Wednesday, August 31, 2011

Dispute any information that brings your credit score down.

Debunking Four Common Credit Myths

The terms and rate you are offered on a home loan are very much based on your credit score these days. Your credit score is designed to tell lenders just how risky of a borrower you will be, based on your past history of handling (or not handling) credit. In order to protect your credit and get the best deal on your next mortgage loan, it is a good idea to become credit savvy. A good way to start is by separating the facts from the fiction when it comes to how credit works.

Here is some truth: your credit score is a three-digit number, ranging between 300 and 800 and is a calculation based on several different factors. These include your history of timely or untimely credit payments, your debt total verses the amount of credit you have available, the length of your credit history, the type of credit accounts you have, and the number of inquiries from others about your credit report.
Now here are some myths:

Myth #1: You have just one credit score.
Actually because there are three different credit reporting agencies, Experian, Equifax, and TransUnion, and they each collect their own information about your credit, each agency may give you a slightly different score. Most lenders know this and will check all three and take the average of the scores to determine the type of interest rate to offer you. You can also check all three scores yourself by visiting each of the companies’ websites and requesting a copy of your score. Asking about your own score will not hurt your credit.

Myth #2: Getting quotes from several different mortgage companies will damage your credit.The truth is that as long as you do your shopping around within a short time period, many inquiries on your credit will only be counted as one inquiry. There is some dispute about how long that short time period can be. Some say it is as short as 14 days, others claim all inquiries made within a 45 day period are counted as just one. The point is to set aside some time during two or three weeks and shop around as much as possible and get all the credit checking out of the way. Just one inquiry listed on your credit report in the recent past will not have a large impact on your total score.

Myth #3: Credit bureaus base your score on things like your age, gender, and income.This simply isn’t true. The factors listed above are what determine your credit score. It will not matter haw much or how little money you make in a year. What counts is what percentage of that income is wrapped up in debt compared to how much credit you have available to you. And just FYI, when you get married, you and your spouse will still have separate credit scores, even though any joint account activity will influence both of your scores.

Myth #4: You should dispute any information that brings your score down.You can, by all means, dispute any information on your credit report that you know to be false. But if you really were late on your house payments for a year, disputing them will not do you any good and will not improve your score. There is no getting around previously poor financial behavior. The important thing is to look ahead, change your bad habits, and start acting responsibly with credit.
Knowing the difference between credit myth and reality will help you better use and protect your credit. Make sure you investigate with credible sources any claim that someone makes about what will or will not hurt your credit.

For additional information contact: First Capital • 310-458-0010

Tuesday, August 30, 2011

Consumer Creditworthiness Improves

PBS NIGHTLY BUSINES REPORT - Monday, August 29, 2011

TOM HUDSON: : We saw a bright spot for Consumers in July. Spending rebounded last month as Americans bought more cars. Sales increased by 0.8% in July, the biggest increase in five Months. Spending was lifted by a rise in Income, which rose 0.3%, and a Slowdown in the savings rate, to 5% from 5.5%. The head of consumer credit Ratings agency Fico tells us Americans creditworthiness is Improving, but is not where it Needs to be. We spoke with CEO Mark Greene, who began with some Bright spots for consumer Credit.

MARK GREENE CEO, FICO; Consumers have done a Good job actually focus on Their credit cards, in fact, they paid down their debt on Credit cards and are now running at the lowest default rates on credit cards in 17 years.

There's similar health around automobile loans and student loans. So a lot of the credit portfolio that people normally think consumers have done a pretty good job as they move from a period of dissaving to saving and sort of paying off those balances.

So where are the problem spots? Problems really in the housing market. The housing market still has easily another 12 or 18 months to go to work through. This really large backlog of foreclosed properties and properties that are underwater. In fact, we think these days that about a third of home sales are of foreclosed properties. So long as that remains true, Consumers are feeling very nervous about their own home ownership. Their home is likely Underwater -- one Out of three homes is Underwater. Until we see an improving in The house market t is the Mortgage that will be an
anchor on consumer credit.

HUDSON:: Isn't that the problem when we are talking about credit-card debt, are you talk will about a stub toed. When are you talking about Mortgage debt that is the Cardiac problem, right, a Much bigger debt issue than Anything else?

GREENE it is a much bigger issue, You are exactly right given The size of mortgages. And it's also more Complicated because there Are several factors driving The mortgage issue. One is simply the problem of People not being secure in Their jobs. So employment actually Correlates highly with what Goes be in the mortgage Industry. If you don't see good job Prospects for yourself or Your neighbor, are you Really nervous about having A big liability such as a Mortgage. So you are resistant to Buying a new home or Refinancing your existing Home. The other problem is one of Confidence. In an era where you see the Kind of shenanigans going on In Washington, the kind of Volatility in the stock Market, you feel really Nervous. And people who are nervous Do not want to undertake Large obligations and we see this expressed in recent consumer confidence numbers which are running close to the lows-- the lowest levels they've been at since 1980. So consumers are very Worried.

HUDSON: They got the tool kit when it comes to credit Worthiness of Americans and Works with lenders on Mortgage workouts, for Instance. What needs to be done to fix that process, thought to streamline it and to get banks and the borrowers both engaged to come up with an equitable outcome?

GREENE: Well, a couple things it is a great question. One portion of the mortgage foreclosure and delinquency problem has a specific solution and that is the portion of consumers who actually can afford to pay their mortgages but choose not to. They see their neighbor down the street not paying their mortgage and getting away with it. Or they feel they shouldn't pay because their own home is underwater. This is what is often Referred to as strategic Defaults. Banks simply need to do an Early intervention, go to The consumer, the homeowner and say is everything okay. Do we need to do a workout or restructuring that is about four troubled mortgages are strategic defaults. For the others what we are looking for is some improvement in levels of employment stability. Some improving confidence in the business environment. and perhaps what you are hearing talked about in Washington these days, a variety of new home mortgage support programs, making it possible for consumers to afford their mortgages through some reduction in the monthly principal or interest payments.

HUDSON: We appreciate some of those ideas. our guest this evening Mark Greene CEO. of the Consumer Credit Rating Company.


