008 to discuss what is going on in the mortgage industry. At this time I am scheduled to go on air at approximately 10:10 a.m. The length of the visit should be around 10 minutes.

You can tune in or check out their live stream at www.kmox.com.

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Gentlemen Start Your Engines

Fasten your seatbelts mortgage professionals. This week President Bush will sign into effect his economic stimulus package. The stimulus package contains several features designed to improve the troubled housing market.

It would increase the Federal Housing Administration's loan limits from $362,000 to $729,750 and those of two federally sponsored entities, Fannie Mae and Freddie Mac, from $417,000 to $729,750. The FHA insures private loans made by FHA-approved lenders, while the other two buy and sell loans in the secondary market.

The measure would also enable the FHA to become more active in dealing with the direct impact of the housing crisis, permitting more borrowers facing defaults to refinance subprime loans through the federal agency.

So what does this mean to the mortgage industry?

1) Every loan that was a “Jumbo” loan that was originated in the last 4 years in all probability will be now a conforming conventional loan. That could mean a drop of up to 1.25% in the interest rate for borrowers. On $600,000 that is a savings of $489 a month. You can bet those borrowers will be clamoring for the chance to save money. Especially when the package may call for the change in the loan limits to only last for 12 months.

2) All those borrowers who have conventional loans that are over the current FHA loan limits will get a chance to refinance their first and second mortgages up to 95% of the value of their house depending upon the new FHA loan limit in their geographic area. These are the people that Fannie and Freddie have turned their backs on with the current mortgage crisis. As delinquencies rose credit standards have tightened.

3) Pipelines will swell and people will be hired to handle the increase in volumes.

4) Real Estate will recover in the following years as people have had a chance to re-adjust their budgets and dig out of the mess that was created.

For all those out there that would like to comment on this or who have one of those Jumbo loans, please contact Chris Scheer at 314.223.9824 or cscheer@cornerstonestl.com.

A Big Nothing!

Well the Federal Reserve cut interest rates by another .5% today which makes that 1.25% in the last 10 days. What did Wall Street do? They acted excited, but by the end of the day the dow was down 37 points. The bond market was even less excited and there was almost no movement at all. Why is the big question?

I would love to tell you that I know the answer, but I don’t. Here is my best guess as to what will happen over the next 30 days. As the heavy money has a chance to digest the Fed comments and view the rest of the economic indicators that are coming out this week they will determine what direction the market will go. This week will still be a week with potential wild movements in both directions for mortgage interest rates. As the market recognizes that the Fed may have to take further action, positions on the bond market will be taken and we will see the 30 year fixed get down to 5.5% or possible below.

Here are the economic indicators that are coming out this week:

1/30 Gross Domestic Product (Advance) (BEA) 2007 Q4 8:30

1/31 Personal Income (BEA) December 8:30

Construction Put in Place (Census) December 10:00

For more you can go to http://www.economicindicators.gov/

If you have questions or comments about this please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

What Just Happened?

In a move not seen in recent history the Federal Reserve has stepped in and lowered short term interest rates. I could go on and on about the fears of the world about the U.S. economy going into recession, but you can get plenty of that information from other sources such as http://online.wsj.com/article_email/SB120100837976106391-lMyQjAxMDI4MDIxMzAyMDM4Wj.html or http://www.forbes.com/2008/01/23/europe-interest-rates-markets-equity-cx_vr_0123markets06.html?partner=msn.

What I want to discuss is the ramifications this has on real estate and the mortgage industry.

The bond market responded to the rate cute as I would have expected. Prior to the move the market had priced in a 50 basis point cut at the next Fed meeting. All it did yesterday was add the other 25 basis points to the Fed move and now we are seeing the 30 year fixed in the 5.5% range. If borrowers are paying attention, you can now purchase a home with little or no money down and get a fixed rate mortgage for 6% or less. Housing prices are at near bargain basement prices. The Fed is betting that aside from calming the fears of the world markets, this will be the impetus that will get people back out buying houses. I personally think that we are still months away from that day. Even thought the inventory is overloaded with good houses for first time homebuyers and there are bargains everywhere you look. It will fall upon the middle class of America to jump start the real estate cycle.

For the past 3 years the middle of the price range has been the house slowest to move. The people who are looking to buy their second or third house to move into or the people who anticipate or have just received a promotion at work and are ready to get a bigger house. These are the people who need to get back into the game. For quite some time they have been standing on the sidelines hearing all the gloom and doom about the economy and they are smart enough to recognize that they could lose their job. We are a long way away from them feeling secure enough to make that move. Until then we will continue to see housing struggle.

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Are Rates Falling?

