Oregon Mortgage News: July 2009

I just received the following from my sister. I knew that there was a joke inside, but it still took me by surprise. Having been a "Wild Child" of the 70's,  I could relate to this on a certain level. Being a father I could also relate to it on another.

I hope that you enjoy this.

Keep in mind that there is a lot of truth to the ending.

To many people, a mortgage is a simple loan that should be decided by the lowest price and closing costs. There is no real difference except price and rate. This is supported by the media and many in our profession. Just go with the lowest rate, APR and closing costs and you have made the right decision. All things being equal, this is good advice. But rarely are all things equal, especially in today's market place.

What is a Commodity?

Wikipedia "A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. The price of copper is universal, and fluctuates daily based on global supply and demand. Stereos, on the other hand, have many levels of quality. And, the better a stereo is [perceived to be], the more it will cost...."

Does a Mortgage Meet this definition?

The majority of loans on today's market are purchased by Fannie Mae, Freddie Mac, the FHA, VA or guaranteed by the USDA. These have set contracts with consistent terms dictating the responsibilities of all parties involved. If the borrower meets the requirements set forth by the Investor's guidelines they qualify as a borrower. Same with their property.

Mortgage brokers, Mortgage Bankers and Depository Banks who sell their loans to these investors are all required to operate under these rules.

Once the loan is funded, it is a contract with concrete rules dictating the responsibilities of the borrower and Investor. At this point, your 30 year fixed rate loan is really no different then your neighbor's. You might have a different rate and servicer, but contractually, they are the same.

So Does This Make  A Mortgage a Commodity?

On the face of it, it would seem that yes, a mortgage is a commodity. BUT, I would argue that the act of getting a commodity is not a commodity.

This commodity, a lien against your home, is affected by many variables. Some of these you have control over but many you do not. Let's break things down some and see whether or not you should treat your mortgage as a commodity or as an important decision that requires the help of a professional.

Mortgages are provided through a variety of channels. There are retail banks like Wells Fargo and Bank of America, Mortgage Bankers who do not take deposits and only offer limited financial products, and Mortgage Brokers who offer loans from a variety of Banks and Wholesale lenders. There are some hybrids, but basically these three channels are your options.

This could also be broke down as Direct Lenders (those who sell directly to Fannie, Freddie or the FHA/VA), Corespondent Lenders (underwrite their own loans but get their money through a Direct Lender) or Mortgage Brokers (Offer a variety of loans available through Direct and Corespondent lenders). Of note, Retail banks and Mortgage Bankers often also broker loans through wholesale channels.

While these 3 all offer the same commodity, a loan sold to Fannie, Freddie or one of the Government backed programs, they all treat the process differently. They are have their strengths and weaknesses. Some have lower rates or lower closing costs. Some offer more personal service or no service. They might have a nice building that you can walk in to, or you might have to complete the entire transaction without ever meeting in person. Generally, these choices are good, and just a reflection of the individual business model. However, they also can lead to problems if you make the wrong choice. The best rate/closing cost could turn into something entirely different once you close.

More importantly, UNTIL A LOAN IS CLOSED, A MORTGAGE TRANSACTION IS A DYNAMIC AND FLUID TRANSACTION. It is subject to many forces outside or your control, and of the control of any of the 3 channels.

• Mortgage rates - Fluctuate daily and recently have had dramatic changes on a daily basis. While the rates that you see quoted via different lenders can be different, they are still reacting to market forces outside of their control. Recently, we have seen rates change 2-4 times a day. This means that yesterday's rate sheet is worthless.
  
• Credit Approval -The ability to get your loan financed at the rate quoted is still subject to your credit approval. This includes your credit score, information on your credit report, the verification of your income and assets and a myriad of other things that could crop up depending on the complexity of your life. i.e. BK, divorce, self employment, job changes... Unanswered questions can lead to a loan denial or at best, delays in getting your loan funded or a higher interest rate.
  
• Home Value -Your home also needs to meet the qualifications of the individual investor, be it Fannie, Freddie or the government programs. There could be property issues, or your home might not be worth as much as you or an individual lender thought. The lender who says "No Problem" might not be aware of local "problems". Your property might be in a marginal flood zone that can be overlooked, or their might be HOA litigation that needs to be resolved.
  
• Third Party Participants - There are many additional parties involved in a mortgage transaction that can help or hinder a loan. These include Title, Notaries, Inspectors, Appraisers, former landlords, employers, Creditors, Banks... While these are normal steps that we all have to deal with, they are participants behind the scene that most borrowers are unaware of. Also, they all need to be paid, which lead to those high loan costs that everyone likes to complain about.
  
• Government Intervention - We are seeing regular changes that affect your ability to get a loan. Some are in your best interest, others are misguided attempts to protect you. Regardless, they have a tendency to cost you money and extend the time it takes to close. Some have hindered your ability to get a loan period, or limited the choices available to you.
  

While this list isn't all inclusive, I believe it helps paint a picture of a process that can be more complicated and involved then you might be aware.

Conclusion

If we had a simple process where rates were the same no matter where you went, approval was based on a simple credit score pull like getting credit at Best Buy, and the lender used the County Tax records to dictate home values on a refinance and a purchase agreement on a purchase, then maybe I would agree that a mortgage is a commodity. You could then get your home loan at Wall Mart. But that is not the world we currently live in. I also believe that rates would be higher and fewer people would own homes.

So, in answer to my origional question "Is a mortgage a commodity?" My answer would be YES and NO.

Once it is completed yes, it definitely is a commodity. While you are in the process of looking for a lender and getting the loan done, it is anything but a commodity.