Low Mortgage Rates Holding On, But at Risk of Rising

Today’s low mortgage rates are holding on, but are at risk of rising as positive economic news was released today giving optimistic investors hope for the future.

Pending homes sales dropped 1.3% in July as reported today by the National Association of Realtors. This drop was actually better than expected and better news than a year ago. Current 30 year fixed mortgage interest rates are at 3.875% and 15 year fixed mortgage rates are at 3.250%. 5/1 ARM loan rates are at 2.625%.

Low conforming mortgage rates continue to be beneficial for borrowers who are purchasing homes or refinancing existing mortgages. With good credit, borrowers can obtain these low mortgage rates with 0.7 to 1% origination point.

Remaining affordably below 4%, today’s FHA 30 year fixed mortgage rates are at 3.750% and FHA 15 year fixed mortgage interest rates are at 3.500%. FHA 5/1 ARM loan rates are at 2.750%. The majority of borrowers have chosen FHA mortgage loans in recent years because of the multiple benefits they offer. With a low down payment of 3.5%, a borrowers can have a minimum credit score of 580. This gives many more consumers the opportunity to become homeowners. FHA closing costs (APR) do tend to be higher than conforming mortgages because of the upfront mortgage insurance premium and other related FHA fees.

Still at attractive low levels, today’s jumbo 30 year fixed mortgage interest rates are at 4.750%, jumbo 15 year fixed mortgage interest rates are at 4.375% and jumbo 5/1 ARM loan rates are at 3.250%. Since jumbo mortgages are not government insured, they are considered riskier than conforming and FHA mortgage loans. Therefore, borrowers must have excellent credit to obtain these lowest jumbo mortgage rates with 0.7 to 1% origination fee.

Current California 30 year fixed mortgage rates are at 4.375% (4.559% APR).

This week will be busy for markets as the end of the month of August arrives along with the release of several key reports. Stocks are gaining today on the news that Consumer Spending increased in July. MBS prices (mortgage backed securities), which move mortgage rates in the opposite direction, are down -13/32. Everyone is relieved that Hurricane Irene did not produce the amount of damage that was expected. Investor optimism and a few good reports in the next few days could keep the stock market rallying and drive MBS prices further down. This could ultimately drive mortgage rates higher as the week progresses.

Original Article - FreeRateUpdate: By: Rosemary Rugnetta
The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, currentness, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use.

Monday, August 29, 2011

U.S. May Back Refinance Plan for Mortgages

First Reported: August 24, 2011
Late last week, the New York Times reported that the Obama administration is considering a plan to “allow millions of homeowners with government-backed mortgages to refinance them at today’s lower interest rates, about 4 percent.” That would mean up to $85 billion in stimulus a year, significant relief for many homeowners who are struggling to make their payments, and the beginning of a new effort to address the troubled housing market. It’s also an idea with a significant expert pedigree: It’s been endorsed by such disparate thinkers as Berkeley’s Brad DeLong, the Peterson Institute’s Joe Gagnon and Glenn Hubbard, ex-chair of George W. Bush’s Council of Economic Advisers. So it should happen, right?
Sadly, no. My efforts to confirm the story have been pretty fruitless. I don’t think the chances of a major new refinancing policy are very good . First, you have to ask how it would pass — and no, the Obama administration couldn't simply wave its wand. Second, you have to answer some thorny policy questions that have bedeviled the administration’s previous housing efforts, and basically boil down to whether taxpayers are willing to subsidize housing debt.
Passing the plan is probably the toughest challenge. Most people think that the Obama administration “owns” Fannie Mae and Freddie Mac, and so it can basically tell them to do whatever it wants. That’s not how it works. The Housing and Economic Recovery Act of 2008 put Fannie Mae and Freddie Mac under the control of the newly created Federal Housing and Finance Authority.
The FHFA is not like, say, the Treasury Department. It’s an independent agency, and right now it’s under the care of acting Director Edward DeMarco, a holdover from the Bush administration. Senate Republicans blocked the Obama administration’s nominee, Joe Smith, after he expressed some support for using Fannie Mae and Freddie Mac to heal the housing market. Any plan would either need to go through him or through Congress. And both DeMarco and the Republicans in Congress seem mostly interested in limiting Fannie and Freddie’s short-term losses so they can be spun off from the government.
But let’s say it passed. The next big issue is known as “reps and warrants.” The short way of explaining this is that when the banks hand a loan over to Fannie and Freddie, they basically swear that the loan was properly constructed. If that later proves untrue, Fannie and Freddie can force the bank to buy it back. This happens a lot, and the option is worth billions to the mortgage giants. When banks refinance a mortgage, they basically take on the risk that the mortgage wasn’t constructed right in the first place. In a refinancing situation — particularly a refinancing situation where you’re dealing with homeowners who might default — they don’t usually want that risk. So either Fannie Mae and Freddie Mac eat billions by giving up their ability to challenge these reps and warrants, which they could do if the FHFA/Congress wanted them to, or the banks won’t refinance these loans and the program will be a bust.
There’s a similar, though less complex, problem the costs associated with refinancing a mortgage. When you add up loan-level adjustment costs, title insurance, reappraisal, and all the rest of it, it’s often more than an underwater homeowner can bear. You can solve this problem the same way you can solve the rents and warrants problem — either make the banks eat the costs, in which case they may not participate, or get the government to eat the costs — but you’ve got to figure it out.
You’ll notice that I’ve been talking mostly about underwater homeowners here. Though this policy would theoretically affect everyone, the reality is that creditworthy borrowers who aren’t underwater on their homes can refinance at very low rates right now. They don’t need this policy. It’s possible that this would create an announcement effect that would make more of them aware of the opportunity and thus lead to higher take-up, but the guts of this change would really be about making it easier for underwater homeowners to refinance.
But the administration has tried and failed at that before. The HARP program, for instance, theoretically allows Fannie Mae and Freddie Mac to refinance homeowners who are up to 25 percent underwater on their mortgages. It’s just not worked very well, in part because it never solved these issues. For refinancing to work, Fannie Mae and Freddie Mac need to be willing to increase their exposure to losses. As of yet, the FHFA has been unwilling to do that, and the administration hasn’t been able to roll them — though some people argue they simply haven’t tried hard enough.
Which isn’t to say it shouldn’t be tried. Quite the opposite, actually. The best of all possible worlds would be for DeMarco to give the go-ahead and for the government to eat at least some of the losses on refinancing costs and reps and warrants. But DeMarco seems unlikely to do that, Congress is even less likely to overrule him, and so the likeliest outcome seems to be something between nothing and a diluted refinancing initiative that does much less than advocates hope and homeowners need.
By Ezra Klein  |  03:20 PM ET, 08/25/2011

