Thursday, March 22, 2007

What has become known as an "Option ARM" is not the best option in most cases.

The Mortgage market has been overwhelmed by lenders pushing, even specializing and promoting this loan called the "Option ARM". You may have heard it on the radio, you may have seen it on TV, I guarantee you have received something in the mail about it. It promotes the 1% payment rate, and boasts about being fixed for 5 years, or more. The reality is, there are 100's of options out there for this loan, and I have searched the blog posts front to back, and don't really see an unvailing of what this loan is. I don't want to come off like I am bashing this loan program, but I want to stress that there are good ones and bad ones, and I hope I can explain the pros and cons so that you understand my point of view.
Reality, this loan gives you 4 payment options. It gives you the flexibility every month, to choose the payment you want to make, and make it. 4 hypothetical payments on a $300,000 loan are listed here.
1% Start Rate $964
7.5% Interest Only $1,875
7.5% 30 or 40 year Amortized $2,097
7.5% 15 Year Amortized $2,781
The first thing that needs to be known about this loan, and many lenders won't focus on, is that if you make this first payment of $964, your loan balance will INCREASE. Again...INCREASE. Ok, If I am every telling someone about this option, this is the thing I stress the most. The basis for this loan is that if you make the $964 payment you loan balance will increase $911 every month you make this payment. This loan was designed for people who are self-employed or on a commission only type position where your income may vary month to month. I believe in this loan in some cases, but those cases are few and far between.
Cons of this Loan:
People promote the 1% payment rate, but don't explain that in some cases, the actual interest rate the bank is charging you, the 7.5%, is costing you $911 more than the 1% Start Rate that you can pay. Therefore until you make more than the Interest Only payment, your loan balance will keep going up and up.
The 7.5% interest rate is adjustable in most cases, though lenders have rolled out new loans like this that are fixed for 5 years, so that fear of your loan adjusting doesn't come until after year 5. The loans are based on an Index and a Margin. The Index is what changes from month to month. You may have heard of these indexes, they are called the MTA, CODI, COSI, COFI, or Libor. There are others out there, but you get the idea. The index is what makes this loan adjust. As the index changes with the market, up or down, your interest rate changes accordingly. The margin is what the loan officer chooses to give you, based on how he/she wants to structure your cost and type of prepayment penalty if any. Usually the choice is for the highest margin and largest prepayment penalty, because the loan officer will make more money. You don't have to have it that way, always ask questions to get the best deal for you. If you have a short term outlook on the property, like 4 or 5 years, then maybe this program would work, but if you are in this home for the long run, it just isn't the loan for you.
Pros of this Loan:
Flexibility is the only pro. If you use this loan how it was designed to be used decades ago, then you can make it work for you. But, I have an alternative solution for you, that makes the most sense in most cases.
If you can qualify for this loan, there are two things that are likely, you have a decent credit score, and you have some equity. (There are exceptions, but discussing exceptions would probably put you to sleep :)) These loans are usually offered if you have 10% equity or better. If you have decent equity and credit score, my recommendation is to look into a more stable first mortgage, like a 30 year or 40 Year fixed, even a longer term adjustable rate mortgage like a 10 Year ARM with an Interest Only Option, that will give you more stability than the Option Arm, but the key with why this is a better solution, is you can get a 2nd mortgage, or my recommendation of a Home Equity Line of Credit (HELOC), behind that first mortgage, to offer the flexibility you are looking for. (Look for my blog on Home Equity Line of Credit's for more detailed information). The main reason for using this scenario over an Option Arm is purely interest cost.
Option Arm Interest Cost at 7.5% listed above = $1,875 (Look Above)
Same Loan Amount, Interest Cost on a 10 Year Interst Only at 6.5% = $1,625
The difference is $250. Yes... $250 per month just in interest!!!!!
If you choose an option arm over a standard ARM, you are losing $250 per month (in most cases). You want flexibility, get a 10 Year Interest Only or 30 or 40 Year Fixed, and get a Home Equity Line of Credit in addition to it, so that when you have months where the larger payment of $1625 is too much, you can use the HELOC to make up the difference. But, and this is a big but.., you must try to pay down that HELOC when you can. If you don't, your loan balance will keep increasing and increasing, and unless you are fortunate to have $100,000's in equity, your investment will go away, and you will be forced to sell because you can't afford the ever growing mortgage, with little to show for it. I may sound harsh, but the reality is, this can happen, and people in this business don't stress that fact. When homes were appreciating like crazy, maybe 10-20% per year, this loan wasn't really a factor, because your equity would grow. Those days are over for now, without a change on the horizon.
Don't make that mistake of not examing ALL of your options. If you feel you are being pressured to take one loan over another, there is a reason, that loan officer has an alterior motive, usually based on pay. Option Arms can pay a loan officer up to 3% of the loan, that the bank will pay. Not you directly, but indirectly, the bank pays it directly. That money is coming from your interest rate, and doesn't need to be there. It also comes from the prepayment penalty he/she is telling you that you have to have, well, you probably don't "have" to have it. Always ask questions.
Call or email me if you have any questions, this may be the only option for you, but I don't think it needs to be. I can lend in California and Oregon. If you aren't located in either, still call, I don't want you to get something you shouldn't. I don't mind, I love what I do. You can send me an email to jvetter@mercurylending.com or get more information at www.jonathanvettermortgage.com. Emails go to my computer and my phone and I can respond quickly in most cases. If you feel comfortable talking about it, call my cell phone at 650-465-5846.

