Oregon Mortgage News: November 2007

A lot has been said about the detrimental effects of HR3915 and Title 3 , but this post by Matthew Graham sums it up best.  HR3915 and Title 3

For the most part the market has taken care of the problem. The "bad" loans have gone away and a lot of the "bad" actors are out of the business. But, do we really need the "State" to limit our choice of what type of loan we should be able to place on our own home? We already have enough laws on the books to put the bad guys away. Do we really need the Govt. to make it even harder and more expensive to get financing?

Mr. Graham proposes something really radical. Make people read their contracts or be accountable for not doing so. He proposes, and I agree, that a simple 1 page summary explaining the terms of the loan would help eliminate much of the confusion. While he states that it should be presented at closing, I propose that it should be part of the GFE, and be required to be sent out within 3 days of any proposed changes. Just a simple summary of terms.

What are your thoughts?

• Do we need to revamp the system?
• Is the market taking care of itself?
• To what degree do we (the State) need to protect us from ourselves?

Contact Your Congressman

SIGN THE PETITION

 How Oregon Mortgage Rates are Calculated

There is a lot of discussion about Yield Spread (YSP) or Rebate. Is it a rip-off or is it in the client's best interest? The bottom line is that it is a part of how our price sheets are constructed and how we price loans. Mortgage Brokers do it and so do banks. One is just more transparent then the other. Whether it is right or wrong depends more on the situation and the client/lender relationship.

Before we can  answer that question, I think it helpful to understand the technical aspects of a rate sheet and how a rate is calculated.

First, let's define the components of a rate.

Par - the break-even point where lender is willing to sell a loan. Expressed as "0".

Discount - The cost associated with buying an interest rate down. Usually expressed as a "-" number and is a % of the loan amount. Discount is usually paid by the borrower.

Yield Spread (YSP) or Rebate - The cost associated with buying an interest rate up. Usually expressed as a "+" number and is a % of the loan amount. YSP is paid to the mortgage broker.

Adjustments - fees that are added to or subtracted from the price or rate. These take into account different characteristics of the unique borrower or property. These are generally "risk" based.

Price - The cost associated with determining the final interest rate. This takes all adjustments into consideration and is then added or subtracted to the Discount/YSP columns in order to arrive at a final rate.

As you read on, please keep your opinions in check. This isn't an exercise to determine whether of not YSP is right or wrong. It's an exercise to show how rates are calculated. In another post, I'll elaborate on how YSP can be used for a client's best interest. But remember. There rates are wholesale. Mortgage brokers have costs associated with doing business. Some of these costs are passed through to the client via a slightly higher interest rate.

Here's an example of what a rate sheet looks like. Keep in mind that this is just one product on a very crowded rate sheet.

Base Rate Sheet

This is a 30 year Fixed Rate loan . There are 4 columns. On the far left is the Note   Rate. This is the interest rate that a borrower would pay. The next 3 columns are the number of days that a rate would be locked, or guaranteed, at. For this discussion, we're going to assume that the rate will be locked for 12 days and all pricing of the loan will use that assumption.

Base Interest Rates:

5.25% could be purchased by the borrower for 3.375 points, or 3.375% of the loan amount.

5.875% would be Par.

7.125% would provide the mortgage broker with a YSP of 3.5% of the loan amount

Adjustments

Here's a couple quick down and dirty pricing examples.

A) Mr. Smith wants to purchase a $200,000 home. He has a 700 credit score and will bring 20% down. This would result in a loan of $160,000.

In Mr. Smith's situation, there are no adjustments to the pricing of the loan, so a Par rate would be 5.875%

If he wanted to buy the rate down to 5.6255% it would cost him $2000 to do so or 1.25% of the loan amount

If the lender wanted to receive 1 point in YSP, he would charge an Interest Rate of 6.125%. This would result in a commission of $1800, or 1.125% of the loan amount.