Mortgage Bond Market On Edge, Guessing On US Refinance Plans

NEW YORK (Dow Jones)--The U.S. market for mortgage-backed securities is increasingly on edge this week as a sour economic outlook fans speculation that the government will come to the aid of homeowners who have been unable to take advantage of record low interest rates.

Traders reported the most volatile trading this year in some MBS amid speculation that the Obama administration would remove at least some hurdles to refinancing for borrowers with weaker credit and whose loans are underwater. The administration has been weighing numerous options to stabilize the battered housing market--a key source of weakness in the economy.

Administration officials have been studying ways to increase the number of homeowners who can refinance, but haven't settled on a definite plan.

Just chatter about such changes is upending a profitable trade on MBS backed by loans with rates at 6% and higher. Investors, who are hurt when a loan is refinanced, had flocked to those bonds for stable refinancing levels because any borrowers that could have refinanced would have likely already done so. Investors swapped into lower rate MBS.

Analysts have been assessing numerous options that they expect are under consideration by the government. Included are possible changes to expand the Home Affordable Refinance Program--a program rolled out in 2009 designed to help borrowers refinance loans if they owe more on their mortgages than their properties are worth. It has assisted 810,084 homeowners through May, far short of initial expectations.
Other ideas include limiting lenders' exposure to defaults; expanding HARP eligibility to the newer originations; or implementing parts of a bill from Sen. Barbara Boxer (D., Calif.) that would drop fees and eliminate a restriction limiting the program to homeowners who owe more than 125% of their home's current value.

Analysts say a "nuclear option" in which a low mortgage rate would be made available to all borrowers is likely to be unrealistic. That is because it would be subject to legal challenges, and could alienate the investors that provide funding for 90% of all loans, said Ankur Mehta, head of agency MBS at Nomura Securities in New York.

Peter Swire, a former top White House housing adviser, said administration officials are well aware of such concerns from the financial market.
"The administration goal is to return private funding to the housing market, not to cut it off," he said.
Another key problem for Obama officials is that the independent regulator for mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) would have to approve the program. That regulator, the Federal Housing Finance Agency, has resisted Obama administration programs, arguing they would boost losses at the two government-controlled mortgage funding firms.

Administration officials sought to downplay the potential scope of any changes. But analysts believe chances for action are increasing as growth disappoints, because refinancing could save homeowners $85 billion a year.

"We continue to look for ways to ease the burden on struggling homeowners and to help stabilize the market, whether that's through assessing new proposals or older ones worth re-considering as market conditions change," the White House and Treasury Department said Thursday in a statement. "That said, we have no plans to announce any major new initiatives at this time."
Prices on Fannie Mae 6% MBS have plunged 1 13/32 to a price of 109 31/32 cents per dollar since Aug. 12, compared with a 26/32 fall for 4% MBS to 103 20/32 according to TradeWeb. High-priced MBS are most vulnerable as a refinance triggers a prepayment of principal to the investor at 100 cents on the dollar.

Investors are caught between benefits from the high carry of 6% MBS and the safety of lower coupon bonds. MBS had rallied earlier this month after the Federal Reserve pledged to keep its target interest rate near zero for at least two years, giving banks and real estate investment trusts comfort that their models of investing borrowed funds would be profitable for some time.
Their risk to MBS is greater as prices have hit record highs this month, according to Barclays Capital.
The high prices make any increase in prepayments especially painful, said Walter Schmidt, head of MBS strategy at FTN Financial in Chicago.
--Nick Timiraos of The Wall Street Journal contributed to this article.
-By Al Yoon, Dow Jones Newswires


If you don't think an FHA loan is for you, think again.

Even with tighter restrictions on mortgage lending in the CA market, an FHA loan is still one of the best at getting people into their dream homes. Many people seem to think that FHA loans are only for first-time home buyers. They cannot be more wrong.
The Federal Housing Administration (FHA) was created as part of the National Housing Act of 1934. It insured loans made by banks and other private lenders for home building and home buying. The goals of the FHA were to improve housing standards and conditions, provide an adequate home financing system through insurance of mortgage loans, stabilize the mortgage market, and make home buying within reach for the masses.
While the FHA does not lend money directly, it does insure loans made by private lenders. The first step in obtaining an FHA loan is to ask lenders or mortgage brokers if they originate FHA loans. As each lender sets its own rates and terms, comparison shopping is important in this market. The potential lender then assesses the prospective home buyer for risk. The analysis of one’s debt to income ratio enables the buyer to know what type of home can be afforded based on monthly income and expenses and is one risk metric considered by the lender. Other factors such as payment history on other debts, are considered and used to make decisions regarding eligibility and terms for a loan.
The FHA allows first-time home buyers to put down as little as 3.5% and receive up to 6% towards closing costs. If little or no credit exists for the applicants, the FHA will allow a non-occupying co-borrower who is a blood relative, such as a parent, to co-sign for the loan.

What’s in it for me?