Tags: Neg-Am, Interest Only, Index, Refinance, Option ARM, Pick a Payment, Margin, Points Sub-prime
Comments

Friday, March 16, 2007

What is a fair fee for a mortgage broker?

What is a fair fee for a mortgage broker?

As the market changes, and it gets more and more difficult for corrupt mortgage brokers to make 5 points per deal, what I am questioning is what should a mortgage broker make? My personal feelings is that every broker should come to their own conclusion as to what they will "charge" their clients for their services, and then offer them the option to structure the loan accordingly. The reason being, there are many ways we as brokers can get paid, I think it should be up to the borrower how that is, and the borrower should make the call as to what rate and terms that is.
So what I do is, structure 3 different options of cost and rate, so that I make 1-1.5 points. My client then makes the choice what rate and cost they want. I have come to the conclusion that with the level of service and experience I provide, my clients are getting a bargain. My question to all of you is, what do you think is fair for a mortgage broker to make in points?
I guess there are a couple variables. The type of transaction being one. But overall, I think we can come to a solid conclusion.
Please give me feedback, what do you think is a fair wage, what is excessive, what is a bargain.

Thanks
Tags: purchase, Refinance, Fees, commissions, points
Comments (2)

What has become known as an "Option ARM" is not the best option in most cases.

What has become known as an "Option ARM" is not the best option in most cases.