B) Mr. Smith wants to refinance his current mortgage and pull $20,000 in cash out to pay off some debt. He still a 700 credit score and his current mortgage is $140,000. With the addition of $20,000, he's still at 80% Loan to Value.

There is a cost of .5% in order for Mr. Smith to access the cash in his home.

Par for Mr. Smith would now be 6%. This would pay .125% in YSP, but would be the closest to PAr. If Mr. Smith still wanted the 5.875% rate, there would be a cost of .625%, or $1000, in order for him to get it.

Why does it cost more?

 There is slightly more risk associated with the loan when someone pulls cash out of there property.

C ) The Jones want to purchase a home. They have 20% cash down payment and a 600 Credit score.

Due to the risk associated with their poor credit, their is a 1% cost in order to do the loan. This is added to the price to come up with a new "Par" rate of 6.125%. This would pay a YSP of .125%.

So, in each of these three situations we started with the same mortgage product and lender and a base rate of 5.875%. But the final rates varied based on risk. THe mortgage Broker basicall got paid the same.

A) - 5.875 %  - Purchase with Good Credit
B) - 6 % - Cash Out Refi with Good Credit
C) - 6.125 % - Purchase with Poor Credit

Hopefully this helps you to understand how rates are calculated. Again, this isn't looking at the ethics of YSP or Points, but how Mortgage Brokers all across the nation calculate rates.

Look for a future segment on how we structure rates in order to best serve our clients.

Newberg, Oregon - I have finally passed the qualifying exams to earn the Certified Mortgage Planning Specialist (CMPS) designation. It's taken me a couple of years and a lot of procrastination, but this slow down has alloed me to further my education and my ability to help you, my clients.

The CMPS is granted by the CMPS Institute, Ann Arbor, Michigan, a training, certifying and ongoing membership organization created to help mortgage professionals integrate financial planning concepts into the mortgage process.  CMPS designees can offer clients strategies that encompass mortgages, debt, home equity and real estate investment.

My focus is to help my mortgage clients build and protect wealth by better managing their home equity and personal cash flow. Often I can do this without refinancing their mortgagte or changing their standard of living."

Many homeowners have become frustrated and confused with the myriad choices in today's mortgage market and the lack of both ethics and financial knowledge among many mortgage providers.  The CMPS Institute is a joint effort by leaders in the mortgage and financial planning industries to raise professional standards among mortgage professionals and integrate sound financial planning advice into the mortgage process. 

Today life expectancy is higher than ever before; health care costs are skyrocketing; pensions are shrinking; social security is uncertain, and corporate America has gone through one bankruptcy after another.  Today's mortgage market can be a dangerous place for some consumers with certain real estate markets experiencing signs of a "bubble," and "exotic" mortgages representing a greater market share than ever before.  These signs point to the fact that homeowners and buyers need expert advice on how to manage their mortgage, cash flow and home equity.

This trend toward expert mortgage advice is growing in popularity.  At the CMPS Institute more than 200 mortgage professionals are taking certifying courses each month. "A mortgage professional who dedicates the time and effort to learn about these financial concepts is much more qualified, committed and equipped to serve the complex needs of today's home owner and buyer," says Gibran Nicholas, Chairman of the CMPS Institute.

The CMPS curriculum incorporates five essential skill sets including:

• Financial market and interest rate analysis 
• Cash flow analysis 
• Debt analysis 
• Real estate equity management 
• Real estate investment analysis

If you would like to see what I can do for you, please contact me for a no-obligation review.

I can be reached at larry.morris@equipoint.com, or call 1-888-660-2842

For more information on the CMPS Institute go to http://http://www.cmpsinstitute.org/, or call 888-608-9800.

Many Oregonians could be hit by a big surprise next Tax season. It's the Alternative Minimum Tax (AMT), which was originally designed to hit only the ultra-wealthy. Well guess what. You're probably considered "Ultra-wealthy".