Anyone from a college grad to an executive for a Fortune 500 company can get an FHA loan as long as the requirements are met.
Compared to conventional loans, FHA loans have many advantages:
  • A 3.5% down payment is required in most cases. In some special situations, only 0.5% is needed.
  • Applicants with credit scores as low as 620 can qualify. In certain cases, people with credit scores as low as 580 can still be approved.
  • A non-occupying co-borrower who is a blood relative can co-sign to help the applicant qualify.
  • Seller can pay up to 6% in closing costs.
  • No reserves needed after closing.
  • Down payment and closing costs can be 100% gifted.
  • Higher debt-to-income ratios are allowed.
  • Applicants can qualify for an FHA loan two years after a bankruptcy or short sale and 3 years after a foreclosure.
The types of loans available through the FHA are either a standard 30-year fixed or a 5-year fixed hybrid, which has lower payments and can help the borrower qualify for more. FHA loans currently require an impound account in which the borrower’s annual taxes and insurance are included with the monthly mortgage payment.
For those already carrying an FHA loan already, it can be refinanced as a “Streamline,” which does not require an appraisal as long as the borrow has been current with mortgage payment in the past 12 months. For more information on FHA loans and other programs, please call First Capital at (310) 458-0010
Original Publish Date: August 26, 2011

Friday, August 26, 2011

Should You Pay Points on a Mortgage?

What Are Points?
Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. So, for example, 2 points on a $200,000 loan is $4,000, or 2% of the loan amount.

How Do Points Affect My Mortgage Rate?

Points and interest rates are inherently connected: in general, the more points you pay, the lower the interest rate you get. However, the more points you pay, the more cash you need up front since points are paid in cash at your loan closing. This is also known as a "buy-down" or a "discount" since you're paying for a reduced rate over the entire term of the loan.

Should I Pay for Points?
You don’t necessarily have to pay for points. Many of the rates you hear quoted in ads on the TV or radio may include points, but there are mortgages available without them. Keep in mind that the rate you get for a mortgage without points will be higher than a rate with points.

Deciding whether or not to pay for points depends on your situation.
Do you want to pay for more points in exchange for a lower rate, or do you want to pay fewer points and accept a higher rate?The answer usually depends on how long you expect to own your home and how you like to budget your money.

If you don't plan on owning your home for very long, buying points may not be your best option. The length of time you have your mortgage determines how much interest savings you can achieve from a lower rate. On the other hand, if you plan on owning your home for a longer period of time, the money you pay up front for points could be more than made up for in interest savings over the term of your loan. Another consideration when deciding to pay points is how much money you want to bring to your loan's closing versus how much you would like to lower your monthly payment. While points are paid for at closing, a lower interest rate will reduce your mortgage payments every month.

Your decision should be based on how long you’ll have the mortgage and how you prefer to manage your budget. The longer your mortgage term, the more you’ll benefit from having a lower rate.

Foreclosures A Third Of Sales: Mortgage Rates Rise

August 25, 2011
Foreclosures made up roughly one-third of all home sales this spring.
While that's a smaller share of sales from the previous quarter, it's six times the percentage of foreclosures in a healthy housing market. Meanwhile,
fixed mortgage rates edged up this week from their lowest levels in decades.

Foreclosure sales, which include homes purchased after they received a notice of default or that were repossessed by lenders, accounted for 31 percent of the market in the April-June quarter, foreclosure listing firm RealtyTrac Inc. said Thursday.
"Over 60 percent of homebuyers are looking for a property that's in foreclosure, and so the buyers really know that there are bargains out there to be had," said Rick Charga, senior vice president.
The more sales, the better, he said. "We need the percentages of sales to be high, we need the number of these properties sold to be high, so that we can get these properties out of inventory and let the housing market prices start to climb back up," Charga said.

Foreclosures' share of the market would likely have been larger this spring if not for a state and federal investigation into faulty paperwork by banks and servicers. The probe has led many banks to delay foreclosure sales. Once that is complete, foreclosures will likely surge later this year.
As a slice of all home purchases, foreclosure sales peaked two years ago at 37.4 percent. In the second quarter, they declined from 36 percent in the January-March period.

Mortgage Rates Climb To 4.22 Percent
The average rate on a 30-year fixed mortgage rose to 4.22 percent, Freddie Mac said Thursday. That's up from 4.15 percent last week, the lowest level on records dating to 1971.
The average rate on the 15-year fixed mortgage, a popular refinancing option, rose to 3.44 percent. Last week it fell to 3.36 percent. Still, low rates have not been enough to revive the weak housing market. Mortgage applications to purchase a home fell last week to a 15-year low, according to the Mortgage Bankers Association.

In all, 265,087 homes in some stage of foreclosure or owned by banks were sold in the second quarter, down 11 percent from the same period a year ago. Sales of all other types of homes also declined, according to RealtyTrac's figures, which differ from other home-sales estimates.
Bank-owned homes, which are sold after being repossessed, accounted for nearly 19 percent of all sales. That's unchanged from the previous quarter.

Distressed properties, often in need of repair, typically sell at big discounts and weaken prices for neighboring homes.
A bank-owned home this spring sold for 40 percent less than the average price of other homes, according to RealtyTrac. That's up from 36 percent in the previous quarter and 34 percent from the same quarter one year ago.

Foreclosed Home Prices Dip
Sales of homes in the foreclosure process or short sales went for 21 percent less than the average home sold, the firm said. That's up from an average of 17 percent in the first quarter and 14 percent in the second quarter of 2010. A short sale is when the lender agrees to accept less than what is owed on the mortgage.
The average sales price of a foreclosure property was $164,217, down less than 1 percent from the January-March quarter and nearly 5 percent from the April-June quarter in 2010, the firm said.

Nevada led all states with foreclosure sales, accounting for 65 percent of all home sales, RealtyTrac said.
In Arizona, foreclosure sales represented 57 percent of all home sales for the quarter, up 16 percent from a year ago. In California, foreclosure sales accounted for 51 percent of all home sales in the second quarter, virtually unchanged from last year.

Several other states had foreclosure sales that accounted for at least one-third of all home sales in the first quarter: Michigan, Colorado, Florida, Illinois and Oregon.
This report contains material from The Associated Press & NPR

Thursday, August 25, 2011

Housing faces extra drag -- low appraisals

Many housing experts say low appraisals are yet another headwind for a housing market already suffering from a plunge in prices, high unemployment and tight credit.