The Mortgage market has been overwhelmed by lenders pushing, even specializing and promoting this loan called the "Option ARM". You may have heard it on the radio, you may have seen it on TV, I guarantee you have received something in the mail about it. It promotes the 1% payment rate, and boasts about being fixed for 5 years, or more. The reality is, there are 100's of options out there for this loan, and I have searched the blog posts front to back, and don't really see an unvailing of what this loan is. I don't want to come off like I am bashing this loan program, but I want to stress that there are good ones and bad ones, and I hope I can explain the pros and cons so that you understand my point of view.
Reality, this loan gives you 4 payment options. It gives you the flexibility every month, to choose the payment you want to make, and make it. 4 hypothetical payments on a $300,000 loan are listed here.
1% Start Rate $964
7.5% Interest Only $1,875
7.5% 30 or 40 year Amortized $2,097
7.5% 15 Year Amortized $2,781
The first thing that needs to be known about this loan, and many lenders won't focus on, is that if you make this first payment of $964, your loan balance will INCREASE. Again...INCREASE. Ok, If I am every telling someone about this option, this is the thing I stress the most. The basis for this loan is that if you make the $964 payment you loan balance will increase $911 every month you make this payment. This loan was designed for people who are self-employed or on a commission only type position where your income may vary month to month. I believe in this loan in some cases, but those cases are few and far between.
Cons of this Loan:
People promote the 1% payment rate, but don't explain that in some cases, the actual interest rate the bank is charging you, the 7.5%, is costing you $911 more than the 1% Start Rate that you can pay. Therefore until you make more than the Interest Only payment, your loan balance will keep going up and up.
The 7.5% interest rate is adjustable in most cases, though lenders have rolled out new loans like this that are fixed for 5 years, so that fear of your loan adjusting doesn't come until after year 5. The loans are based on an Index and a Margin. The Index is what changes from month to month. You may have heard of these indexes, they are called the MTA, CODI, COSI, COFI, or Libor. There are others out there, but you get the idea. The index is what makes this loan adjust. As the index changes with the market, up or down, your interest rate changes accordingly. The margin is what the loan officer chooses to give you, based on how he/she wants to structure your cost and type of prepayment penalty if any. Usually the choice is for the highest margin and largest prepayment penalty, because the loan officer will make more money. You don't have to have it that way, always ask questions to get the best deal for you. If you have a short term outlook on the property, like 4 or 5 years, then maybe this program would work, but if you are in this home for the long run, it just isn't the loan for you.
Pros of this Loan:
Flexibility is the only pro. If you use this loan how it was designed to be used decades ago, then you can make it work for you. But, I have an alternative solution for you, that makes the most sense in most cases.
If you can qualify for this loan, there are two things that are likely, you have a decent credit score, and you have some equity. (There are exceptions, but discussing exceptions would probably put you to sleep :)) These loans are usually offered if you have 10% equity or better. If you have decent equity and credit score, my recommendation is to look into a more stable first mortgage, like a 30 year or 40 Year fixed, even a longer term adjustable rate mortgage like a 10 Year ARM with an Interest Only Option, that will give you more stability than the Option Arm, but the key with why this is a better solution, is you can get a 2nd mortgage, or my recommendation of a Home Equity Line of Credit (HELOC), behind that first mortgage, to offer the flexibility you are looking for. (Look for my blog on Home Equity Line of Credit's for more detailed information). The main reason for using this scenario over an Option Arm is purely interest cost.
Option Arm Interest Cost at 7.5% listed above = $1,875 (Look Above)
Same Loan Amount, Interest Cost on a 10 Year Interst Only at 6.5% = $1,625
The difference is $250. Yes... $250 per month just in interest!!!!!
If you choose an option arm over a standard ARM, you are losing $250 per month (in most cases). You want flexibility, get a 10 Year Interest Only or 30 or 40 Year Fixed, and get a Home Equity Line of Credit in addition to it, so that when you have months where the larger payment of $1625 is too much, you can use the HELOC to make up the difference. But, and this is a big but.., you must try to pay down that HELOC when you can. If you don't, your loan balance will keep increasing and increasing, and unless you are fortunate to have $100,000's in equity, your investment will go away, and you will be forced to sell because you can't afford the ever growing mortgage, with little to show for it. I may sound harsh, but the reality is, this can happen, and people in this business don't stress that fact. When homes were appreciating like crazy, maybe 10-20% per year, this loan wasn't really a factor, because your equity would grow. Those days are over for now, without a change on the horizon.
Don't make that mistake of not examing ALL of your options. If you feel you are being pressured to take one loan over another, there is a reason, that loan officer has an alterior motive, usually based on pay. Option Arms can pay a loan officer up to 3% of the loan, that the bank will pay. Not you directly, but indirectly, the bank pays it directly. That money is coming from your interest rate, and doesn't need to be there. It also comes from the prepayment penalty he/she is telling you that you have to have, well, you probably don't "have" to have it. Always ask questions.
Call or email me if you have any questions, this may be the only option for you, but I don't think it needs to be. I can lend in California and Oregon. If you aren't located in either, still call, I don't want you to get something you shouldn't. I don't mind, I love what I do. You can send me an email to jvetter@mercurylending.com or get more information at www.jonathanvettermortgage.com. Emails go to my computer and my phone and I can respond quickly in most cases. If you feel comfortable talking about it, call my cell phone at 650-465-5846.

Tags: Neg-Am, Interest Only, Index, Refinance, Option ARM, Pick a Payment, Margin, Points Sub-prime

Tuesday, March 13, 2007

Fraud- How does it happen, why does it happen?

Fraud- How does it happen, why does it happen?