The AMT  is trapping an alarming amount of the middle class, especially those who own homes and live in states with high income tax rates. This includes Oregon. And it's getting worse. Pretty soon, over half those with incomes between $75k-100k could be victimized by the AMT.

So what is AMT, and what do we need to watch out for?

The AMT was first enacted nearly 40 years ago to ensure that wealthy taxpayers pay at least some federal income tax versus sheltering their entire income with big write-offs. This strategy worked at the time, but AMT has never been indexed for inflation, resulting in more middle-income taxpayers owing the additional tax.

All of us go through the AMT test each year. Our income is matched up with the tax brackets it falls into and the tax owed is calculated. But we also go through a second calculation: the AMT calculation. Many deductions are eliminated and the tax brackets are reduced. The tax owed under AMT is then compared to the tax owed under the bracket calculation. Then we pay the higher two taxes.

More individuals will pay the higher AMT tax since it does not allow deductions such as certain interest on some home loans, property taxes, state and local income taxes, standard deductions, or personal exemptions for children and dependents that are normally deductible under the regular tax brackets. As stated earlier, certain interest on some home loans will be wiped out under the AMT.

There are two types of home loans that can be eligible for tax deductibility.

First, there is Acquisition Debt, which allows interest to be deductible on a loan used to acquire or improve your primary or second home, with a loan limit of $1 million dollars. The good news about Acquisition Debt is that it remains deductible, even if you are subject to AMT. This makes Acquisition Debt very valuable. But once you pay off or reduce the balance of your Acquisition Debt, it is gone and only the interest on the remaining portion is deductible. So taking out a new loan at a higher amount will not give you that precious Acquisition Debt back.

The next best thing to Acquisition Debt is Home Equity Debt. Home Equity Debt has a limit of $100,000, which can be used over and above the Acquisition Debt Balance. And Home Equity Debt is flexible in that you can pay it down and pull it back out, which is not allowable for Acquisition Debt. But Home Equity Debt is eliminated under AMT. And with so many people being trapped by the AMT and also having loan amounts higher than what was used to acquire the property, the lost deduction is significant.

Congress usually passes an AMT "Patch" to help adjust for the increased amount of tax payers who become subject to AMT each year. This year is no different. The Democrats are trying to get HR3996 passed but the Republicans are against it. The Republicans state that the bill is flawed and includes other tax increases and would rather see a solution rather then an annual patch. Here are a couple of links for "both sides of the story" provided by OregonLive, the online voice of the Oregonian.

Democrat

Republican

I urge you to write you politicians and encourage them to come up with a separate AMT solution that is not tied to other "fixes". Just a simple AMT Cost of Living adjustment to protect the middle class.

How to find your:

House Representative

Senator


It's always good to check with a tax professional about your own personal scenario, and learn how this impacts you. If you need a referral to a tax pro, I'd be more than happy to make a suggestion, just give me a call!

Larry Morris is a Certified Planning Mortgage Specialist with American Nationwide Mortgage in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He is a Board Member of the Sherwood Chamber of Commerce. He can be reached at larry@PDX-Mortgage.com . His website is www.PDX-Mortgage.com . This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of American Nationwide Mortgage.

Licensed in: OR, WA,

As most of you know by now, Congress is looking for a solution to a very real problem. Whether election year grand standing or honest efforts to help Americans, the result could be the same. The very people they are trying to protect could be harmed.

If you are in the Real Estate industry or own a home, this will impact you! If you are self-employed or receive a 1099 you will be discriminated against!!

This Bill will be voted on Tuesday and if approved, will move to the House Floor. Please respond to the link at the bottom today!!

Yesterday I wrote about how eliminating YSP could greatly hamper the ability of the lending industry to provide appropriate loans for Americans. What I don't Like About HR 3915 Pt 1. Today I want to touch on the Stated Income component of the bill.

