Archives for March 2007

My Surprise Party

March 25, 2007 by Leave a Comment

They did it…my family and friends SURPRISED me on my birthday!  Not only did they throw a wonderful party…JP Patches, my childhood hero, was there.

I decided to take Friday off from work and blogging.  All I wanted to do (to my husband’s dismay) was stay at home and work in the garden.  Last Friday, it was beautiful out!  My sister in law tricked me into a pedicure at Southcenter and forced me to have a margarita and an appetizer with her at Bahama Breeze (hey, how come I’m not sensing any sympathy from my readers?).   I just wanted to get home and watch the sunset–relax!  Plus, my husband and son were going to treat me to a nice dinner.  NOT!!! 

I should also mention…I believe in my quarterly newsletter, I printed that JP was not doing public appearances any more.  This is not true. This was a story my husband had told me when we went to Fremont to see the unveiling of JP and Gertrude’s statue to trick me since he knew I’ve always wanted a JP Patches birthday party.   Please do hire JP and be sure to buy a Patches Paver to help fund his statue and support Children’s Hospital.

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This was such a treat. Cheers to JP, my husband, family and friends.  Thank so much for making this a birthday I’ll never forget and will always cherish.    Filed Under: Just for Fun

My Encounter with The Seattle Bubble Blog

March 24, 2007 by Leave a Comment

Mpj040113000001 My husband teases at me when I talk about the Bubble Bloggers…not because they’re funny (they can be), it’s simply the phonetics.   Our local bubble bloggers are a very serious and determined group of individuals.  In a nut shell, they believe that Seattle’s home values will plummet or burst like a popped bubble and when this happens, it will reek havoc for current home owners.   Many of them feel it is much better to rent than to own a home for financial purposes.     The Seattle Bubble is probably the most well known local blogs on this topic.   

Recently, an article I posted on Rain City Guide, The Great Rent vs. Own Debate, was featured (or should I say, "flogged") on the Seattle Bubble and Priced Out Forever (these blogs share writers).    Eleua, one of the "bubble bloggers" asked me if they could do this and I must tell you, I was a bit nervous about how this would all shake down.  For starters, where ever there are numbers and stats, there is opportunity for debate.  Numbers can be twisted and recalculated to prove anyone’s theory.   I must say they were very fair and kind in their "flogging" of my post.

Here are some points they make on why it’s better to rent than to own a home (I’m not going to debate these points in this post):

  • Renters are not responsible for repairing or maintenance of the building.   (I do spend many weekends at Home Depot with my husband to work on our house…and I love it).
  • Freedom to pick up and move when your lease is up without the cost of selling a home (approx. 8-10% of the sales price including commissions, 1.78% excise tax for King County and closing costs).
  • You can invest the funds you would use for down payment and earn interest on it (your home equity does not earn interest).
  • You may be able to rent a nicer home than what you can afford to buy for the same payment.
  • The standard tax deduction may be better than the deductions you’re allowed as a home owner itemizing your mortgage interest and taxes.  (As always, check with your CPA regarding any tax matters).
  • And of course, home values are going to tank once the Seattle bubble bursts.

I wrote The Great Rent vs. Own Debate over an exchange of comments on one of Rain City Guide’s post where I stated something along the lines of "owning a home is an automatic savings plan for some borrowers".    I still believe this to be true based on what I’ve seen in my past seven years as a Mortgage Consultant.   

Many people are not putting away money into savings accounts, retirement, planning for college…you name it.   When you make a mortgage payment (assuming it’s not interest only), you are applying a small portion of that mortgage payment towards reducing the principle balance.   For Americans who do not put 10% of their gross income (or anything) into an investment vehicle (no…not a new car!), this is their only source of savings.   They are at least putting some money away where they do not have immediate access to it (unless they treat their home equity like an ATM).   

I will be the first to admit that a big reason why I have bought homes is emotional.  I have "a need" to own a home.  I grew up renting and moving around quite a bit as a kid. I feel grounded and I have control over the home…it’s mine!   With that said, owning a home has proven to be the best investment for me.  I would not have realized the appreciation and profits from renting that I have as a home owner over the past 18 years.   

Home ownership is not for everyone.   Especially people who are careless with their credit and spending.   You need to be responsible, plan for repairs and improvements and make your mortgage payments on time.  Buy a home because you want to live in it and you want to be your own "home sweet home".