Lenders are forced to cap their mortgage loans at the value set by appraisers and buyers and sellers often can't agree on how to make up the difference with an original deal price.
"It's hard to talk about any recovery of the housing market and home prices until the appraisal issue is squared away, and that is a broad issue," said Guy Cecala, publisher of Inside Mortgage Finance, a Maryland-based trade publication.

Sixteen percent of Realtors reported contract cancellations in July, matching June's level, which was the highest since March 2010, when the National Association of Realtors began collecting data.
Nine percent reported contract delays due to low appraisals, and 13 percent reported a contract was renegotiated to a lower price because an appraisal came in below the original price in the last three months, the NAR said.

Appraisers in the United States have long been used to controversy for their role in the country's housing market. The appraisal system has been reformed in recent years to put a stop to the high estimates of property values that even appraisers admit helped inflate the housing bubble.

Many industry watchers argue the new regime has caused the pendulum to swing too far to the other side, inadvertently causing the opposite problem: artificially low appraisals.
"The industry, both from a lending perspective and appraising perspective, has gotten as outrageously conservative now as they were outrageously aggressive a few years ago," said Rick Sharga, senior vice president of data firm RealtyTrac.

Appraiser purses pinchedIn the run-up to the housing crisis, appraisers were accused of inflating home values to get work with Realtors and mortgage brokers.
Mortgage finance agencies Freddie Mac and Fannie Mae have barred brokers and Realtors from any role in selecting appraisers since 2009. The Federal Housing Authority, which plays a key role in the U.S. housing market by insuring loans for low- and middle-income Americans, adopted a similar ban.
The three agencies together owned or insured around 90 percent of mortgages issued in the first half of the year.

As a result, 300 to 400 appraisal management companies (AMCs) have sprung up, mostly since 2009, to act as intermediaries between appraisers and lenders, according to the Appraisal Institute, an industry association.

AMCs hire contractors to provide 70 percent of residential appraisals, while the appraising arm of banks perform the rest, according to the same group.
Realtors and mortgage brokers, upset that their deals are often stymied by low valuations, say AMCs are to blame in large part for the conservative estimates. Some appraisers also resent the loss of high fees they used to receive.

"They are hiring these young guys and it's all based on price and not expertise," said Mike Evans, an appraiser and former president of the American Society of Appraisers, a trade organization.
"Some guy blows in from 300 miles away and grabs three comps that may not be in the right area, and leaves," he said, using the industry jargon for comparable sales that are used to evaluate a property's value.
Appraisers in Mexico, Britain and other countries are typically more educated than U.S. appraisers and work at small firms, according to David Bunton, President of the Appraisal Foundation.
AMCs and appraisal arms of banks take a cut of the appraisal fee which averages around $400, according to Evans. That leaves appraisers pushing for volume, not quality, he says.
"Because they don't want the scrutiny, they don't want to seem like they are going high, they just grab the three lowest sales" as comparables, said David Demuro, a residential appraiser in Florida.
Demuro mostly works for AMCs that pay at least $275 per job, but says some appraisal fees are as low as $150. Demuro averages 15 to 35 appraisals per month.

Industry insiders say fear among overworked appraisers of being sued if buyers default on properties they valued too highly, combined with anxiety about being blacklisted by banks and AMCs, keep them cautious.
Not all contract cancellations are linked to differences over appraisals. Tight lending rules that deny would-be house buyers a mortgage and inspections that reveal something wrong with the house are common causes too.

Federal agencies will not begin to regulate the companies until at least January 2013 under the Dodd-Frank Act though AMCs are already required to pay "reasonable and customary" fees to appraisers.

"Appraiser independence is a piece of the solution to the mess we are in right now," said Austin Christensen, president of AMCLINKS, a national appraisal company, who says appraisals were too high before AMCs were in the picture.

"Now that you have no pressure on appraisers to arrive at the appraisal, I think they are coming up with accurate values, more so than ever before."
Demuro agrees. He says that five or six years ago, if he couldn't bring in a high appraisal, the realtor or mortgage broker would not give him work again.
That doesn't happen any more, he says.

"I don't have the added stress of thinking about, 'I may lose this client. I may not be able to pay my bills next month because this appraisal is not going to come in and they're going to get upset'," he said. -- REUTERS

Wednesday, August 24, 2011

Closing Costs - What You've Always Wanted To Know!

You’ve found your dream home, the seller has accepted your offer, your loan has been approved and you’re eager to move into your new home. But before you get the key, there’s one more step—the closing.
Also called the settlement, the closing is the process of passing ownership of property from seller to buyer. And it can be bewildering. As a buyer, you will sign what seems like endless piles of documents and will have to present a sizeable check for the down payment and various closing costs. It’s the fees associated with the closing that many times remains a mystery to many buyers who may simply hand over thousands of dollars without really knowing what they are paying for.
As a responsible buyer, you should be familiar with these costs that are both mortgage-related and government imposed.  Although many of the fees may vary by locality, here are some common fees:
  • Appraisal Fee: This fee pays for the appraisal of the property. You may already have paid this fee at the beginning of your loan application process.
  • Credit Report Fee: This fee covers the cost of the credit report requested by the lender. This too may already have been paid when you applied for your loan.
  • Loan Origination Fee: This fee covers the lender’s loan-processing costs. The fee is typically one percent of the total mortgage.
  • Loan Discount: You will pay this one-time charge if you have chosen to pay points to lower your interest rate. Each point you purchase equals one percent of the total loan.
  • Title Insurance Fees: These fees generally include costs for the title search, title examination, title insurance, document preparation and other miscellaneous title fees.
  • PMI Premium: If you buy a home with a low down payment, a lender usually requires that you pay a fee for mortgage insurance. This fee protects the lender against loss due to foreclosure. Once a new owner has 20 percent equity in their home, however, he or she can normally apply to eliminate this insurance.
  • Prepaid Interest Fee: This fee covers the interest payment from the date you purchases the home to the date of your first mortgage payment. Generally, if you buy a home early in the month, the prepaid interest fee will be substantially higher than if you buy it towards the end of the month.
  • Escrow Accounts: In locations where escrow accounts are common, a mortgage lender will usually start an account that holds funds for future annual property taxes and home insurance. At least one year advance plus two months worth of homeowner’s insurance premium will be collected. In addition, taxes equal approximately to two months in excess of the number of months that have elapsed in the year are paid at closing. (If 6 months have passed, 8 months of taxes will be collected.)
  • Recording Fees and transfer taxes: This expense is charged by most states for recording the purchase documents and transferring ownership of the property.
Make sure you consult a real estate professional in your area to find out which fees—and how much—you will be expected to pay during the closing of you prospective home. Keep in mind that you can negotiate these costs with the seller during the offering stage. In some instances, the seller might even agree to pay all of the settlement costs.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, currentness, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use.