I have submitted another posting on the Real Estate Finance market, with basic news on what is happening every day. I think the next logical step is to talk about WHY this is happening. The main motivation and reason that a market collapses or gets saturated is greed. There is soooo much money to be made on every side of every transaction. Realtors, mortgage brokers or lenders, title and escrow, appraisers, everyone involved, gets paid, and gets paid well for their time. With the increase in demand over the last 4 years, the attractiveness of joining the real estate workforce has gotten even more attractive, and relatively easy to get started. Why wouldn't people want to be involved? (I am one of them!!)
What this did was open the doors to the negative part of the business. Everyone wants to "eat" while there is food on the table, and eat well. This desire to "eat", fueled the market, and created the inevitable demise of the mortgage market that we are starting, and I stress, starting...to see. It is only the beginning.
On the mortgage side, there are many types of fraud that exist, and ultimately kill the market. Some of the most common forms of fraud are:
Pushing appraisal values
Faking or altering income or asset documentation
Giving cash-back on purchase transactions
Flipping Properties- (not like you see on TV)
Pushing Appraisal Values
This is a basic form of fraud. Lenders are relying on an appraiser to come to a decision on the value of the property without "heat" or "pressure" from a seller, buyer, mortgage broker, or real estate agent. That "pressure" can cause them to inflate the value, for fear of losing future business from the parties involved. Now, in the case of the 3 years ago when the market was appreciating every day and you didn't have to really worry about the value, it didn't really matter as much, but when now, we are faced with the thought that home prices possibly coming down, this "pressure" can hurt the people that are financially banking on the appraiser, the lender.
Faking or Altering Income of Asset Documentation
This is a technology age. Creating fake forms of income or asset proof is out there, and I am fighting against it daily. If I have a borrower that has a credit score, makes a certain amount of income, and according to the market, deserves a certain rate, and I am getting shopped and beat by someone that is quoting a rate 1 or 2 percent lower than my quote, with the same cost, something is going on. There are two possibilities, they are faking documentation to get into a better program, or they are pulling a "bait and switch" type scheme getting the borrower to go with them, and then switching the terms upon the loan signing. Both cases are forms of fraud and are not just unethical, but are illegal.
Giving cash-back on purchase transactions
One of the more common types nowadays is when a buyer will get cash back after buying a home. This is a form of fraud, in that again, the appraisal is ceritifying a value of the property, and that extra out of escrow cash-back is distorting that value, and the lenders investment.
Flipping properties
I am not talking about when a person buys a home and improves it and sells it the next month for a profit, that is just good business. I am talking about when someone buys a property, sells it to a friend for a profit, who sells it to another friend for a profit, and sells it again to another friend for a profit. This is an evil type of fraud, because each person along the way makes a killing, and the final lender is the one left with the bill.
Fraud is happening every day, that is nothing new. When people can make 3-5 points on a transaction (in California that is up to $25,000 on a normal transaction!) and all you need is a decent credit score, mortgage brokers can make a killing, and in the long run, the person that is left holding the knife is the bank. In this case, New Century(update at http://money.cnn.com/2007/ 03/13/markets/subprime.reut/index.htm?po stversion=2007031314), the second largest sub-prime lender, is on trial, and going to be dealing with it for years, if they are even going to be around. I think over the next few years we will see a decrease in fraud, because lenders won't ignore potential red flags, and a balancing of the market, so that we will get back to a more honest business.

Tags: purchase, Mortgage, Refinance, Fraud, New Century, Appraiser, Sub-prime, flipping, w2's, assets, cash-back

Monday, March 12, 2007

Happy Friday- Or is it?

Today Countrywide Mortgage, the largest lender in the United States annouced that it will no longer lend with no money down on their "BC", the division that handles lower credit scores. Countrywide is the largest lender out there, not just in the amount of loans they originate, but also in the number of loans they are the investor on. I don't know the exact number but I believe something like 40% of the loans in the US are tied to them in some way. This is really huge news. I don't really have much else to say, other than if you plan on buying a home with 0 down, you better start fixing your credit if you are currently below a 680 FICO Score.
Here is the article...
http://money.cnn.co m/2007/03/09/real_estate/countrywide.reu t/index.htm?postversion=2007030917
Real Estate Agents****if you are about to submit an offer, make sure you have your clients pre-approval validated with the broker or lender that it will comply with the todays 100% financing standards.
If you need advice on what to do in your situation, I will be available all weekend at 650-465-5846. Don't hesitate to call if you need me.
Have a great weekend!
Tags: 100% Financing, no money down, countrywide, submit offer

Friday, March 9, 2007

Credit, what is it, why is it so bad, why is it so great!