My Advice

Spend your time looking for a lender who you feel comfortable with. Discuss how rates will be calculated and how compensation will be structured. Get this in writing. Learn about his/her process for getting the loan funded and what to expect. Ask for referrals and contact them. Not just from clients, but also from Realtors, Appraisers, Title companies.

Once you find this person, stop looking for the "Best Deal". Commit to them and trust that you have made a good decision.

Oregon Instant Mortgage Rate Quote

In an effort to provide easier access to accurate Oregon mortgage rates for my clients and referral partners, I am using a new service that allows for an instant rate quote.

This quote engine does not replace my expert advice, but it does allow for you to see what today's best rates are based on specific programs and loan scenarios.

The Oregon Mortgage Rate Quote service will take your scenario and compare it against my different lenders guidelines and provide a quote based on who has the best rate. Keep in mind that since lenders have different guidelines and turn times, the lender that we actually choose to send the loan to might be different, but the rate quoted will be extremely close. While you will only see the lowest rate, your scenario will be saved so that I can compare it against all of my lenders in order to direct it to the lender who will serve you best.

So, give it a try.

Oregon home owners or home buyers: Use this Oregon Mortgage Rate Quote tool to easily see what rates are available to you for a variety of loan types.

Oregon Realtors: Use this Oregon Mortgage Rate Quote tool to get rates for your open house flyers or to assess a buyers ability to afford a home.

Feel free to contact me for a review of your Oregon mortgage scenario to confirm these rates and to get you or your clients a Good Faith Estimate.

In this month's article from the National Care Planning Council, of which I am, we look at taking advantage of family gatherings to start the process of planning for mom and dad's future needs. THere is some good information here. Also, keep in mind, that while Long Term Care is expensive, there are ways to use the equity in their home to pay for these expenses. Contact me if you are interested in information on how a Reverse Mortgage can help you or your loved ones through the golden years.

Family Reunion -- A Good Time for Planning

Summertime brings a lot of family time. With family reunions, picnics, weddings and other events, long distant family members travel to gather together. It is also the perfect time to do some planning for the future. With parents aging and their health and lifestyles changing, children need to discuss some changes and decisions that will be needed in the near future. Parents should take the time to tell their children where important documents are kept and what their wishes are in the event of needing health care directives or experiencing long term care needs.

For those children who live away, the change they see in their parent's health and mental capacity may be alarming -- whereas siblings that have daily contact are working with these issues constantly. Here is the chance to compare notes and work together as a complete family in the long term care planning process.

For you parents who are well and active, this is a good time to hold a family meeting and share with your children your plan for long term care. Tell them where financial and legal documents are located. Review health care directives, living wills and long term care alternatives.

Experience has shown that even families that are close can quickly grow angry, jealous and hostile towards each other when an aging parent begins to need long term care. If a sibling moves into the parent's home, others can easily be suspicious of ulterior motives and fear losing their inheritance. On the other hand, the child providing the elder care becomes bitter and feels there is no support or help from siblings. Pre-need meetings for the purpose of making a plan, before eldercare becomes imminent, avoids these types of conflicts.

In its book, “The 4 Steps of Long Term Care Planning,” the National Care Planning Council provides guidelines and checklists for family planning meetings. Here's an excerpt from the book:

“The first step to holding a meeting, and perhaps the most difficult

one, is to get all interested persons together in one place at one time.

If it's a family gathering, perhaps a birthday, an anniversary or

another special event could be used as a way to get all to meet. Or

maybe even a special dinner might be an incentive.

 

The person conducting the meeting can be a parent or one person of

a couple who are doing their planning, years before the need for care

arises. A meeting on behalf of someone already receiving care or

needing care in the immediate future could be conducted by that

person or by a member of the family, by an adviser or a friend.

 

The agenda could be formal or informal. If you want a formal

agenda, we suggest using our care planning checklist as the agenda.

Copies of the care plan should be prepared prior to the meeting and

presented to those attending. Discussion is encouraged and we

recommend that the person in charge not dictate but encourage input

from everyone.

 

After a thorough discussion of the issues and the presentation of the

solutions to the problems that will be encountered, there should be a

consensus of all attending to support the plan. If the plan needs to

be altered to meet everyone's expectations then by all means do so if

that can be done. But it is not always possible to please everyone so

there must sometimes be compromise.

 

The end of the meeting should consist of asking everyone present to

make his or her commitment to support the plan.

 

GET IT IN WRITING! All good intentions seem to be forgotten

with time. It may be years after this meeting before the long term

care plan begins. If there are vocal commitments to help with

transportation to doctors, give respite to the caregiver or other

commitments, write them down on the care agreement. You can

even have each person put a signature to his or her commitment if

you think that is important.”

“The 4 Steps of Long Term Care Planning ,” by The National Care Planning Council

The U.S Department of Health and Human Services states:

“No one wants to think about a time when they might need long-term care. So planning ahead for this possibility often gets put off. Most people first learn about long-term care when they or a loved one need care. Then their options are often limited by lack of information, the immediate need for services, and insufficient resources to pay for preferred services. Planning ahead allows you to have more control over your future”.

http://www.longtermcare.gov

"Whether you plan a formal meeting with an agenda or informally gather for a discussion, when the family is together make it a point to start the long term care planning process.

There is a lot to learn and many decisions to make concerning finances, health issues and legal work. It may take research and a lot of time to put a plan together, but if everyone is involved it will work, and be worth it." National Care Planning Council, www.longtermcarelink.net