Stated Income, for those who aren't aware, is used in lie of fully documenting a borrower's income. When used correctly, it allows a self employed businessman or woman to get a home loan they know they can afford, but can't prove with income taxes.

The IRS code favors those who are able to take advantage of deductions. It's built into the system. There are basically 4 types of legal wage earners.

• W-2 wage earner, works for someone else and receives a paycheck.
• Self-employed, owns her own business.
• Independent contractor, works for some one else, but is responsible for his own taxes and often expenses.
• W-2 wage earner with another source of incomeworks for someone else but also has additional income.

In all 4 situations, a creative CPA will allow you to show a significant reduction in your income. This is the law and our government has approved it.

Under the new proposal, you could have 4 borrowers, all with the same credit score, all making the same amount of money. All with roughly the same personal debt. But 3 of the 4 could be discriminated against, just because they don't fit a "normal" wage earner.

Borrower A makes $100,000 per year and has w-2's to prove it. His CPA has taken advantage of legal tax deductions for family and property and while his income is adjusted for tax purposes, it's not for lending purposes. He still shows $100,000.

Borrower B makes $100,000 per year but owns his own business. His CPA has asked him to leave most of his $100,000 in the business. As a result, his taxes show minimal income, yet he has just as much spending power as borrower A. The lender will want to see 2 years tax returns, a current P&L, bank statements, and then still might not give him the same loan as borrower A.

Borrower Cmakes $100,000 per year but works for someone else. She is given a 1099 at the end of the year. Her situation is very similar to Borrower B, but most likely wouldn't be quite so extreme.

Borrower D makes $80,000 in w-2 wages and $20,000 in a hobby business. Unless he has an extremely strong case, the lender will only give credit to teh $80,000 w-2 wages.

With a Stated Income loan, all 4 borrowers can be treated equally, or at least fairly closely. At 90% loan to value, with a credit score over 700, I can get the same loan and interest rate for all 4. At lower credit scores or higher loan to values, the market prices the rate according to the associated risk.

When used correctly, a Stated Income loan is another tool that a professional mortgage planner uses to meet the needs of his/her clients. It shouldn't be used to get more home then someone can afford, but it should be available for a borrower who can make the payments.

Isee this bill as being very discriminatory towards small business and independent contractors.

Without Stated Income Loans:

• We will have government controlled loan programs 
• Many homeowners who can afford a home will be excluded from that home or market.
• Home prices will drop as many borrowers are unable to document their ability to pay.

My Solution?Continue to allow Stated Income loans but have lenders scrutinize the appropriateness and increase the penalties for Fraud. Yes, we currently have laws on the book to deal with abuse. Don't introduce new laws, enforce the ones you already have!!

If you agree please write to representative today!!

You can go here to look up and contact your representative. Just plug in your state and zip code and it populates your representative:   

Larry Morris is a loan Officer with American Nationwide Mortgage in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He is a Board Member of the Sherwood Chamber of Commerce.He can be reached at larry@PDX-Mortgage.com. His website is http://www.pdx-mortgage.com/. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of American Nationwide Mortgage.

Licensed in: OR, WA,

Congress in their attempt to help those who have found themselves in bad loans are going after what they believe to be the culprit, mortgage brokers. They have this misguided sense that we are Snidely Whiplash and after the money of every unsuspecting homeowner. I guess this makes Congress Dudley Do-right coming to rescue Nell. The Bankers, who used to be seen in this role have helped perpetrate this myth. Even though they supply us with our products, we are to blame. Go figure.

Anyway, back to the Bill.

The 2 main components that I disagree with are the attempt to eliminate Yield Spread and Stated Income.

This post will focus on Yield Spread. I'll try to touch on why abolishing Stated Income Loans is discrimination against small business owners later.

Yield Spread- For those who do not know, Yield Spread (YSP) is a % of the loan that the lender pays a mortgage broker to sell the loan at a slightly higher rate. We can also charge points to the borrower to get them a slightly lower rate. This allows us to help place our clients in the loan structure best suited for their situation.