Credit, what is it, why is it so bad, why is it so great!
Post Applaud Total: 0
March 9, 2007 at 12:46:21 PM
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I think there are many many common mistakes out there when it comes to credit, and it seems like even the most educated people make those mistakes. As of late, I have had a lot of clients and new applications from people that are making the same common mistakes, and I think it is important to find out where your "FICO" score comes from, and why it is the most important thing when it comes to real estate and investment financing.
First things first, FICO is a formula, I don't have it, no one in the public has it, but the glorious people at the Fair Isaac company, the people that formulate the FICO score, do. What I am offering for information here is purely what I have read, and experienced. If you want the true numbers of where the score is derived, go to www.myfico. com.
The most common misconception is that once you have paid off all of your credit cards you should cut them up, and close the accounts. Well one part of that is true, cut them up so that the next time you walk into Sears and see that shiny stainless steel BBQ with side burner, you won't have access to the credit card if you don't have cash or debit. The reality is that one of the major factors of your score is your history. Let's take an example, if you have had your VISA card for ten years, never had a late payment, don't have a balance, and then you close the account, you lose that 10 years of history. History makes up 15% of your score. Cutting up the card will have a positive effect on how you spend money, but closing the account will have a negative effect on how your score performs.
The biggest effect on your score if your payment history. Make payments within the first 30 days of their due date is the most important, even if you are just making the minimum payment. 30 day late payments are the most important on mortgage payments. Auto payments and credit card or installment payments are important, but mortgage payments are the most important, because as a lender, a mortgage late almost always puts you into a subprime or more alternative financing situation.
The next most significant factor is the balances of your credit. The best way to think about Credit Cards, is to always try to keep your balances below 35% of the credit limit for the card. For instance, if your limit is $10,000, try to keep the balance below $3500 to avoid having a negative effect on your score. Some people believe that it would be better to max out one credit card, and have the others with 0 balances. The fact of the matter is that you would be better off spreading out the debt amongst all of your cards, and try to keep the balances on all of them below 35%.
New Credit! Applying for new credit can have a negative effect on your score and the type of account you are applying for can effect your score. Opening discount accounts, or accounts with teasers (no interest for 12 months) can have a negative effect on your score. I know when you are at Sears about to get that new plasma screen and the salesperson offers you 12 months free financing, and you think, "hmmm, should I keep the money in the bank, or let Sears pay for it over the next 12 months." I have wrestled with this type of decision myself, not for a plasma, but for a washer and dryer. From a credit decision, the decision should ride on your short term goals with credit. Are you buying a car or home in the near future? Maybe paying cash would be a better option, because applying for that new credit MAY, and I stress MAY, have an effect on your score and even your debt to income ratio. How did I make the decision? I went with getting the Sears offered financing because I could keep the money in the bank, and pay for it over the year, only because I wasn't making any large important credit based purchases in the near future. ****MAJOR NOTE FOR PEOPLE BUYING A HOME*****As a mortgage broker, the most important advice to you is, if you are in excrow on a purchase, do not, and I say again, do not, buy anything with credit, until that loan is closed. For two reasons, the lender can repull your credit and if that new account shows up and your score drops and takes you out of that loan that you have been "approved" for, you may have issues. Wait a few days, and buy the cabinets with credit when the loan is closed. You may laugh and say it doesn't happen, but believe me, it does!
Another major factor is the time frame the credit report shows something as occuring. Things that have happended recently, will have a larger effect on your credit. For instance a late payment that happended last month, has more of an effect than a late payment that happened 2 years ago. The rules I follow are, that first 6 months have the largest effect, the next 6 months since that late payment will have less of an effect, the next 12 months will have even less of an effect, and the following 12 months from that, will have little effect. The thought behind this is that if your are missing a payment today, you may be having financial issues, therefore, you are a higher risk, and should have a lower score. A tip for old collections and things that are over 12 months old. It may be in your best interest to NOT correct those accounts. The reason is, if you update or correct things that are old, they will have a "last updated" date of today. This makes it a current collection or late payment. We want to let old issues stay where they are, in the past!
With the news on how the subprime market is changing daily, credit is the most important factor in real estate finance right now. Income, and being able to document it is a factor, but that first and most important factor is credit. If there are negative items on your credit report that are not correct, removing them from your report is possible, it will just take some effort to call the credit company and resolve it.

For more about my services and to chat if I am online, please visit www.jonathanvettermortgage.com

Tags: Credit, finance, subprime, credit cards, FICO, Debt

Wednesday, March 7, 2007

What is a HELOC?

