Barry Habib-Mortgage Market Consultant

Last week I was at a lunch seminar where the speaker was Barry Habib.  Barry is a consultant in the mortgage industry that often gets called for interviews from Fox, CNN, NBC, CNBC plus countless others.  He is someone I value his take on where the mortgage market is heading and here are a few points from his talk:
·         Many folks thinking about a refinance or buying that next home are waiting for the rates to make their final drop to the bottom.  He asks why wait?  Do you want to get the rates as they head to the bottom or after they turn and start their way back up?
·         Funny comment about George Washington never saw rates this low.
·         Ten + years ago the going rate was at 9%
·         Wonders why many say “my CPA is, my attorney is, my doctor is” but when it comes to a loan- “I used this guy”
·         Rates are on their way up- this month marks the end of the Fed buying Mortgage Backed Securities.
·         Mortgage rates are influenced by the stock market, economic news, technical signals, inflation and treasuries
·         Worries, like I do about how the government and other agencies, when they release their reports, with the real numbers buried in the report or sending out updated numbers a week after the report hits
·         The other day the government extended the time unemployed works can file for unemployment benefits- but currently do not count those that are on this expended timeline in the unemployment numbers
He finished his talk with a story about the book the Wizard of OZ.  Have you ever hear the story that the book was about more than what it appeared?  Maybe Silver and Gold? 
Here is an excerpt from Wikipedia:
  Numerous scholars in history, political science and economics have asserted that the images and characters used by Baum and Denslow closely resembled political images that were well known in the 1890s. They argue that Baum and Denslow did not invent the Lion, Tin Man, Scarecrow, Yellow Brick Road, Silver Slippers, cyclone, monkeys, Emerald City, Munchkins (little people), Uncle Henry, passenger balloons, witches and the wizard, as these were all common themes inspired from-in the editorial cartoons of the previous decade.
Baum and Denslow built a story around them, added Dorothy, and added a series of lessons to the effect that everyone possesses the resources they need if only they had self-confidence. Positive thinking was a prevalent trend in this period, and was the conduit by which Dorothy ultimately gets herself home. Baum, a leading authority on department store window displays that depicted imaginary worlds may also have been influenced by the elaborate Christmas displays in the department store windows in major cities.

Down Payments in Today’s Real-Estate Market

 The news media has been talking lately about how difficult it is to get home loans approved these days. I think there may be some misconceptions about available loans, down payments, etc. In the ‘old days’ – last year! – lenders were offering 0 % home loans. Some would even allow you to receive 3% of the sale price as a concession. In other words, you could come to the table with very little of your own money. Several lenders offered that product on investment properties as well. It is great for a market that continues to have appreciation and home values continue to go up but we found that when home values drop and people become upside down in their mortgages it is much, much easier to just walk away from those properties.

Years ago when the only down payment option was 40 or 50% down, the Federal Housing Association came into existence. They offered a product that enabled folks to buy their own homes – a 3% down loan  insured by the government with insurance added to it. Some people call it PMI (Private Mortgage Insurance); some call it MIP (Mortgage Insurance Premium). The reason it was there was insurance in case you foreclosed on the property. Should that occur, the lender then had an amount of money to help offset foreclosure expenses. The FHA is a good loan but I think we will find that the qualifications for an FHA loan will become even more strict. An FHA style loan by design is not a risk base on your credit score like a conventional loan. In other words, you can have a lower credit score and a fair amount of bumps and bruises and still be approved for an FHA loan. Well, that was true until the credit crunch. Then many guidelines came out and now some lenders have placed a minimum credit score on an FHA-style loan. About 8 months ago they began with a 580 credit score – if you had a 580 or above credit score and met all the other criteria, you could be approved for an FHA loan. Then lenders began to change the numbers – 580 became 620 then a 640 – so it is clear that several lenders are recognizing that those with lower credit scores have a higher risk of defaulting on their loans. The lenders are trying to control or lessen their losses by structuring things credit score driven which goes against the principle of how the FHA loan program came about. There has been talk that the FHA will make a change to a 5% down payment in the future instead of 3%.