The problem with this bill is that it doesn't recognize how rate sheets work, or how private enterprise works. Every product has a wholesale and retail price. Our rate sheets allow us some control of what that Retail Price will look like. We also have many lenders to choose form to help us determine what wholesale price we want to buy at. Consumers do not have to do business with us. They can choose to go to another lender.

I get paid 1 of 3 ways. I usually make 1-2% of the loan amount. I'm cheap compared to many of my associates in the industry.

1. Origination Fee
2. Yield Spread
3. A Combination of the Two

Often it makes sense for a borrower to pay higher closing costs and for me to increase my Origination Fee in order to get them the best rate possible. If they are planning on being in the home for many years then it averages out in their favor, usually after 2-5 years.

However, if a client is only going to be in their home for a few years then a higher rate and lower closing costs makes more sense. Also, there are times when the only way that I can make a deal work due to payoffs, equity or contractual seller concessions, is to lower my fee and charge a higher rate.

Yield Spread is a tool that when used properly, helps a professional mortgage planner best serve his client. When used improperly it can gouge a client.

The problem? Banks and Corespondent Lenders don't have to disclose YSP and will probably slide under the radar EVEN THOUGH THEY ALSO USE IT.

Without Yield Spread:

• We will have government controlled rates
• Closing costs will increase 1-2% 

My Solution? Reduce the allowable compensation that any originator can make, whether broker, loan officer, bank employee or mortgage banker to 3-4% from all sources. This is more then fair, and significantly below current caps.

Congress gave us our caps and now are saying that we are at fault for using them. Shame on you Congress!!

If you agree please write to representative today!!

You can go here to look up and contact your representative. Just plug in your state and zip code and it populates your representative:   

Larry Morris is a loan Officer with American Nationwide Mortgage in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He is a Board Member of the Sherwood Chamber of Commerce.He can be reached at larry@PDX-Mortgage.com. His website is http://www.pdx-mortgage.com/. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters.

Licensed in: OR, WA,

"Nonfarm payroll employment rose by 166,000 in October, and the unemployment rate was unchanged at 4.7 percent.  Job gains continued in professional and business services, food services, and health care.  Manufacturing employment continued to decline, while construction employment was little changed over the month."

This according to Philip L. Rones Acting Commissioner Bureau of Labor Statistics.

Here are some excerpts of his report:

"Construction employment was little changed in October.  Over the month, a job gain in nonresidential specialty trade contracting was offset by losses in the residential components of construction.  Construction employment has fallen by 124,000 since its peak in September 2006, driven by losses in residential construction.

Among other housing-related industries, employment continued its downward trend in October in credit intermediation--the component of the financial activities sector that includes mortgage lending and related activities.  Employment in credit intermediation has fallen by 56,000 since its peak in February. Within retail trade, building supply stores lost 7,000 jobs in October; employment in the industry declined by 47,000 over the
year."

Interesting glimpse into our economy. We appear to be holding ground as a nation, despite the losses in Building/Real Estate/Mortgage related businesses.

We are currently seeing the stock market rebound after yesterday's losses. This of course, is having an impact on the Bond Market. We are seeing a slight drop in the value of Mortgage Backed Securities, which means that we are seeing a decrease in the rate improvement that we gained yesterday. It is still early however and a lot can happen.

Rates should hold steady today with Conforming 30 year fixed at around 6% at par.

ADDENDUM: We're currently seeing a rally on Bonds which should lead to modest improvements over yesterday's rate sheets.

Information for this post provided by http://www.bls.gov/ and http://www.mortgagemarketguide.com/

Larry Morris is a loan Officer with Equipoint Financial Network in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He is a Board Member of the Sherwood Chamber of Commerce.He can be reached at larry.morris@equipoint.com. His website is www.PDX-Mortgage.com. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of Equipoint Financial Network.