March 7, 2007 at 02:21:12 PM
[Edit] [Delete]
First off, thank you Silvia for bringing me back to reality, I guess some of the terminology I have used in past blog posts are a little confusing and I should have stated more clearly where I was going with my comment. Well, at least it has inspired me to break down what a HELOC (Home Equity Line of Credit) is, and how homeowners and investors can use it to your advantage.
What is a HELOC?
In my opinion, the most effective way to compare a HELOC to something else if to compare it to a credit card. The difference being that the credit card in unsecured, and the HELOC is secured by the equity in your home. They have a similar function, access to a pre-determined amount of money, which costs a certain rate, and will be paid back on a certain schedule. That is where the similiarities really end. A HELOC is a line of credit tied to your property, allowing you to access your equity, to use as you please. Typically the HELOC's interest rate is tied to the Prime Rate, that nasty thing Alan Greenspan seemed to increase every few months forever. The actual rate will be determined by the Value of the Home compared to the amount you are borrowing, your credit score, and the type of documentation used to qualify. The rate is usually expressed in a value below or over prime. Meaning, if the prime rate is 8.25% (which it is right now), and you are getting a HELOC at .25% below prime, your rate would be 8%. Make sense?
How can you use the HELOC?
That really is up to you. The smart way to use it is for remodeling, improving the house, or investing. The common way to use it is to pay off credit cards, cars, and toys. I feel, you should use equity to best suit your life. If you are swamped with bills, feel overwhelmed because of the car payment, and the HELOC will give you some relieve by combining them all into one loan, then make it work for you. But don't keep building that debt. You need to set a serious goal that you are going to pay down that HELOC. Adding onto the debt, is the downward spiral towards real problems, I am sure you all have seen or heard it lately.
The way investors use HELOC's to their advantage, and make a killing in real estate, is by leveraging their properties with the HELOC, and buying more property. Real investors aren't affraid of debt, they are affraid of losing cash. Real investors would rather use other people's money to invest, and keep their own. Why you say? ROI (Return on Investment). One of the first things I learned about in college, and what was stressed to me, is to maximize ROI, and the way to do it is with other people's money. The HELOC is the best way to make this happen. Flippers (people who buy houses for a period of time, fix it, and sell it) use HELOC's to leverage properties, buy supplies, and then sell. They try to avoid using their own cash. Yes, it does cost more in interest, but the cost of interest is worth it when they are only in the property for a number of months.
You can also use a HELOC in case of emergency. Something I recommend heavily. If your car breaks down, if you get sick, or if you need to buy a new refrigerator, you can use a HELOC to purchase that item, and the likelihood you will pay off the purchase is higher if you were to use a HELOC than if you were to use a Credit Card because of the interest cost. It should be much lower than a Credit Card with a HELOC.
There are endless ways you can use it, if you need any advice on whether it can benefit you, let me know.
Tags: Prime, HELOC, Home Equity Line of Credit, Interest, Credit Card, Debt Consolidation
Comments

Reverse Mortgage- Another Option

March 2, 2007 at 03:35:54 PM
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I want to first say that I am not that educated on the reverse mortgage. From what I have heard, they are a case by case situation. I am writing this scenario with what I have seen as the basis.
We just refinanced an older couple out of their reverse mortgage, because they weren't really thrilled, after getting into it, with the features and functions of it. My understanding of a Reverse Mortgage, is that you use your equity to pay your an "income" every month. I don't really want to get into the details, that isn't the point of this post. What get's to me is that the client paid crazy fees to get into the new mortgage, but also paid rather high fees to get out in the form of a prepayment penalty. Not to mention the interest rates were pretty high compared to conventional financing. If the basic reason to get into a reverse mortgage is to create income for yourself, maybe there is another option..
Let's say that a couple owes $100,000 on a $500,000 house. Sounds like a good situation doesn't it. They are heading into retirement but haven't really planned well enough to ensure that they are going to have enough money to retire comfortably. They are equity strong but cash weak.
How can we allow them to retire without resorting to a reverse mortgage. One solution, home equity line of credit. Let's say they forcast their monthly expenses to continue their lifestyle at $3000 per month. Let's also assume they do have some social security that will come in month to month in the amount of $2000. They are short about $1000 per month. They can use the HELOC to float that $1000 per month. More importantly, they will have the control.
Another Option that I like... How about cashing out $300,000. Payments for that new loan will be about $2000 per month. If you invest the $300,000 at 5% really conservatively, you will generate $1250 in income, and netting you a $750 loss per month from the cost of borrowing those funds for living. Again, this situation costs money, but it gives you control. If you spend money smartly, and invest it properly, you can make retirement a lasting venture.
Really, I am just trying to brainstorm with myself a little bit, if anyone has any insight or would like to educate me about reverse mortgages, it would be greatly appreciated.
Comments (2) NEW

Tightening of the market.