The rest of the article here

Bi-Weekly Mortgage Payment

What is all the fuss about the Bi-Weekly mortgage payment?

We have all heard of it and seen the mailer (from the bank who holds our loan): Pay a small set up fee + between .25 – $2.00 by weekly withdraw and they will cut the interest over the life of your loan.

So, here is what I found while working up some numbers for a client.

On a $114,400 loan amount paid on a 30 year schedule, the interest at the end of the loan would be $118,081.09.  Set up a bi- weekly payment plan and that drops to $95,856.64.

But have you heard the old saying  “divide your mortgage payment by 12, and add that to your mortgage each month”?  For my calculations- click here-

NEW GOOD FAITH ESTIMATE. CHANGE FOR THE BETTER?

The government decided that a one-page Good Faith Estimate (GFE) was not adequate for the home buyer. Consequently, they have done a Real Estate Settlement & Procedures Act (RESPA) reform changing the original act that became law in 1974. This reform was supposedly done to benefit consumers (for a longer explanation of RESPA click here

The concern with the original GFE was that unethical loan officers and Mortgage Brokers were not completing the form properly. Leaving off known fees which the buyer in responsible for at closing. Anyone who has purchased a home knows that the GFE rarely matches the HUD-1 settlement.

Mortgage Brokers are able to produce a GFE however they see fit. At the beginning of my career as a Mortgage Broker I created a template for each loan transaction – a beginning point, if you will. This template is only as good as the figures that are plugged into it. Figures for lender’s fees, legal fees, title fees, state fees, county fees, survey fee, insurance, etc. are always subject to change. For this reason I update my template quarterly which enables me to be as accurate as possible. I strive to make my GFE as close to the HUD-1 settlement as possible. Legally, I was not required to update the template until January 1 of 2010 when the RESPA reform took effect.

The GFE you will now see is a binding contract between a Mortgage Broker and the client. In the old days (December, 2009!) an origination charge meant the fee paid to the Mortgage Broker for originating the loan. In January 2010 for the convenience of the consumer to shop the loan, several fees were bundled together. They are now broker originator fees, all lender fees and broker processing. Those new origination charges have zero tolerance and may not differ from the final HUD-1 settlement statement. For title fees and government recording charges, the creators of this bill recognized that there might be some variance in these fees and allowed a 10% difference at closing.  If there is a change- the Mortgage Broker pays!

To sum it up, this will be a most interesting first quarter. My prediction is that you will hear a great deal more about this both from the national and local media in the next few months as the first of these loans under the new RESPA reform begin to close. Questions?

New Good Faith Estimate

NEW GOOD FAITH ESTIMATE.  CHANGE FOR THE BETTER?  The government decided that a one-page Good Faith Estimate (GFE) was not adequate for the home buyer. Consequently, they have done a Real Estate Settlement & Procedures Act (RESPA) reform changing the original act that became law in 1974. This reform was supposedly done to benefit consumers (for a longer explanation of RESPA click here  The concern with the original GFE was that unethical loan officers and Mortgage Brokers were not completing the form properly. Leaving off known fees which the buyer in responsible for at closing. Anyone who has purchased a home knows that the GFE rarely matches the HUD-1 settlement.  Mortgage Brokers are able to produce a GFE however they see fit. At the beginning of my career as a Mortgage Broker I created a template for each loan transaction – a beginning point, if you will. This template is only as good as the figures that are plugged into it. Figures for lender’s fees, legal fees, title fees, state fees, county fees, survey fee, insurance, etc. are always subject to change. For this reason I update my template quarterly which enables me to be as accurate as possible. I strive to make my GFE as close to the HUD-1 settlement as possible. Legally, I was not required to update the template until January 1 of 2010 when the RESPA reform took effect.  The GFE you will now see is a binding contract between a Mortgage Broker and the client. In the old days (December, 2009!) an origination charge meant the fee paid to the Mortgage Broker for originating the loan. In January 2010 for the convenience of the consumer to shop the loan, several fees were bundled together. They are now broker originator fees, all lender fees and broker processing. Those new origination charges have zero tolerance and may not differ from the final HUD-1 settlement statement. For title fees and government recording charges, the creators of this bill recognized that there might be some variance in these fees and allowed a 10% difference at closing.  If there is a change- the Mortgage Broker pays!  To sum it up, this will be a most interesting first quarter. My prediction is that you will hear a great deal more about this both from the national and local media in the next few months as the first of these loans under the new RESPA reform begin to close. Questions?

