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I've been inundated by calls the past two days - some folks are convinced the 30-year fixed rate mortgage will drop to 4.000% and others are convinced it already has.

As Sportin Life said in Porgy & Bess: "It ain't necessarily so..." The rate dropped by about 0.125% Thursday morning (March 19th) and, in the afternoon, bubbled back up to it's original position - about 4.875% for the "wholesale" or "par" rate. And Friday, well it's Friday, and the rates nudged down even farther.

Where that rate goes over the next few days is anybody's guess.  Should it go lower?  It should.  But don't ask when it will go lower and how low it will go with any expectation that you'll receive a definitive answer from any source.  My guess (and it really is just a guess), is that the latest intervention on the part of the government will drive the rates down no lower than 4.500% and that we’ll see that actual bottom no later than Tuesday of next week – March 24, 2009.

However, there are a couple of variables that you have to mix into your mental processing:

• The “par” or “wholesale” rates quoted above are for folks who:

        - Have excellent credit (FICOs of 720 and above);
        - Are borrowing no more than $417K;
        - Will have a loan-to-value ratio of 80% or less;
        - Are not interested in cashing out equity; and
        - Don’t wish to have an “interest only” loan.

And, yes, there might additional exceptions or other limiting factors I haven’t mentioned.  And, even if you “fall outside the box,” you may be able to take advantage of the lower rates.  And, what’s the best course of action?  Give us a call, and we’ll quickly evaluate.

• If you have an opportunity to obtain a rate of, 4.875% right now, should you roll the dice and wait for rates to drop? The question to ask: is it worth the chance you take to wait for the lowest possible interest rate? It will help if you “do the math.”

- A $100K loan at 4.875% 30-year fixed rate will require a monthly principle and interest (P&I) payment of $529.  That same loan at 4.500% will require a P&I payment of $507.  The monthly difference is $22 and, in five years, a saving of $1,858 in interest.

- At the high end of the range of loan amounts is the $417K loan.  At 4.875% the monthly P&I is $2,207.  At 4.500%, the payment is $2,113.  The monthly difference is $94 per month and, in five years, a saving of $7,748 in interest.

-  Keep your eye on the prize.  Look at your current situation.  If you’re currently paying 5.875% (or more) for $100K worth of loan, you're living with a monthly payment of at least $591.  If you're at the upper end of the spectrum with a loan of $417K, your monthly payment is  $2,467 (the payments are probably higher since the original balance of the loan was likely more than the current balance).  Keep your  eye on the prize - you need to move away from that higher interest rate if you'll be in your home for at least the next five years.  Which of the two lower rates we've discussed?  Does it really matter?  Keep your eye on the prize - Get Rid of that higher interest rate!

Timely Topics in our October 2008 Newsletter - just click on any of the links

• Your Finances - Is My Money Really Safe?
• Your Mortgage - Interesting Times:  What the Credit Crisis Means to Your Mortgage
• Your Success - Networking Faux Pas
• Your Family - Halloween Costumes: Taking the Scare Out of a Last-Minute Decision
• Your Home - Energy-Efficient Light Bulbs - What You Should Know
• Your Kitchen - Salt: It's the Spice of Life
• Your Body - Stop Holiday Treats from Playing Tricks on Your Teeth

“When in trouble, when in doubt, run in circles, scream and shout!!!”

This old adage seems to apply to the current perception of the mortgage market and because I’ve received dozens of calls about the lending crisis, I’m setting aside the normal monthly newsletter for this September 2007 to focus on – (pause for effect, muffled drum roll, lights dim, voice drops an octave – shudder ) - The Mortgage Lending Crisis….

First, there is bad news. It’s true. There is a crisis. Since late 2006, over 155 of the nation’s lenders have stopped doing business. Most of them catered to a sub-prime market comprised of folks who have credit scores of 600 or less, but even a few of the major “A-paper” players also went out of business or drastically curtailed lending activities.

