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.

Declining Markets Part 2

So what defines a “Declining Market?” Some investors have taken their large paintbrush out and if an area; county, city or zip code has seen their average sales price drop in the last quarter; they are calling it a “Declining Market.” Others have chosen a smaller brush and have stretched the time out by reviewing the last six months. Then the rest of the investors have left the defining to the appraisers, which is whose shoulders it should fall on. They are the ones whose job is to provide support that the investor is making the right decision to purchase a loan on a certain piece of property.

So when I checked with a few appraisers to learn their definition of “Declining Market” I was not surprised to find that each appraiser had their own definition of “Declining Market.” The thing to remember about appraisers is that what they do is not a science; it is more of an art. So again we use the paintbrush analogy and there are some appraisers that are running scared and using their large paintbrush and putting the term “Declining Market” in all of their appraisals. Others are taking the time to do a statistical review of the cost of the homes in the various areas and are applying the term when there is a continued decrease of value that exceeds 5% over three six month periods and then there are others who are only applying the term if the valuations have changed by greater than 10%.

In addition, most investors are only concerned with reducing the loan to value on Conventional loans. On FHA and VA loans, the appraiser has factored the market into the value and it does not have an impact on the amount the borrower can borrow.

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

Declining Markets

As the foreclosures and short sales begin to take effect on the housing market one of the single biggest changes that is occurring is the dreaded “Declining Market” label attached to a property in the appraisal. I have seen investors make the predetermination that certain zip codes, cities and counties are in declining markets and thus they are lowering their exposure by reducing the maximum loan on the properties in that area. Other investors have said that they will only apply declining market guides if the appraisal states that the property is in a declining market. Either way, when the declining market rules come into play, the only person that loses is the borrower.

Here are a few examples:

· The borrower is planning on putting only 5% down to purchase the property and the investor has deemed that entire zip code to be a declining market. They will only lend on the property if the buyer puts 10% down.

· An investor is planning to purchase a home with 10% down and the appraiser notes that the property is in a declining market. Now the investor has to put 15% down to get the loan.

In both cases if the borrower has the additional 5% it is an inconvenience, but the transaction will still go forward. But if the borrower does not have the additional 5%, then the deal is dead. In most cases the seller has lost valuable days marketing their property while the waiting for the buyer to get loan commitment.

Now that we know the challenges this brings I will discuss the inadequacy of how this is applied in my next post.

Lock and Load!

Well the Federal Reserve has lowered short term interest rates once again and if you believe the written statement coming out of the meeting, they are done lowering interest rates. The “inflation” boogeyman is haunting them as well is should be. Mortgage rates have not gone as low as they should of for a majority of reasons:

1. RISING OIL PRICES
2. Falling value of the dollar.
3. Mortgage Backed securities are not an attractive investment.

Rising oil prices are the single biggest concern with our economy. This nation is so dependent upon oil that most everything that we do involves some use of oil or oil byproducts.

http://www.huffingtonpost.com/hale-stewart/why-the-us-oil-depende_b_54822.html

Prices for all consumer goods are being affected by the rising price of oil, making it less likely that the consumer will have extra money to spend on non essential items.

The falling value of the dollar does have a positive; it makes it more attractive to foreign nations to purchase American goods. Unfortunately, we have become less of a manufacturing nation than we were 40 years ago.

http://www.ecommercetimes.com/story/60760.html?welcome=1209654021

Along with purchasing goods, we may see foreign investment in US Real Estate since we also have declining value in real estate.

The Sub-Prime Mortgage Crisis has put a stain on all mortgage backed securities. Most investors have been trying to rid themselves of mortgage backed securities. Even though short term rates have fallen, interest rates on mortgages have not followed. This trend is brought about by the simple law of supply and demand. As the demand for mortgage backed securities has lessened, their price has gone down. When the price on a bond goes down, the yield (interest rate) goes up. Until we see demand for the mortgage backed securities increase, which would drive the yield down, we will continue to have interest rates well above where they should be.

So why do I say lock and load? The Federal Reserve is almost out of bullets to stimulate the economy. Some are predicting that the economy will soon recover. Once the Fed sees signs of a recovering economy, they are going to want to start raising rates to slow the economy. And even more importantly, reload their own gun. We have now seen the Fed lower short term rates from 5% to 2%. They would like to have some room to work again with interest rates, so they need to get some room to work. Raising rates is the easiest thing for them to do. For people looking to purchase a home or refinance that means that rates are no longer going down and now will only go up. So find your house, lock your rate and start saving your pennies. We are going to be fighting inflation for a few years!

WOW

I want to first take a moment to thank all the people who have helped me with this project. Each and every one of you has inspired me and been a tremendous resource to me. So again, THANK YOU!

A little over a year ago I made the commitment to start this blog and at that time I did it for a variety of reasons, but mostly I wanted to have a way to communicate to the people who had not met me, what I stood for in business. At that time I also wanted to raise my “google” ranking and was quite embarrassed that I was on page 16 for a racquetball tournament that I didn’t even win. So I took on this challenge of writing a blog as often as I could find the time and find something that I thought was worth sharing. I am not proud of each and every post, for as I read them again I see some of the flaws of my lack of writing skills and also I find that I may have let emotions get in the way of the point of the message. None the less, I have found personal satisfaction in writing this blog. My goals have been accomplished.