Steve Harney, feature speaker

Last week I was able to attend a seminar featuring Steve Harney, one of the leading experts in the real estate industry. I was invited by one of my good friends – Sammy Garner. Sammy and I are in the same industry and have been friends for years. He was kind enough to not only invite me but to provide my ticket because he knew there would be information of value for us both. A secondary benefit of the seminar was the opportunity to sit at the table with a Plano real estate legend – Mike Brodie of Keller Williams. Mike is not only a speaker and seminar presenter on real estate issues; he is also one of the best producing realtors in the North Texas market. According to Mr. Harney, in 10 years there will be people sitting down and talking about the market of 2009…saying that ‘I could have done it….I should have done it’…talking about ‘if I had bought that house’….Basically he’s saying that prices are at their low and at some point they will begin to head back up, maybe not tomorrow, but pretty soon. He believes that there are many properties that are very distressed and that now is one of those times that people should buy so that in ten years they can be looking at the investment that they made instead of a missed opportunity. He said that in six months agents will be looking back at the help they had in selling houses from the tax break the government has given and from the low interest rates. It is an unbelievable time to be in real-estate and the agents in the business today should see an unbelievable year. In discussing foreclosures, Mr. Harney said that 20% of Texas homeowners’ value is under water. In other words, one in five Texans’ home value is below their mortgage amount. The percentage is even worse nationwide: in 35% of occupied homes the mortgage is now greater than the value. He spoke at length about foreclosures and said that he has found that 25% of the homes that have gone into foreclosure have been strategic foreclosures. In other words, these are people who have made their mortgage payments without a hitch for years but have recognized that they are now so upside down in their property that it becomes a good business decision to allow it to go into foreclosure. His studies are showing that the higher the person’s FICO score is, the more likely that they will make such a strategic move. Mr. Harney’s advice for Realtors was that they should strive to be the ‘expert’ in their market and be able to answer the questions about foreclosure, short sales, etc. Although it will be a challenge to predict the future of real estate, it is important for them to be the people with all the answers. Steve’s view is that Realtors and the housing industry will have the largest impact on the economy for 2010, let’s hope he is right!

Where Do I Sign?

I am a member of a trade group called National Association of Mortgage Brokers (NAMB).  It is an association, like every industry has, that helps to keep the playing field correct and competitive in this market, at least that is my explanation for them.  Recently, laws changed on how appraisals can be ordered for residential home loans.  Something called the Home Valuation Code of Conduct (HVCC) was introduced a bit ago- just a horrible idea and plan.  And it is costing homeowners Billions.  This link takes you to a page that has more detail and a petition provided by the NAMB, if once you realize the negative with this new legislation and want to help us make a change, then please sign!

Why read me? Why listen to me? Why use my company? Why read anything that I write?

I graduated from Manhattan High School, Manhattan, KS in 1986 with no clear vision of what I wanted to do with my life—just that I wanted to be around family; I wanted to be happy and I wanted to have a little bit of fun! The amazing track racing in the 1984 Olympics was very inspiring to me. I decided that I wanted to try racing bicycles and that my graduation present should be a racing bike. My parents and I went to the Pathfinder Bike Shop in Manhattan for a real high-end racing bike but the salesman did a great job of talking us into a Fuji DelRay…just a step down from the higher end racing bicycle. It had a little bit wider tires and was a little more of a touring bike. The reason it was so good for me was that it was heavier duty and could take more abuse since I didn’t know anything about what I was doing!
 