Filed Under: Financial Planning, Mortgage, Residential Purchase, Seattle, Weblogs

T.G.I.F!

March 23, 2007 by Leave a Comment

Happy Friday… need a hug?

After too much subprime news… I thought I try to spread some happiness in the bloggo-sphere.   I first saw this video thanks to fellow CMPS, Todd Ballenger. 

The Free Hugs Campaign is nothing short of inspirational and a great way to start your weekend!  Feel free to pass this along and share the love with those you care about. 

Peace out.

Filed Under: Just for Fun

Spring in Seattle

March 22, 2007 by Leave a Comment

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Cherry blossoms and rain drops.

Filed Under: Seattle

Part 3: Subprime Mortgages and Band-Aids

March 21, 2007 by 2 Comments

Bandaid1_1 Most of the subprime mortgages I’ve originated have been for families who needed a "band aid" with their finances or credit.    Borrowers in a subprime situation tend to have troubled credit or finances due to either

  1. Circumstance.  Life events that have happened beyond their control.  For example, illness, loss of employment, divorce, etc.
  2. Habit.  Lack of financial discipline or responsibility.   History of the same behavior such as bounced checks, collections, late payments, etc.

The subprime mortgage is not intended to be "long term" financing.  It is temporary (often with a 2 or 3 year fixed payment period) and people with them need to be working on improving their financial situation so that when the prepayment penalty is over and their payment is about to adjust, i.e. that band aid is about to be ripped of their ouchie, the sting is not so bad. 

During the 2-3 commitment period of the subprime mortgage (there is often a prepayment penalty associated with these types of mortgages), I have encouraged my clients to work on improving their credit scores and making changes in how they spend and save money.   

Now is a great time to review your spending habits.  If you’re reading this now, you probably have a personal computer that came all ready equipped with programs like Quicken or Microsoft Money.  Begin by reviewing what you’re currently spending every day and decide where you can make better choices.    Do you absolutely need to have a double tall latte everyday?   Having a $3 coffee drink on your way to the office equals $780 per year!  (I’m only counting weekdays and one drink a day–if you enjoy an afternoon coffee break, the cost is of course, higher).   You should be able to notice spending that is not needed (need is different than want).   Creating and following a budget will greatly help you plan for your financial future.   Cutting back on luxury items, such as lattes or going out to lunch and dinner, will provide you with extra cash to pay down credit cards and other debts.   

Related posts:

Part 2:  Know Your Score

Part 1:  Do You Need to Be Concerned?

Filed Under: Subprime Lending

Don’t Refi Your Second Mortgage…Yet

March 20, 2007 by 4 Comments

Mpj040717200001This is the advice that I just gave one my clients who closed a loan with me in 2005 with (gasp) New Century Mortgage.   She was going through a transition in her life and she is not a "subprime" borrower, but a divorce can create subprime situation. What was her nasty rate that I provided her via New Century?   Here is her scenario:

  • 100% LTV using two mortgages (80/20).
  • 1st Mortgage is a 3 year fixed 5 year interest only with a rate in the mid 5% range with a three year prepayment penalty (not optional to waive).
  • 2nd Mortgage is a 30/15 in the mid 9% range.

Yesterday I sent out an email to my entire database of clients to provide information about the subprime mortgage industry.   Since her mortgage is with New Century, she was naturally concerned and called me.     While talking to her, she told me that she is in the process of refinancing her second mortgage to a 10 year fixed rate mortgage.    She just wants to lower the rate and pay it off–great intentions! 

Here’s the possible problem.   When you refinance two mortgages, if the second mortgage is not a "purchase money second mortgage" (the original mortgages from purchasing  your home) it is then priced as a "cash out refinance" even if at that transaction, no cash is received by the borrower.   This can really impact pricing on the first mortgage when it’s time to refinance.   

"Loan to value " is just one of the factors in pricing a rate for a mortgage.   With a cash out refinance, if your loan to value (new loan amount/value of home) is:

  • 70-80% LTV may equal 0.50% to fee (or approx. 0.125 – 0.250% to rate)
  • 80-90% LTV may equal 0.75% to fee (or approx.  0.325 – 0.625% to rate)

Here’s my advise for this client:

Her prepayment penalty will be over next summer and since she does want to stay in her home, I advised not refinance the second mortgage.    The refinance proposal from the credit union does provide a better interest rate and would shorten the term of her second mortgage to a 10 year over a 30 year amortized with a 15 year balloon, and it would increase her mortgage payment over $100 per month.  I suggested that she keep the current second mortgage and apply the $100 extra she’s willing to pay towards the principle of her existing second mortgage.   