Tuesday, August 23, 2011

What is the difference between interest rate and APR (Annual Percentage Rate)?

This question comes up a lot, so this post will help explain the difference between interest rate and APR (Annual Percentage Rate). Basically, think of the interest rate as the starting point in what you will pay for a mortgage loan and then, tack on associated fees to calculate the APR.

Let’s begin with some definitions:

What is the interest rate?
The interest rate is the percentage of the loan amount that is charged for borrowing money. We can consider this the base fee.  It is very important when comparing loan quotes since it directly affects monthly payments.

What is the APR (Annual Percentage Rate)?
The APR is a calculated rate that not only includes the interest rate but also takes into account other lender fees required to finance the loan. The idea behind APR is to help consumers understand the tradeoffs between interest rate and the fees paid at closing (such as paying higher fees to lower interest rates or increasing interest rates to cover closing costs). The government thought this was important so they required it to be shown next to the interest rate as part of the Truth in Lending Act.

Here is a diagram showing how APR tries to balance interest rate and fees:

How APR is calculated
To calculate the APR, the lender fees (fees required to finance the loan) are incorporated into the interest rate.  This is done by amortizing the fees out over the life of the loan as if they were additional payments, and then calculating a new rate.

Specifically: (feel free to skip this paragraph)
The fees are added to the original loan amount ($200,000 + $3,000) to create a new loan amount ($203,000).  This new loan amount, along with the interest rate (5.00%), is used to calculate a new monthly payment ($1089.75).  The APR is then calculated by working backwards to figure out what the rate would have to be for a loan with the new monthly payment ($1089.75) and the original loan amount ($200,000).  This is your APR (5.13%).  The APR is typically higher than the interest rate because it includes the fees.

Limitations of APR
As useful as the APR can be, it has its limitations.  APR spreads the fees paid upfront over the life of the loan.  So the comparison of APR is only accurate if you plan to keep the mortgage for the entire length of the loan.  Since most borrowers do not keep their loan for the full period (they typically refinance or move), the APR can make some loans look artificially better.  In the example above, if you only kept the loan for 3 years, the second loan would be much more expensive even though it has a lower APR.  This is because the $6,000 in fees is paid upfront whereas the higher interest rate in the first loan is amortized over the life of the loan.  See the post on whether or not you should pay points to learn more about the tradeoffs of paying interest upfront versus over the life of the loan.

The other problem with APR calculations is that different lenders may include different fees in their APR calculations for various loan programs.  Remember to always ask your lender what is included and not included in your APR. @FirstCapitalMtg

Original Post -Author: Nate Moch

Monday, August 22, 2011

How Do Inquiries Affect My Credit Score?

You have probably had people caution you that anytime someone checks your credit score it will negatively impact your credit. While this issue is more complicated than it seems, there is some truth to this advice. Your credit score is affected in part by the number of inquiries made into your credit history, but there are different categories of inquiries and some count while others do not. The credit bureaus that collect and score your credit call these two types hard and soft inquiries.

Soft Inquiries
Soft credit inquiries are when you personally check your credit score, or when a business pulls your credit report in order to verify your information before offering you a service or product. These types of credit inquiries do not affect your credit score at all. If you are pulling your credit yourself, the credit bureaus assume that you are using the information for your own personal use and it does not reflect a desperate need for credit sources on your part. You can obtain a copy of your credit report for free from each of the three credit reporting agencies once a year. You can check it more often, but you will have to pay a small fee.
A credit card company or other business might pull a copy of your credit report in order to confirm your identity before sending you a new credit card invitation in the mail. These are also considered soft credit inquiries because they are the result of others trying to solicit your business. You probably had no knowledge of the company's action and the credit pull does not indicate that you were seeking more credit lines. So there is no need to worry about these types of credit inquiries.

Hard InquiriesHard inquiries, on the other hand, are the kind that do have the power to bring down your credit score. Hard inquiries occur when you are in the process of applying for credit with some business. Most commonly you will have hard pulls, when you are looking for a new mortgage loan, auto loan, or credit card accounts. These businesses will pull your credit report to see if they judge your history worthy of their funding. Credit bureaus will ding your score for these inquiries because they reflect a greater need for credit.
Fortunately, just one inquiry will not have a significant negative impact on your score. One hard pull will likely bring your score down by 5 points for the following six months. There is some debate about how many credit inquiries you can have in a certain amount of time. Some sources say that when you are shopping around for loan, if you have several lenders pull your credit within a short amount of time, they will all only count as one hard pull on your score. Other sources are convinced that every inquiry counts individually. No matter who is right, when you are shopping around for a loan you are going to have to let several businesses check your credit, so your credit score will suffer a little from the process. Yet since a hard inquiry is only worth about 5 points, you score should be able to survive the ordeal just fine.

Knowing the difference between soft and hard credit inquiries will hopefully give you some peace of mind when it comes to your credit score. In any case, your credit is an extremely valuable possession and you should do your best to be educated about credit scoring and how to protect your score!
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Sunday, August 21, 2011

First-time homebuyers are capitalizing on ultra-low mortgage rates.

Friday, August 19, 2011

Calif. First-Time Buyers Getting Mortgages with 1% Downpayment

Homebuyers are double dipping on available federal- and state-run mortgage finance programs, in some cases buying a home with a mortgage that requires virtually no down payment. 

According to a research note published this week by Credit Suisse, first-time homebuyers are capitalizing on ultra-low mortgage rates. Analysts who recently visited multiple new home communities found “sharply diverging trends at different price points.”