Post Applaud Total: 3
February 20, 2007 at 02:01:42 PM
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I am sure everyone involved in Real Estate has personally experienced some sort of tightening of the market, I thought I would give everyone an update on what I am seeing on the lending side.
Back in the prime of the market, lenders were open to just about every situation. If you had a FICO score over 620, you could get approved up to $750,000 with just 3 letters of reference from people that you have done business with. You wouldn't even need any reserves showing that you could put money aside. Wow have things changed. That same lender that offered that program, has tightened up to the point that they don't do this type of loan whatsoever. Stated income loan with 100% financing has dwindled tremendously. Some lenders are still offering it, but the number of them has tanked. The reason for these cut backs is that the lenders that were offering these programs, have continually loss money on these loans. The number of first payment defaults in this type of loan has gone through the roof.
It makes sense to stop offerering these loans. Lenders generate about $1000 total in revenue to close this type of loan, and have banked on the fact that they would get interest in the amount of $1000's per month to hedge against the lack of upfront revenue. People that have qualified and gotten these mortgages, have two options, pay 1000's per month in interest to have a home of their own, or simply not pay for the mortgage. In essense, these people could live expense free for up to 150 days, until the foreclosure sale is done. I know all of us would worry about the consequences of having a foreclosure on your credit report, but we aren't all concerned. Live expense free, great!
Lenders are getting killed in these situations. You may wonder how, or why. Well, they not only never get a payment, but they lose on these other levels as well:
Prepayment Penalty- These lenders make their money by the borrowers prepaying their loan through refinance or sale, if that doesn't exist, they lose big!
Time and overhead- Do you know how much overhead gets paid out to finance the purchase of a home, that the lender takes on. A lot! They have to pay the underwriter, the Account Exec, the managers, and funders, and many others, all paid per loan to close the loan, and move forward. On a loan to loan basis it gets up there.
Foreclosure Sale- They have to pay to sell the property. We all know that isn't cheap.
Unstable or depreciating market- Are we seeing homes sell in days or months right now? Months for sure. Not to say that houses aren't moving, but they we all can agree that they may sit for a while. Even then, they aren't selling for astronomical numbers that we have seen. In a 150 day time period, you would be lucky to see appreciation, and more likely to see depreciation in certain markets.
So how do lenders hedge against these risks? There are a few ways. They raise rates to much higher levels. They require more documentation of assets. They raise credit scores to higher requirements. What is being seen more than all of these is they just stopping offering 100% financing, if you can't prove your income, all together. This seems to be a common trend.
I think it all makes sense. If you don't have the assets, or don't have a sufficient credit score, you shouldn't be buying a home. PERIOD! If you can't qualify now, you should be required to prove that you have the discipline and know-how to get to that point. If that effort isn't there, the effort won't be there when paying the bill.
Tags: purchase, Jonathan Vetter, Mortgage, Home Loan, Rates, San Francisco, First Time Homebuyer, Neg-Am, Interest Only, Investment, Prime, Index, Refinance, Appraisal, Quotes, Fees, Peninsula, Portrero Hill, Quick, Lender, California, webmortgagetv, Option ARM
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What makes me tick?

What makes me tick?
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January 23, 2007 at 12:00:55 PM
I get asked all of the time why the mortgage business, and more generally why real estate? I think that my main motivation in the business is definitely helping people. My goal as a mortgage broker is to do the right thing. I fight daily to get rid of the stigma about corrupt mortgage brokers, and provide the advice and service that homeowners and people who want to be homeowners deserve. I work for everyday people, and will give people the support they need to make their goals come to reality. If I don't believe someone, for instance a first time homebuyer, should buy a home, I will let them know that, and work with them to get to the point that they can make something possible in the future. I am not in this business to put people in a worse position than they are, lending has to make sense. I want to make sense for regular people.

To learn more about me, call me at 650-465-5846 or visit my website at www.jonathanvettermortgage.com