Then, next year when her prepayment penalty is over, refinance both mortgages at that time and receive the best rate possible (non-cash out) for her new mortgage.  And reduces her closing costs to one mortgage next year instead of closing a refi for the second mortgage this year and again for refinancing the two mortgages next year.

Alas…something good to come out of contacting my clients about the current subprime scenario!

Filed Under: Adjustable Rate Mortgage (ARM), Debt Restructuring, Refinance, Subprime Lending

A Real Estate Agent’s Guide for Subprime Buyers

March 19, 2007 by 2 Comments

Mpj040923700001Unless you’ve just been rescued from a deserted island, you have heard the news about what’s going on in the subprime mortgage industry.   It’s not a pretty site and in fact, it’s getting dicier every day with Alt-A lending (not quite subprime lending…it’s more of the stated income and 80/20 types of loans) tightening up, many people you helped find homes for during the past couple years no longer qualify for a mortgage.   

For example, on the afternoon of Friday, March 9th, I received a quote for a client with a mid score of 750 who needed an 80/20 mortgage stated income.   I was planning on brokering to Greenpoint Mortgage.   That very evening, I received an email stating that Greenpoint Mortgage is no longer doing ANY 80/20 mortgages.   Greenpoint Mortgage is NOT a subprime lender.   They are more along the lines of "alt-a" (not quite "conforming").  I had to contact the gentleman I had sent an email to hours earlier to tell him that I no longer had a mortgage program for him. 

There are worse stories surfacing as well.   When New Century Mortgage, one of the nations largest subprime lenders and a poster-child for the subprime mess, could no longer do fundings, many potential home buyers were at the funding stage of their mortgage…with no funds and no mortgage.    Yes, it’s possible if you have a subprime buyer, you may get all the way to closing only to have the lender not able to fund the mortgage.   

What should you do?

1.  Ask your potential home buyer if they have a subprime/alt-a mortgage.   Some signs might include:

  • 80/20 Financing (what does the preapproval letter say about loan-to-value?)
  • Stated income
  • Prepayment penalty (you can determine this on the Federal Truth In Lending, your buyer may not know)

2)  Ask the Loan Originator if the lender they are working with is subprime or alternative.   Even traditional "a paper" lenders, such as Countrywide and Wells Fargo, have subprime divisions.   

So what if your buyer is subprime or using alternative (alt-a) type financing?

  • You may want to consider closing quickly.   Many programs are disappearing quickly (such as 80/20s and stated income).   Credit score requirements are being raised and underwriting guidelines are toughening up for these types of loans.   Some lenders may honor programs if the loans are locked…some may not have any choice.
  • You might have the buyer provide a reduced earnest money.  In the event of a worse case scenario, in case they lose the funds if their financing contingency is waived.

How about your clients who have closed using subprime 80/20 mortgages?  This could be an excellent time to reach out to them.   They may be hearing all of the bad press on the news and could be rightfully concerned.   

If your subprime clients have not worked on improving their credit since they obtained their mortgage 2-3 years ago, they could be in for a world of hurt when their mortgage is getting ready to adjust.   I strongly encourage you to have them contact their mortgage professional asap to have their credit reviewed to see if they should (1) refi now; (2) work on their credit and wait until their prepayment penalty is up; (3) do nothing…prepare to sale.

Filed Under: Real Estate Agents, Subprime Lending

It’s My Birthday!

March 16, 2007 by 1 Comment

Da1_1It really is my birthday today.  And so… I am taking the day off… off of work and off far far away from the blogs.

I’m going to have my cake and eat it too!

And yes, that’s me!  At the old (um…maybe I shouldn’t say "old") Lake Washington Park in beautiful Renton, Washington (my home town).   

The building in the background is no longer there…once Boeing.   Now I believe there are some nice condo’s in it’s place.   

It looks like I’m trying to calculate an APR in my head!  Future Mortgage Planner.  I’m not sure how young I am in this photo… but I will count this as a "Happy Friday" post.

Cheers, Friends!

Filed Under: Just for Fun
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