Despite an uptick in new home cancellations in mid- to higher-priced homes, “At the low end, we saw buyers taking advantage of the strong affordability, proceeding with the purchase,” lead analyst Daniel Oppenheim wrote. “In most cases, this decision was based on the affordability vs. renting.”

The analysts observed several examples of buyers combining a Federal Housing Administration-insured mortgage with the California Homebuyer's Downpayment Assistance Program, which enables a buyer to purchase a home with the greater amount of $1,000 or 1% of the purchase price.
Full Article Article By: Austin Kilgore

First Capital @FirstCapitalMtg 

Friday, August 19, 2011

Veterans Affairs mortgage program avoids pitfalls of other lenders.

Friday, August 19, 5:20 AM 

Imagine a mortgage program that seems to defy many of the lessons of the housing bust:

• 91 percent of its borrowers make zero down payments.

• Loan amounts go well into the jumbo range — to $1 million and sometimes above, even with little or nothing down.

• Credit standards are flexible and generous. Underwriting rules encourage loan officers to look for ways to approve applications rather than to reject them.

• Mortgage originations are up — almost triple what they were just three years ago — and are on track this year to exceed 2010’s volume. The rest of the loan industry, by contrast, is down by anywhere from 25 percent to 30 percent.

You might assume that any home loan program with come-ons like these must be swimming in bad mortgages, loaded down with serious delinquencies and foreclosures. Yet this one, which gets relatively little attention in the media, has better mortgage performance than FHA and is comparable with some “prime” loan operations that have far more stringent credit rules.

Can you name this financing phenom? It’s the Department of Veterans Affairs’ home loan guaranty program. At a time when federal regulators are considering imposing a 20 percent minimum down payment requirement for most conventional mortgages, the VA program, which is restricted to veterans, offers important insights on how to get families into homes with little cash upfront, and to keep them out of foreclosure, even in tough economic times.

What’s in the special recipe at the VA? Tops on the list: a combination of loan features that are by far the most attractive available in the current market. While the FHA program also allows minimal down payments — 3.5 percent — the VA goes to zero even if you need a jumbo-sized loan.

Unlike low-down-payment loans you can get from Fannie Mae and Freddie Mac and FHA, there are no monthly mortgage insurance premiums. VA loans do have an upfront “funding fee” that varies according to the down payment and other criteria. Currently this fee ranges from 2.15 percent for zero-down borrowers to 1.25 percent for applicants putting down 10 percent. Most applicants opt to roll the fee into the loan amount and finance it over time.

The VA imposes no credit score minimums. Its average FICO score is 708, compared with the 750 to 770 scores typical for Fannie Mae- and Freddie Mac-backed conventional mortgages at the best interest rates. It does, however, require underwriters to look closely at credit bureau reports and documented income to ensure that borrowers have the ability to repay their loans.

The agency is exceptionally flexible on seller contributions to help buyers pay closing costs, escrows and loan origination charges -- more lenient, in fact, than any other national program. That, in turn, can significantly lower the net cash outlays needed from borrowers at closing.

The VA also stretches debt-ratio norms when needed to help creditworthy, income-strapped borrowers get into a home. Though the official “back end” ratio of total household monthly debt to household income is 41 percent, lenders say VA will let them push this higher, even to 55 percent, on a case-by-case basis. With all these accommodations to borrowers, how is it that VA’s 90-day delinquency rate in the latest study by the Mortgage Bankers Association is 2.2 percent while FHA’s is 4.8 percent? Or its total seriously delinquent plus in-foreclosure rate for borrowers is 4.5 percent, against FHA’s 8.04 percent and the conventional prime market (Fannie and Freddie) at 4.3 percent?

Michael Fratantoni, the mortgage bankers association’s vice president for research, says that the VA’s record “is remarkably good, given that they’re allowing first-time buyers to get in with no down payments,” which is traditionally linked to high defaults and foreclosures.

Michael Frueh, the VA program’s acting director, says the key to the agency’s quiet success is its almost paternalistic emphasis on servicing its 1.5 million borrowers — moving early and quickly to intervene at the slightest hint of payment problems. 

“At the end of the day, we are veterans’ advocates,” he said in an interview. “We exist solely to help them,” not only to afford to finance their homes but to remain in them. In the past three years, the VA has instituted industry-leading techniques such as requiring lenders to establish “single point of contact” servicing systems, where customers deal with one person about their mortgage issues, rather than anonymous multitudes.

Could this mindset — intensive “advocacy” servicing as a borrower benefit built into the loan itself — be duplicated in other segments of the mortgage market?

Maybe the real question is: Why not?
Source of Article: Washington Post - By Kenneth R. Harney

Thursday, August 18, 2011

Long Term Rates - When Certainty Can Hurt

The Federal Reserve's latest proclamation -- that short-term interest rates would be kept near zero through mid-2013 - might discourage home buying. Could this be possible

When Certainty Can Hurt
This might seem like a backwards idea. To be sure, the last thing that the Fed would aim for is to make the housing market worse off. So why would it allow one of its policies to keep home sales artificially low? This might be an unfortunate and unintended consequence of its desire to calm the broader market.

The logic works here because home prices are declining. Nobody is sure how far they might fall or when they'll finally hit bottom. But we can feel fairly confident that prices aren't there yet. But what do we now know? Interest rates will be low for another two years. So why hurry to buy a home now?

Savvy potential home buyers who can wait the market out now have a good reason to do so. They don't have to worry about interest rates rising before the market bottoms. Instead, they can wait for the market to continue to decline. If it appears to bottom out in the next two years, then they can step in and finally buy at that time. But if prices keep declining over this period, then they'll be smart to buy in the first half of 2013, just before interest rates might begin rising. In the near-term, you might be better off waiting.

This actually makes a lot of sense. Prior to the Fed's August revelation, one of the best arguments for why it might make sense to buy a home in the near future was that interest rates will rise. As long as the Fed is holding them down, then this argument begins to disintegrate.

Some Reasons to be Skeptical
But there are a couple of reasons why the Fed's action might not endanger home sales.