Well the year has started off with interest rates heading lower, but have they really? With Fannie Mae and Freddie Mac adding risk based pricing to their delivery fees for all loans delivered after March 1, 2008 see https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0716.pdf. Who knows what the rate will be at any given time. Couple that with this announcement; https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2007/0721.pdf

And the interest rate that I thought we should have is now at least .125% higher and in some cases .375% higher. Even though the price of mortgage backed securities continues to rise and the yield or effective interest rate is falling, the interest rate for most consumers is actually going up or staying the same!

Economic news favored rates falling and currently the trend has been favorable. However this week we have at least 3 Fed Governors speaking at various functions and the minutes from the December Fed meeting will be released. The market watchers will spend far too many hours dissecting the comments from these and we will see the bond market either give up its gains or take on a whole new energy as anticipation of the next Fed meeting begins. Either way, at this point it is going to take a strong push to get the 30 year fixed back down to 5.5% or below. Mostly due to the above mentioned pricing by Fannie and Freddie, but also keep in mind that the secondary departments of the major investment banks are under pressure to be profitable with the REO departments getting killed with all of the foreclosures. Thus when they do their pricing models, expect them to error on the conservative side.

For comments or questions, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

All I Want For Christmas

So imagine if you will; you are one of the many mortgage originators who have managed to stay in this industry through the last 3 years of cutbacks, layoffs, companies going out of business and income less than you have seen in a long time. Over the last 2 ½ weeks you have seen the 30 year fixed rate drop below 6% more than once and actually get to 5.75% for 24 hours before heading north again. You have glimmers of hope of making money again; real money! Not just closing enough loans to pay off your draw and keep your job, but enough money to justify all the pain and heartache you have experienced lately.

Wall Street is in your corner. They are pushing for the Fed to continue to lower short term interest rates. They need the lower costs of money to offset their huge losses in the Subprime Mortgage fiasco that they created. Your consumers are clamoring about the most recent Fed rate cut “does this mean that my interest rate dropped?” Instead of being able to say yes you have to say no and then spend 10 minutes on economics, Wall Street, mortgage backed securities and Japanese candlesticks to try to get them to understand the difference between short and long term rates and that one moving doesn’t mean the other will move.

You are exhausted and leave the office to try to find a real estate agent to talk to in hopes of getting a deal from them only to find that you either can’t get into their office or the agents you can find spend the entire conversation telling you how bad the real estate market is and no one is doing any business. You grow weary of bad agents and bad attitudes and get back into your car only to find that no matter what radio station you turn on you hear a commercial for a mortgage company, one of the “Dark Side” lenders who continue to prey on the unknowing and confuse most of the average and below average consumers with their lies and misleading information. Thoughts of George Bailey jumping off the bridge in “It’s A Wonderful Life” dance through your head. As you think of that you realize that the story ends happily and George gets to live his life with happy endings. Where are your happy endings?

They are right where they should be! This career, this job you have chosen to continue to pursue is your Christmas wish. It isn’t about the money. It isn’t about confused borrowers. It isn’t about competitors that don’t play the game fairly. It isn’t about realtors who let others control their minds and outlook on their career. It isn’t about whether the Fed lowers or raises interest rates. No it is about each and every borrower you do get to help finance or refinance their home. Not house, but home! You get to help people live the American Dream. It is about being the person who touches the lives of everyone you meet in a positive way. You can only be measured by how you made the lives of the people around you better. Accept that as your calling and reap the rewards of a life worth having and living!

Happy Holidays!

For your questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

The Dark Side Part 2

So how do you avoid the “Dark Side?”

Let me first say that I believe that everyone should have the opportunity to make money. The Mortgage Industry is a great place to earn a living, provide for your family and help people make dreams come true. However, with every industry there are always people who are in it only for themselves. These people prey on others who are less educated, less intelligent and sometimes less qualified. When they do, they usually abuse the system, creating large incomes for themselves while staining the reputation of their entire industry. Not to mention that the people who are usually their prey are the people who need to have a lender who will treat them fairly as opposed to taking advantage of them.

Once a “B” always a “B”. When the sub prime lending market was in its beginning, there were borrowers who would not qualify for the “A” paper loans. On more that one occasion I would hear an account rep say that “B” borrowers don’t change their habits and they don’t learn their lesson. That may be true about some people, but I believe that people can learn to manage their credit and they can learn to manage their finances. All they have to do is have an honest chance!

So what is an honest chance? Well it is putting someone into a loan program so that they can develop a budget off of. It is creating a mortgage solution that will not penalize the client in a short period of time. It is not gouging them in fees when they do come back to you eating all of their equity up with refinance fees. It is treating people the way that you would want to be treated.

As we see mortgage delinquencies rise and foreclosures happening at an alarming rate, there is a change that must take place. But it is going to have to be consumer driven. Legislation is not the key. Education of both the consumer and of the mortgage sales people will be the basis of this revolution. The consumer must learn not to fall into the trap of working with people who spend tremendous amounts of money on advertising. Mortgage originators need to learn that if you are going to stay in this business for a career, relationships are a necessity. To nurture those relationships you must take care of people so that they want to come back and refer other clients to you.