The causes are many and varied, but in essence it boils down to lenders extending credit to high-risk borrowers and those borrowers defaulting on their mortgage payments. As the default rate rose, lenders and investors became reluctant to both lend money for mortgages or to purchase mortgage-backed securities secured by risky loans. Since their fiduciary responsibility is to make money for owners and shareholders, lenders and investors don’t like to lose money. They stopped buying the riskier securities and lenders were effectively denied access to their back-end market and their revenue stream. The result – the crisis.

It’s a significant crisis and it’s not just limited to the sub-prime lending. A ripple-effect (perhaps, a Tsunami-effect) is running through the world of prime or “A-paper” lending as well and is generating among the prime lenders a major reassessment of risk factors for their loans, e.g., what is the risk in lending 100% of the purchase price to a borrower; what is the risk of loaning a great deal of money to people who cannot verify their income; what is the risk in lending at the Super-Jumbo (over $650K) level; etc. What we’re beginning to experience is the withdrawal or curtailment of a number of mortgage products offered by the prime lender, no matter how credit-worthy, the borrower. That loan for 100% of the purchase price of a new home may no longer be offered, or, if it is offered, it will be offered at a much higher interest rate. Some loans that were routinely processed three months ago can no longer be offered to our clients.

That’s the bad news. However, there still is lots of good news to spread around and moderate the crisis.

• There is still a host of 1^st class banks and investors who want to lend money. The rules are a bit more stringent (and many of us are breathing a sigh of relief that they are), but the money is out there and the vast majority of our buyers are eligible for mortgage loans.
• There is still a host of mortgage products for our clients –from the traditional 30-year fixed rate mortgage, to the 3, 5, 7, and 10-year hybrid adjustable rate mortgages (ARMs), to the esoteric option ARMs, and to the newer Accelerated Payment lines of credit. The products are still here and, if anything, we expect to see the number of products expanding.
• Finally, as of this writing, the mortgage interest rates are still excellent for the vast majority of products. While rates have increased for Jumbo loans (over $417K) during this crisis, the majority of homeowners can still enjoy very competitive rates.

Please keep this good news in mind and please take the gloomy predictions with a large grain of salt. There is still a vibrant, proactive mortgage industry and there is still money available for lending. So, no need to jump and shout – just give us a call if you have any questions.

Remember the days before the Do-Not-Call Registry? Sure you do. Enjoy dinner, a quiet evening with the family, relaxing with a good book, or dozing in the lazy-boy in front of the tube. You could have it all as long as you were willing to put up with a seemingly endless string of solicitation calls. You hated it; I hated it; everyone but the telemarketing people hated it. And then, magically, we discovered that we could turn off most of it by simply adding our telephone number to the national Do-Not-Call Registry. Now it’s not complete. Your politicians ensured they could still call and charities are allowed to call. But it’s pretty good and, if for some unfathomable reason you haven’t registered your phone number, call the Registry’s toll-free number at 888-382-1222 or jump on their website at www.donotcall.gov.

But wait. There’s more. It’s kind of a “just when you thought it was safe to go back in the water” situation. The shark, in these waters, is called “Trigger Lead.”

The shark is released and starts hunting the moment your mortgage broker or lender requests your credit report. The initial request is necessary. Your loan officer needs that credit report to access your credit scores and establish your debt-to-income ratios. Both are needed to develop solid scenarios and process your application.

When the request is processed by the consumer credit reporting companies (Equifax, TransUnion, Innovis, and Experian), they may place your personal information on a prescreened list – the Trigger List.

Within hours the list may be sold to hundreds or thousands of companies. This is something completely out of the loan officer’s hands. The loan officer didn’t authorize it and is absolutely powerless to stop it.

Within hours you’ll begin to receive phone solicitations about mortgage products and within days you begin to receive mail solicitations. Chances are these contacts are from companies you don’t recognize. However, one thing is certain; these companies will initially woo you with some pretty attractive mortgage packages.