When a friend asked me to do the Coors Light Biathlon (Run-Bike-Run), I quickly agreed as I had been a runner all through high school and had run intramurals in college and by then I had some experience on long-range bicycling. Well, I actually got just destroyed on the bicycle part by some really big guys and I thought to myself…’I'm a 5’9″ guy; I’m really lean and I can see my ribs. Those guys haven’t been able to see their ribs for years. Why are they passing me?’  After that I began to focus more intensely on the bicycle.
 
What I learned about myself at that point was that if I had something I really wanted to accomplish and it was something that I figured out for myself – nothing that anyone had told me I should do – but something that I wanted to achieve………get out of my way because I am going to achieve it! I am a goal-oriented person and I believe that is the reason I am good at what I do. A loan is very simple: get to the closing line with papers; have the money there to fund and have the clients be happy!
 
So I started to concentrate on bicycle racing and, the next thing you know, I became the best cyclist in my area. By that time we had moved to Lawrence where I started a cycling team and moved up to a Category 1 racer. At that time a Category 1 license through the United States Cycling Association was $35 a year; a pro license was $500, so why go Pro?  We raced the same races that the pros raced. Lance Armstrong and I raced against each other once or twice. He chose to stay near the front of the race and my ability kept me a bit nearer the middle of the race!
 
One of the reasons I left full time bicycle racing is attributable to a conversation I had at my older brother’s 40th birthday party in Houston years ago. My brother is in the oil business, as were many of those at the party. One of the gentlemen asked what I did and when I said that I raced bicycles he asked if there was good money in that. I said “Nope.” And he said, “Then get out.” While that was not the only reason, it did remind me that perhaps it was time to become a little more serious about making some money so I went to work for the bicycling industry. I was with Specialized Bicycles for a number of years and learned a great deal about the inner workings of corporate America. I learned that the sales department and the credit department and everybody has to get along and that sometimes if you hear the word ‘No’ from a department and you believe in the mission that you have, you need to find another avenue to get to the ‘Yes’. I continue to learn that there is a ‘right flow’ and a ‘wrong flow’ to who you go around but when I am working on behalf of a client, I want to make sure they get to the ‘Yes’ answers so I will go around a department if I need to.
 
When I became a lender, I recognized that it was the same corporate structure. If I got turned down by an underwriter and I knew that I was right, then I would get the sales manager or the underwriting supervisor involved and usually it would turn out well for my client. Just as I did when I became a bicycle racer, I have done a great deal of research on the mortgage industry and knew that I could do it well with good training. I have learned the value of the industry requirement for continuing education every year. As a lender, I must fulfill a certain number of hours each year to maintain my license. You can choose the type of education you would like to attend and for the last 7 years I have chosen to attend as many credit seminars as possible to learn the ins and outs of credit. The seminars have increased my confidence in my ability to advise people who are ready to purchase a home. Along with that I have studied the bond market and the credit market watching for curves and watching for new loan programs. What I have not done is waste my time with too many crazy salesman-type loans. I have always stuck with the standard 30 yr fixed or 15 yr fixed. I like Dave Ramsey’s principles – always do a 15 yr fixed loan with 20% down! Not all of us can do that (certainly Julie and I have not done that yet) but it is a great goal.
 
So I believe the reason you will listen to me or read what I write and give my company a chance to be your lender is that we are constantly learning and studying the intricacies of lending and that our advice to you comes from a firm understanding of our business. We are present with you from the first appointment to the closing, assisting you with whatever is needed throughout the entire process so that your loan goes smoothly and without undue stress.