Thank you to Tracy Nolan for referring Andy Revelle.

Thank you to Andy Revelle for referring Joshua McDowell.

Thank you to Klaus Bank for the referral of Sarah Stroup and Pete Wilkens.

Thank you to Libby Emmer for referring Rob Steinkuehler.

Bridge Loan Scenario

So now that I had this big idea to write a blog, now I get to find something to write about more often then once in a blue moon. After spending the day writing loan applications and finding solutions to challenges for borrowers, I am not sure that my creative juices are flowing. But since we have now had this blog for a week and only one person has had the courage to post anything on the blog I am not sure that creative juices are necessary. Either way, the exercise of writing is the most important thing. I think that as I write these blogs I will have the opportunity to learn more about the loans that I encounter, learn better ways to help borrowers and possibly learn new or better systems for delivering loans.

One of today’s challenges dealt with a Bridge loan. A common challenge facing people who want to buy a new house but have not sold their old house is how to do so and tap into the equity in their current home. The client today had a home that has been described to me as a fixer upper, in other words, will be put on the market at below average condition. The house they wanted to purchase was being sold by owner and the buyer needed to act quickly before the seller listed the house with a realtor and then raised their price to compensate for the need to pay the realtors commission. In listening to the referral source describe the situation a bridge seemed like a possibility, but I was concerned about the expense. When you get a bridge loan against your current home it is a refinance. Thus there are expenses incurred to acquire the loan along with the fact that the lender is not making any money doing the loan so you will usually have to pay an origination fee. Then you are limited to only borrowing 80% of the value of your current home. With a house that is going to be in below average condition, I had fears that we would be having the client spend $2,000 to only be able to get to 8-10 thousand dollars. After interviewing the client and then reviewing their credit I decided upon the path of least expense for the borrower. It will require a step stone process, in other words we will do the original loan just to get them into the house, but as soon as they can sell their current house, we will use their proceeds to pay down the new loan and refinance into a lower loan to value and either lower their cost of mortgage insurance or eliminate it altogether.

Now you ask, would that cause expenses to refinance? It would if the client wanted to purchase the absolute lowest interest rate, but with the ability to use our income for selling their loan after we refinance it, I can use that income to pay the closing costs on the future refinances. Over the last 14 years I have seen too many people tell me that they wanted to pay the closing costs and then within 3 years they were back at my desk looking to refinance because the rates had fallen, they needed to access the equity in their home, they want to put an addition on to the house or even worse they decided that they can afford the old house payment and now they want to move to a bigger house. Thus whenever I have a client with an open mind I will always suggest to them that the right path is to take slightly higher interest rate and let us pay their costs for them.

Seems simple enough but then the referral source wanted to know why we were only going to do one loan and not two loans on the new house or an 80/20 loan. Someone had told them that they could avoid mortgage insurance by doing the 80/20 loan. However we had a challenge that the borrower would not qualify for the 80/20 since they would carry too much debt for their income. In addition, mortgage insurance is now tax deductible. The after tax expense of the mortgage insurance versus the 80/20 would leave the client better off paying the mortgage insurance now. Then when we lower the loan to value with the refinance after they sell their current home we will lower the cost of the mortgage insurance or eliminate it. With the 80/20 the 20% loan will be there at the higher rate until it is paid off through the use of assets or another refinance.

So now it seems like we have the mortgage planned out. We now have to get the seller to pay the borrowers closing costs and pre-paids so that they don’t use up their available cash with expenses related to the purchase. By getting the seller to take a higher sales price and pay the above mentioned costs at closing out of the proceeds of the sale we are able to keep a nice cash reserve for the borrower so they can afford to make two house payments for a month or two if they have challenges selling their current home.

There you have it! Another solution to another client with a unique circumstance. Just an average day in the mortgage industry. If that was all I had to do then it would be easy, but fortunately for me, that was one of 4 loans originated today. I also had an investor tell me that their underwriting turn time for refinance loans is currently 15-20 days. After I finished laughing, I sent a scathing e-mail to the account representative to remind him that this is not the year 2003, or 1998 or 1992, this is 2007 and any company that is experiencing those types of turn times does not know how manage their business and if these numbers are factual that he would not be getting any more business from our company. On top of that I spent 2 hours working my database sending out mailings, making phone calls and scheduling “Mortgage Fitness Checkups.” When you throw in the occasional banter with the other sales people and office staff, I can honestly say that I had a full day at the office.

Thank you to Todd and Julie Hall for being a repeat client. Also deserving of mention is Dustin Smart who is going to be utilizing my services again to refinance his home.