When those calls and letters come, and they will come, be alert to “bait & switch” propositions; offers that have a quasi-official tone, as if there were something “official” about the offer; offers of impossibly low rates; offers of no closing costs; and telemarketers who are asking for pin numbers, passwords, your mother’s maiden name or your social security number in the initial call. All of these and many more may be indicators that you’re being contacted by some of my more unscrupulous brethren. Be careful.

What can you do? Just as you were able to turn off the unsolicited telemarketing calls by submitting your telephone number to the Do-Not-Call Registry, you can prevent the credit bureaus from placing your information on the “trigger lists” by “opting-out” of the process.

You can opt-out by visiting www.optoutprescreen.com or by calling the toll-free number 888-5-opt-out (888-567-8688). When you call or visit the website, you will be asked to provide personal information including your name, home telephone number, social security number and date of birth. The information will be protected and will be used only to process your request to opt out of the prescreened or trigger list programs.

Well, it all started innocently enough. One of our clients, whose refinance we had handled eight months ago, decided that she really needed to get rid of her credit card debt. She had just received a tantalizing offer from a mortgage broker - a “no cost” line of credit. Later, she admitted that she didn’t even think of calling us – it was “just a little loan.”

The broker’s loan officer was enthusiastic and helpful. Over the course of a week a loan application was taken, credit was pulled, and phone calls bounced back and forth. But, sadly, the client’s credit wasn’t what the broker needed to get that line of credit.

“Hey,” said the loan officer, “Why don’t we just refinance you and take enough cash out at settlement to pay off those credit cards.” It turned out that the loan officer could get the client a loan at about 1% more than the interest rate on her current 1^st mortgage, but, said the loan officer: “we’ll get all of those credit cards paid off and save a ton of money.”

At this point our client admitted that she thought of us briefly, but the broker’s loan officer had already done so much work, she felt she obligated to take a look at the loan. So she told the loan officer to work up the figures and asked (thank heavens) for a Good Faith Estimate to get an idea of the cost of the loan.

The Good Faith Estimate was duly forwarded to our client. And it was, from the perspective of the broker and the loan officer a very good deal; a very, very, very good deal.

For right at the top of the Good Faith Estimate (line item 801- Loan Origination Fee) the loan officer had kindly listed the broker’s fee for arranging the loan – it was 5% of the loan amount – 5% of $370,500 – that’s a total of $18,525 –

Yes, my friends and neighbors; yes, my brothers and sisters; your eyes do not deceive. That’s a fee of $18,525. Oh, yes we do manage to scrape by in this business.

Here’s my favorite part. When my client questioned the 5% fee, the loan officer informed her that a fee of “3% to 5% is the industry standard for brokers.” There you have it. We have an industry standard of 3% to 5%. Actually, the 3% is pretty close – most of my colleagues in this industry do try to get 3% - they’ll usually charge a 1% Loan Origination Fee and then offer the borrower a rate that will ensure that the lender will give them 2%. For ourselves, we’ve never, ever charged 5% and normally our fixed fee is less than 1.5% of the loan amount.

Ok – so it was outrageous and obviously our client finally called us and we were able to structure a loan that did everything promised by the other broker at a lower interest rate and at a fee of 1.5%. We feel good about it, the client feels good about it and we candidly don’t care how the other broker feels about it.

Now, what have we learned?

First, we dropped the ball. The initial error was ours. We do ourselves and our clients a disservice if we don’t remind them that we handle almost all mortgage loan products – all types of 1^st mortgages, all types of 2^nd mortgages (including lines of credit), loans for primary, secondary, and investment properties, and small commercial loans. Moreover, if don’t think we can’t provide our clients with the best possible deal, our clients must be brought to understand that we’ll happily refer them to someone who can.

Second, young, inexperienced loan officers make dumb mistakes. This one did in blatantly trying to push a 5% fee down our client’s throat. This one was easy to catch. However, the wiser more experienced loan officer would have hidden that fee in junk charges and in the lender’s yield spread premium. In most cases, the borrower isn’t so lucky and most borrowers are never really made aware of the damage being done.

Give me a call if you’ve had a similar experience – I actually do love this business.