Mortgage Interest Tracks Long-Term Rates
First, the Fed's action specifically targets short-term interest rates. They'll certainly be very low through mid-2013. But a 15-, 20-, or 30-year mortgage will face prevailing long-term interest rates. While short-term interest rates often have some influence over longer-term rates, the two aren't always directly correlated. In other words, we could see longer-term interest rates begin to rise even as short-term rates are kept low.

For example, in October, the government may no longer guarantee very large mortgages in some markets. That should cause their interest rates to rise a little, since banks and investors will add a default risk premium to those rates. These and other market shocks specific to housing or longer-term rates could still affect mortgage interest rates.

Home Price Movements Are Regional
Second, home prices may continue to decline nationally, but some markets will stabilize faster than others. Some already appear to be healing. So the question of whether to take advantage of low interest rates really depends on where you want to buy a home. In worse-off markets, it may be wise to wait. But in markets showing signs of recovery, low rates might make now the perfect time to buy.

Will the Fed's Words Do More Harm Than Good?
Entire Article:

First-time homebuyers made up just 32 percent of sales.

First-time buyers are critical to strong housing markets and normally make up about half of all sales. Their purchases of low and moderately priced homes also allow sellers to move up to pricier homes.

Bigger down payments, tougher lending rules, high debt and a shortage of desirable starter homes have kept many would-be buyers away. Even people with good credit and enough money for a down payment are holding off because they are worried home prices will keep falling.

Foreclosures and short sales -- when a lender agrees to sell for less than what is owed on a mortgage -- made up about 29 percent of all home sales last month. That's up from about 10 percent in past years. And a wave of foreclosures are being held up, either by backlogged courts or lenders awaiting state and federal probes into troubled foreclosure practices. Investors have targeted foreclosures and other deeply discounted properties. Their purchases accounted for 18 percent of sales in July.

The median sales price fell in July to $174,000, according to the Realtors' group. June's large jump in sales prices was attributed to missing data that had not been collected from Phoenix, which has been hit hard by foreclosures and dropping prices. Most economists say home prices will keep falling, by at least 5 percent, through the rest of the year. Many forecasts don't anticipate a rebound in prices until at least 2013.

Sales were uneven across the country. They rose 2.7 percent in the Northeast and 1 percent in the Midwest. They fell 1.6 percent in the South and 12.6 percent in the West.

The glut of unsold homes declined slightly in July to 3.65 million homes. At last month's sales pace, it would take 9.4 months to clear those homes. Analysts say a healthy supply can be cleared in six months.

Wednesday, August 17, 2011

Mortgage Refinance Applications Rise - Purchases Fell

Applications for U.S. home mortgage refinancing rose last week as interest rates eased further, but demand for purchase applications fell amid economic uncertainty, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 4.1 percent in the week ended Aug. 12.
The MBA's seasonally adjusted index of refinancing applications jumped 8.0 percent to their highest level since early November, but the gauge of loan requests for home purchases slumped 9.1 percent.
Wild swings in the stock market last week and worries over the strength of the economy likely made potential homebuyers hesitant and drove purchase application activity down, Mike Fratantoni, MBA's vice president of research and economics, said in a statement.

The increased uncertainty came on the heels of the downgrade of the United States' credit rating by Standard & Poor's.
Refinancing accounted for 78.8 percent of total applications, up from 75.6 percent the week before.
Fixed 30-year mortgage rates averaged 4.32 percent, down from 4.37 percent the week before.

Monday, August 15, 2011

Is Now the Time to Refinance Your Mortgage?

Original Post 6:30AM 08/15/11
Some homeowners in their 50s are taking advantage of historic low rates to refinance their homes and score themselves a mortgage-free retirement.

Mark and Jan Sass, 55-year-olds who live in Cincinnati, Ohio, refinanced their home last week to lock in lower rates, Reuters reported. They switched from a 20-year fixed-rate loan of 4.875%, with 12 years remaining, to 10-year mortgage with a 3.5% rate.

"The opportunity to look 10 years out and know that – unless things change – we won't have a mortgage when we retire looked like a smart decision," Sass told the news agency.

A Refinance surge

They aren't alone. U.S. banks have seen a recent surge in loan applications that's almost entirely due to refinancing, Greg McBride, senior financial analyst at, told DailyFinance.

Mortgage applications for the week of Aug. 5 rose more than 21% over the previous week and three quarters of those applications were for were for refinancing, according to the Mortgage Bankers Association, also known as MBA.

"Over the past month, refinance application volume has increased by 63%," Mike Fratantoni, MBA's vice president of research and economics, said in a statement. "Refinance applications for jumbo loans increased by almost 75% relative to last week. Despite these low mortgage rates, applications for home purchase have remained little changed through the summer."

According to a survey released Thursday, the average 15-year fixed rate for a mortgage reset is 3.61%, while 30-year fixed-rate mortgages average out at slightly less than 4.5%. The jumbo 30-year fixed rate set a new record of 5.02%, the survey found.

Should You Refi?

So with all the chatter about low interest rates, is refinancing right for you? To answer that question -- or to pick the right mortgage for a refinancing deal -- homeowners should consider their home equity, credit history, time horizon, age and cash flow.
Original Post

Friday, August 12, 2011

Real Estate Appraisal Process

Appraisal Process

Home Valuation Code of Conduct (HVCC for short)
New Law as of : May 1st, 2009
The HVCC came about because the government felt that there were too many loan officers inappropriately manipulating appraisers (bribing, intimidating, etc.) to appraise properties for more than they were worth, so that the transaction would go through.

Appraisal Process:
Loan officer orders the appraisal from a third part appraisal management company who assigns the appraisal to an appraiser within the area (ideally within 50 miles).

The loan officer doesn’t even know who the appraiser is until the report is delivered via email from the appraisal management company. Even after it is delivered, the loan officer is to direct all questions about the appraisal to the AMC (appraisal management company), who will forward the message on to the appraiser.

As you can imagine, the HVCC has led to higher costs for borrowers because somebody has to pay for the work of the appraisal management company. Appraisals now range in price from $400 to $550.