I Am a Boring Lender

When I first began working as a mortgage broker the more lenders you were signed up with the more rate sheets you received. A rate sheet is a PDF document from the lender you signed up with – Chase, Wells Fargo or Bank of America, etc. These rate sheets used to be 8 or 10 pages long. There were a variety of transactions and way too many options and programs. To be honest, I don’t think the loan officers or brokers even knew what some of the programs were. There was a day when account reps would come to your office about every two or three weeks or so to talk about new programs.
 
Again, I think that was – and it has been proven – the demise of some of our mortgage industry because with those programs, when their risk category got too aggressive some of those ARM (Adjustable Rate Mortgages) programs were just not as attractive for anybody – the mortgage market or the homeowners. Now when I get rate sheets, they are between two and four pages long. I think it is great! It has gone back to the days of “would you like a 30 yr. fixed or a 20 yr fixed or a 15 yr fixed?’ Rarely do I talk about ARMS unless I have a client who is buying a home for an investment property and might sell. Or perhaps my client is going to graduate school or they have a contracted job for only a 3 year term. Then that program might be a viable option.
 
To recap, the mortgage industry has become pretty boring! As Dave Ramsey says, he would much prefer that you come in with 20% down and do a 15 year fixed but some of us do not have that capability. We also are not certain that we will not be moving, so why get a 15 year fixed when you can spread those payments out and make it a little cheaper each month. If you look at the amortization of that loan over 15 and 30 years and see the difference in the finance charges over the life of the loan, the benefit of doing a 15 year fixed becomes pretty obvious.
 
I’d like to close with one of my favorite stories. When NASA first sent astronauts into space, they realized that a ball point pen would not work in zero gravity. A million dollar investment and two years of research resulted in a pen that could write in space on almost any surface and at temperatures ranging from well below freezing to over 300 degrees Celsius. When confronted with the same problem, the Russians used a pencil.
 
Sometimes we can make things just a little too complicated when the easy side is where we need to stay! My thanks to my former boss at Specialized Bicycle for the gift of a Russian space pen and the story!  I had no idea you could buy the Russian Space Pencil.

What’s the Ideal Day to Close on Your New Home?

Do you think that the last day of the month is the best day to close on your home purchase?  It may not be true. Closing on the last day does not allow for any unforeseen circumstances.  What about selling a home in the morning and buying one that afternoon?  Very common but boy is that one a gamble.  Let me illustrate this by relating a true story.
 
A client of mine was closing the sale of their home at one Title Company in the morning. Immediately following that closing they were to go to a second title company to complete the purchase of their new home. A problem developed when the folks buying my client’s home could not get their loan papers to the title company on time. We were set for a Thursday closing. We moved it to Friday and still no papers. We moved it yet again to Monday but still no papers. We finally heard on Tuesday that the client was officially withdrawing their offer due to their inability to arrange financing. They went through three different lenders with no success (wish they would have called me).
 
What that did was leave my clients high and dry. Without the sale of their present home, they were unable to close on their new home and were forced to withdraw their contract.

So now you have a couple with three children and a fourth on the way in a house that is completely packed up ready to move. They must now unpack and prepare their house to be relisted for sale. They must also decide whether or not to go through with the purchase of that new home and try to handle two mortgage payments or to wait and see if their present home sells quickly and avoid the double mortgage.
 
Remember, I am a Mortgage Broker, not a Realtor, so I what I tell you is of my opinion and you should always trust the advice of your Agent!
 
What most lenders will tell you is that closing both homes on the same day is normal and it should always be done that way. I would like people to consider closing on the sale of their house on a Monday or Tuesday. Then negotiate a ‘lease back agreement’; this simply means that you would lease the home you just sold from the new owners for two days. You would then close on your new home on Wednesday or Thursday of the week before the end of the month. This gives you ample time for the proceeds of the sale to reach your bank; it also makes sure you have time to gather all of the documentation you need for the next closing. Should anything go wrong with the sale of your home, you now have a few day window to work out any problems. It also enables you to leave your home intact until the sale is final….then you can pack up your house.
 
Again, I am a Broker and am not paid to give you real-estate advice; a Realtor is, so this is just my opinion.