Licensed in: OR, WA, AL, AK, AZ, CA, CO, CT, FL, GA, HI, ID, IL, IN, IA, MD, MA, MI, MS, MO, MT, NE, NV, NH, NM, OK, SC, SD, TN, TX, UT, VT, VA,

I was listening to one of my CMPS (Certified Mortgage Planning Specialist) CD's today and Barry Habib made an interesting comment. "When home prices were running high, buyers would make $10,000 to $20,000 offers above the asking price afraid that they would lose the deal. Now, people are afraid to make an offer $10,000 to $20,000 below asking price for fear that they might be over bidding. When homes weren't on sale, everyone wanted to buy. Now that they are on sale, no one wants one." 

People are afraid to buy a home right now because prices might drop more. But it doesn't make sense. Historically, home prices average 6% growth. Those who bought at the top of the market in California in the early 90's and kept them homes for 10 to 15 years made a killing. There is no reason to think that the same won't happen again. Our population continues to grow and homes will continue to be needed. Prices will continue to appreciate over the long run in most markets.

Sure, we're in a period of correction, but for the long-term real estate purchaser, (those who call a house a home, and not an investment), this is a great time to purchase. You have your choice of homes, you aren't rushed to make a decision and rates are still at historic lows.

Find the home you like, get a good long-term loan and settle in for the long haul.

Larry Morris is a loan Officer with Equipoint Financial Network in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He is a Board Member of the Sherwood Chamber of Commerce.He can be reached at larry.morris@equipoint.com. His website is www.PDX-Mortgage.com. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of Equipoint Financial Network.

Licensed in: OR, WA, AL, AK, AZ, CA, CO, CT, FL, GA, HI, ID, IL, IN, IA, MD, MA, MI, MS, MO, MT, NE, NV, NH, NM, OK, SC, SD, TN, TX, UT, VT, VA,

 102% Financing for Rural Oregon.

Guaranteed!!

(You might be surprised at what's considered Rural)

It is becoming harder and harder for a first time homebuyer to purchase a home, yet there are still many affordable homes if you have a down payment or the advantage of a program that helps you qualify for more home.

Guaranteed Home Loans: Rural families and individuals may be eligible to become homeowners with the help of a U.S. Department of Agriculture - Rural Development guaranteed loan. Sometimes good credit and a steady income are not enough to qualify at a mortgage lending center. A sizable down-payment may also be required. But when the Agency agrees to guarantee a loan, lending institutions can help buyers with 100% financing, while incurring little risk. Through the Guaranteed Rural Housing Loan Program, low and moderate income people can qualify for mortgages even without a down-payment.
 

Eligible Persons

• Have an adequate and dependable income.
• Must be a U.S. citizen or be legally admitted to the United States for permanent residence.
• An adjusted annual household income that does not exceed the published limits for the county in which you purchase. Call me for information on the income limits for your area. Income includes the total gross income of the applicant, co-applicant, and any other adult in the household. It excludes certain expenses and adjustments.
• A credit history that indicates a reasonable willingness to meet obligations as they become due.
• Demonstrate repayment ability.
   

How to Apply

Click on the following link. Oregon Rural Loans

Homes that Qualify

• Guaranteed loans can be made on either new or existing homes.
• Plumbing, heating, water, waste disposal, and electricity must be certified as adequate and the dwelling must be free from termites and dry rot.
• No restrictions exist on the size or design of the dwelling financed, but must be considered modest.
• Must be a residence, not a farm.
• Dwellings with in-ground swimming pools, are prohibited.
• Homes must be located in rural areas. Rural areas include open country and places with a population of 10,000 or less and, under certain conditions, towns and cities with less than 20,000 population. The Rural Development office in your area can detail eligible areas or provide a list of ineligible areas.

Larry Morris can be reached at larry@PDX-Mortgage.com. His website is www.PDX-Mortgage.com. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved

Licensed in: OR, WA,