Is The Next Housing Crash Coming?

This is a fantastic article if you are a person who believes in trends!  As I read it, we are currently in phase II but depending upon the market next spring we could easily move into phase III.  Not only do we have the potential for hyper supply; look around you, do you see a lot of new construction?  We are also almost assured of rising interest rates.  Those are 2 of the 3 signs with a recession being the 3^rd sign.  Any significant event on the global stage could trigger the recession which would put us right back where we were in 2008.  Maybe not as drastic, but far too many homeowners are 1 paycheck away from a missed mortgage payment.

As I have the opportunity to look at borrower's balance sheets and assets regularly, there simply is NOT enough saving happening.  Too many people are trying to live the life of a wealthy person or if not wealthy, at least the life of someone they see on television.  Those that stop trying to keep up with the Joneses and live frugally will be prepared for when the next housing crash comes.

-Chris

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Do Election Years Affect Mortgage Rates?

Wherever you look, you can find opinions on both sides.  Some say an election year has no direct bearing on interest rates while others say it most certainly does.  There is evidence to back both views.  One thing that is for certain: given that this election is unlike any other election, all bets are off.

Neither candidate has intensely focused on the issue of housing so there does not appear to be a direct policy that will largely impact the industry.  But as humans we have a fear of the unknown.  So yes, during an election year buyers tend to be uneasy.  Markets & stocks do not like uncertainty either. This could, in turn, affect job creation, unemployment and the overall strength or weakness of the economy.  That of course, trickles right down to housing.

Right now Wall Street is leaning toward Hillary Clinton being elected and the market is priced as such.  If she does become president, yes there may be a slight increase in rates but Wall Street likes someone who is not likely to make radical changes.  If Trump is elected, it will be like going back to July 3rd when we saw the effects of BREXIT, which largely affected consumer and manufacturer confidence.  

Whatever will happen we will be looking at a 4-yr cycle until the next election.  So I wouldn’t hinge my decision on an election, I would hinge it on the needs of your family and your pocketbook.  One thing I can say, in looking back at rate trends we will still most likely still be enjoying the lowest rates in history.  Just look back at 1981 where the ANNUAL AVG was 16.63% (SEE HISTORY BY YEAR AT http://www.freddiemac.com/pmms/pmms30.htm)

Mortgage Mistakes

I came across a good article today:  5 Newbie Mortgage Mistakes (and How Much Each Could Cost You)

In the article they touch on two mistakes I would like to comment on, "Falling for Marketing Gimmicks" and "Not Knowing How to Eyeball the Paperwork."

The article discusses getting a Loan Estimate (LE) from a lender before choosing them. However, the lender will not issue a LE unless the borrower makes formal application and that includes having a property address.  You will not get a LE when you are looking to get pre-approved.  However, in most cases the mortgage company will provide a closing cost worksheet to give the borrower an idea of anticipated expenses.  

Do not make your decision off of the closing cost worksheet.  The lender is not held to those fees and often unscrupulous lenders will have more fees on the LE than they did on the closing cost worksheet. 

-Chris

Weighing In On Brexit: A Loan Officer's Perspective

Thursday's historical 'Brexit' ("British exit", which refers to the June 23, 2016 referendum by British voters to exit the European Union) vote has caused panic and uncertainty in the financial markets.  Whenever something like this happens there is an immediate flight to safety.  That means that large institutional investors move their money out of stocks and buy bonds.  When bonds are in demand, their price goes up and thus their yield or effective interest rate goes down.  This is why we saw rates fall between .125-.25% on Friday, June 24th, 2016.

The challenge with the rates falling is that they are near historical lows.  Realistically they don’t have much room to go lower.  The large institutional investors will get to a point where a return less than 3.5% is just not worth tying their money up and they will look for either higher returns or short term places they can wait for the market to determine when the uncertainty is over.

We have had a sellers’ market all year long with a large amount of buyers, small housing inventories and low interest rates.  That being said, the changes made to the mortgage underwriting process after the mortgage crash of 2008 has placed a significant amount of weight on accurate appraisal values.  Even with competing offers, buyers offering over list price and houses selling the first day of listing (or even before), the scrutiny in which appraisals are facing will control any potential bubble.  