I now tell people who question what I stand for to read my blog. I direct potential clients, referral sources and even people that I am interviewing to take the time to stop by and read my postings. My “google” rank as of this minute is numbers 2, 3 and 9. There is an individual who has written a book against the war and at the moment he is #1. But I have a plan and I will usurp him at the top spot with your help. But more on that later! I have developed relationships with other bloggers who have helped me learn more about how to do this. Past clients and potential clients have found me on this blog and have contacted me for loans. Lastly, other industry professionals have read this and have commented to me their thoughts on my writings. It has made this a great conversation starter and another way to build relationships.

So how do we take over the number 1 position? All you have to do is visit this site weekly. Add me to your web browser as a live bookmark and click on the bookmark every once in a while. You could subscribe to the blog and then you will notifications when there is a new post. Please take the time to ask anyone you know to stop by this web blog. All they have to do is hit the page from any page they are viewing and that is good enough. If they choose to read the material, that will make it that much better. Educating the public about the mortgage industry is never a bad thing. Especially when there is so much bad information put out by the press and the “Dark Side”.

I appreciate you taking the time to visit today and please let me know if there is anything I can do to help you achieve your goals.

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

FHA is the King!

As previously mentioned, the new economic stimulus package has allowed HUD to raise its maximum loan amounts for FHA loans depending upon the county of the property. For those in the St. Louis, Missouri area, that means we now can do an FHA loan for up to $281,250. The previous amount was $213,750, so that is a huge jump, almost a 33% increase.

So who can take advantage of this? You could spend days googling FHA loans to get all kinds of information about the FHA insured loan so I won’t waste you time covering everything. What I will do now is touch on the opportunities that I think will make the most amount of practical use for the clients that I see on a daily basis.

1) First time homebuyers: With the end of the conventional 100% financing (see previous post) now more than ever this will be the product of choice for first time homebuyers who have little or no money down. FHA requires a 3% down payment; however those funds can be gifted to the borrower from a relative. The gift does not have to come all from the same relative either. You can get part from one parent, part from another parent or their siblings such as an aunt or uncle and then you can get more from another relative. Thus on the $289,950 purchase price that the borrower needs $8,750 for a down payment, they can get that from various relatives or at least the part that they have not saved up on their own. They can also borrow the money for a down payment, as long as the loan is secured and has a repayment period of at least 5 years. That payment counts against their debt to income ratio, but makes borrowing against a car, a boat, a certificate of deposit or a 401K an option for coming up with all or some of the down payment.

2) Refinance to get out of an 80/20 loan. The second mortgages on these loans were priced higher than the rate on the first. Many people regretted getting them, but because of the change in Conventional guidelines, they were not able to refinance the loans since they owed over 95% of the appraised value. On an FHA loan, we can refinance them at 97% loan to value if we are paying off liens on the property. A great way to get those people out of 2 mortgage payments and into one at a FIXED rate.

3) Refinance for cash out. Both Fannie and Freddie have made it darn near impossible to get approved for conventional cash out loan over 80% loan to value. First your FICO score has to be over 720 and then good luck getting mortgage insurance on the loan. With FHA we can go to 95% loan to value and thus help get people out of the credit card debt or other challenges that are overwhelming them. It will also allow people to borrow money to improve their property, which in the near future will be a key to helping people hold their property values.

These are just a few of the ways the FHA loan can be used. For comments or questions, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.224.9824.

The End of 100%

In the ever changing landscape of lending, we had the latest and most significant change take place this past Monday. All of the Private Mortgage Insurance Companies announced that they would no longer issue mortgage insurance on any loan with a loan to value greater than 97%. On a side note I can remember when we could only do a 97% loan and then just one of the mortgage insurance companies said they would insure up to 100% and it was months before the others joined in when the LTV was going up, but now that the maximum LTV is going down, they are all are the same page and quick to make the move. Kind of like rats jumping off a sinking ship! But I digress! Now there are few instances that one of the companies will honor the 100% commitment but it is in such a limited scope that you have a better chance of winning tonight’s Powerball drawing than getting a 100% loan.

So why are they doing this? First of all they are all taking a bath financially in mortgage insurance claims on loans that are in default and foreclosure due to the current mortgage crisis. Some would argue that they have been making money hand over fist for years as their losses have been limited as the housing prices grew and mortgage rates were declining or low, but keep in mind that during that time that they had to fight to keep market share and revenues as the banks created the second mortgages that would go to 100% and in the industry it was common practice to do a first mortgage for 80% and the second for the remaining amount to avoid mortgage insurance. So let’s not rush to judgment on the profits of the mortgage insurance companies over the last 7 years. Secondly and more importantly, we are seeing house values in some areas decline. So if they did insure a loan that was a 100% loan in one of those areas and the house price has declined, they are now insuring for over 100% of the value of the house. How smart is that?

What does this leave us? Thanks to the stimulus package that was passed we know have higher FHA loan limits and in most cases the cost of the monthly mortgage insurance will be less on an FHA loan. Also, in the old days, before 100% financing, we did most loans using gifts, tax returns, SAVINGS, as a way to come up with the initial 3% for a down payment. Imagine that, you have to save some money to buy a house?

I will write more on the increase in the FHA loan limits and the opportunities that are presented by this later this week. For questions or comments on this please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.