Over the past 90 days I have seen 5-10% of the purchase transactions where the appraised value has been lower than the sales price.  This forces either the seller to lower their price or the buyer to pay the difference.  In both cases the mortgage industry and the country are protected from a perceived “bubble.”  The lender is lending off of the appraised value or the sales price, whichever is lower.  Thus they are certain that their risk is appropriate for the loan program that the buyer has chosen.  If there is one lesson that the industry learned in 2008 it was that collateral appropriately valued is key.  The industry is continuing to hang their hat on that and we will not see the overvaluations that occurred prior to 2008.

One thing to keep in mind though, is that if you purchased your home between January of 2013 and March of 2016 there is a good chance that your interest rate may be higher than the market and with the increase in home valuations that has occurred your equity position may have changed enough to warrant a mortgage fitness checkup.  I highly recommend that you reach out to your preferred loan officer and discuss your situation with them.  

Please feel free to contact me with questions or for a mortgage fitness checkup.

-Chris Scheer

Same Loan Costs, More Choices-We Are Defying the Odds

The implementation of TRID has had a significant impact on all lenders. In fact, a *recent article by Mortgage Daily reported that banks have actually eliminated product offerings due to TRID. They went on to say that the 2016 ABA TRID Survey found that some banks have specifically eliminated construction loans, adjustable-rate mortgages, home equity loans and payment-frequency options. But how have the changes affected consumers?

ABA's executive vice president, Bob Davis, said: "Consumers are seeing the greatest impact due to increased loan costs, fewer choices and delayed closings--and that's not what this rule was intended to do."  I couldn't agree more, and am grateful that I work for such a great company, who, from the beginning made it their mission to get through this transition as smoothly as possible.  Let's take a look at how Cornerstone Mortgage is defying this statement:

• Increased Loan Costs -  Yes, it is true, MBA estimates that each loan costs an additional **$160 due to TRID implementation.  However, Cornerstone has not increased any of it's fees to our customers. 

• Fewer Choices -  Cornerstone not only continues to offer the same programs, but we have also added a one-time close construction program, in which we can lend more than 80% of the cost of the loan.  

          This new program allows our customers to:

-Lock-in their rate early in the transaction and avoid extended lock fees.

-Pay closing costs once.

-Save money! 

• Delayed Closings -  We have added 3 employees just for the specific purpose of working the disclosure desk and we have added 4 people to the closing department.  So, we have the ability to close loans as needed when the borrower is prepared.  What does that mean?  If you are even thinking of looking for a home, get pre-approved.  This way we can make sure that we have all of the documents we need for a "clean deal."  That way, when you find the right home, you can jump on it! 

*Source:   "Banks Cut Programs Due to TRID
**Source:  TRID Cost Per Loan Reference

Remodeling: Cost vs. Value

Happy New Year!

If your goal this year includes home improvement or renovations you will definitely want to ask yourself: "When the dust settles, what are the benefits of a home improvement project?" This question is answered by the 2015 Remodeling Impact Report found in Realtor Magazine.

The report has 3 major sections: return on investment, the joy the remodel brings to a homeowner, and what has the highest buyer appeal (though not necessarily the highest return on investment).

Their findings:

#1 Interior Return On Investment (105%) = New Roof

#1 Project that made owners the happiest = Bathroom Remodel

#1 Highest buyer appeal (but not the highest percentage of ROI) = Kitchen Upgrade

The overall winner? When you look at the intersection of buyer appeal, cost, return, and owner joy, a new roof appears to be the smartest remodeling investment. 

Here is an illustration of their findings:

And your best bet is to speak to a realtor in YOUR AREA who knows the local market and can give you even more detailed advice on what will be a good return on your investment.

If you have questions on how I can help you achieve your goals, please feel free to contact me anytime.

Sincerely,

Chris 

Your Residential Lending Team

The #2 Largest Lender in the St. Louis Region

Cornerstone Mortgage is working it's way to the top.

There are two things I know to be true:

1. You don't get to the top without focusing on customer service
2. You won't do well with customer service if you don't love your company   

 Just like the Simon Sinek said, "Customers will never love a company until the employees love it first."  

I don't think it is a coincidence that our clients have a 96% satisfaction rate while our company has also been named a Top Work Place four years in a row.  As a collective family of professionals, Cornerstone has originated over $1 billion in closed loans AND advanced to the #2 Largest Lender in the St. Louis Region.   Happy employees = high customer service = happy clients.  An endless cycle of satisfaction.  I will toast to that at the New Year.

-Chris