Archives for May 2008

Cheap Gas and The Mortgage Porter Quarterly

Hat tip to Larry for sharing this link with me on where to find the cheapest gas by zip code.   I’ve published more tips on how to ease the pain at the gas pump in my latest issue of The Mortgage Porter Quarterly, 2nd Issue 2008 which should be arriving in mail boxes soon. 

This issue features:

  • FHA is Back and Better than Ever
  • Tips for Beating High Gas Prices
  • What’s New with Rhonda (me)
  • Credit Card Crackdown Making Headlines
  • A recipe for Thai Lettuce Wraps
  • Coupon towards Closing Costs

With every issue of The Mortgage Porter, I recommend that readers check their credit utilizing one of the three bureaus via   Since The Mortgage Porter is currently published 3x per year, I rotate the bureau and in this issue, I suggest you check your credit utilizing your annual free Equifax report.

If you’re a Washington State homeowner (present or future) who would like to be added to my mailing list, please contact me with your name and full address.

Lending Integrity Seal of Approval


I recently received permission from NAMB to post the Lending Integrity Seal of Approval which you may have noticed on the left side of my blog.   This logo isn’t something that just anyone can post or promote, it must be approved by the National Association of Mortgage Brokers.

In order to display the Lending Integrity Seal of Approval, a broker or loan originator must:

George Hanzimanolis, President of NAMB feels this seal will "soon become to the mortgage industry what the Good Housekeeping Seal of Approval is to the makers of consumer products."   George, by the way, is a heck of nice guy.  My husband and I had the opportunity to meet and have have dinner with him last week when he was in town with my brother-in-law, John Porter.

For more information, click here.

Do you need great credit and a big down payment to buy a home?

Cindy, one of my clients that I helped finance their first home, emailed me this question:

"I know home loans have changed a lot but is it true that you can’t get a home loan with a credit score under 700 and 20% down?"

Not true.  Although I’m sure it feels that way and I’ve even heard some in the media make similar wrong statements…it’s no wonder you would have this question.

Having a high credit score and significant down payment certainly doesn’t hurt a home buyer.  It is true that many of the mortgages of recent years are no longer available.  And actually a 700 credit score pays more for their interest rate than someone with a 720 credit score now.   Conventional underwriting guidelines continue to tighten during these historic times.

FHA continues to be a very strong option for home buyers and home owners needing to refinance.   Even when FHA begins to implement risk based pricing for mortgage insurance, as reported by Kenneth R. Harney, borrowers can still have 3% down and lower credit scores:

"On 30-year mortgages with down payments of 10% or more, applicants with FICO scores above 680 will qualify for the lowest premiums — 1.25% of the loan amount upfront and annual renewal premium payments of 0.5. Borrowers with down payments of less than 5% and poor credit scores — FICOs ranging from 500 to 559 — will be charged premiums of 2.25% up front and 0.55% annually. All borrowers will continue to receive the same market-based interest rate. Under the current system, borrowers pay uniform 1.5% premiums upfront and 0.5% annually."

One thing to keep in mind is that borrowers do need to have clean credit (no lates) for the past 12 months.  And even if FHA allows a 500 credit score, many lenders have their own underwriting guidelines that may not allow it and they have higher rates for lower credit scores.

To learn more about FHA, please check out my FHA Resource Center or contact me.   Mortgage Master is proud to have our Full Eagle.  We are a direct endorsed HUD lender…what does this mean to you?   We have an FHA underwriter on site at our King County office…we’ve been providing FHA insured mortgages to Pacific Northwest families for over 30 years.   

It’s nice to be appreciated and to be Queen!

Dsc_0046Bobbi and Michael are long time clients of mine.  I’ve helped them and their family members with refinance and purchase transactions over the years.  A couple months ago they wanted to buy a new home contingent and they were not able to sell at this time…they may try again later.   I was pleasantly surprised that they sent me a customized (yep, they designed the gift card to look like me!) Starbucks gift card.   Their handwritten note reads:

Rhonda –

Just wanted to say thank you for all the gfe’s [good faith estimates] and emails as we tried to sell our house!  I wanted you to know that we appreciate all the time and what you do for us!

Mike and Bobbi

Inside the customized card:

Thank you for all your help – you go above and beyond – climbing any mountain necessary!  You are truly the Queen of the Mortgage Industry!

Pretty sweet, huh!   I am really fortunate to work with such nice people who value my efforts and advice.   Mortgage Professionals are not always paid for the hours they’ve put into a transaction and that’s part of the territory.   Recent legislation passed by the State of Washington will allow Loan Originators to charge a consulting fee.   I always appreciate kind thoughts and words from clients…you can’t put a dollar value on that.

Memorial Day

Mortgage Master Service Corporation is closed today in honor of Memorial Day.  We will return to business as usual Tuesday, May 27, 2008. 

Photos from my son during our trip back to DC back in Spring 2002.



This monument is in the Hollywood Cemetery, Richmond, Virginia.

This monument was created by the efforts of the women of the Hollywood Memorial Association. Not content merely to tend the graves of the Confederate dead, the women decided to raise money to erect a monument. A successful two-week bazaar raised over $18,000 in 1867. Charles Dimmock’s design is a dry stone pyramid made of James River granite. It took nearly a year to build and is ninety feet tall. 18,000 Confederate dead are buried around its base.


This photo is from Arlington National Cemetry.

Gimme Five! Comparing Today’s 5 Year ARM to a 30 Year Fixed


There is currently about a 0.75% difference in rate between the conforming 30 year fixed and 5/1 ARM and 0.625% in rate with conforming-jumbo loans.  Is that enough for you to opt for an adjustable rate mortgage?

Beyond the obvious question: "how long do you plan on retaining the mortgage or staying in your home?"   Here are some other stats to consider based on rates I quoted Friday morning using a purchase of $500,000 with a loan amount of $400,000.   The closing costs on both loans are identical.

30 year fixed at 5.75% (APR 5.902%) has a principal and interest payment of $2,334.

5/1 ARM at 5.000% (APR 6.759%) has a principal and interest payment of $2,147.  This is a monthly savings of $187.

The 5/1 ARM is fixed for 60 months and will then the rate is re-calculated.   The 5/1 used in this scenario is a 5/1 LIBOR with a margin of 2.25% and caps of 5/2/5.   For now, lets review your savings over the 60 month period.

The 5/1 ARM will save $11,220 over the 30 year in five years in payment alone. 

30 year fixed at 5 years has paid $28,951 towards principal and has an estimated balance of $371,049.   $111,106 has been paid towards interest (no benefit towards your prinicpal, however it may be a tax benefit).

5/1 ARM at 60 months has paid $32,663 towards principal and has an estimated remaining balance of $367,337.   $96,228 has been paid towards interest.

Over a five year period, the net (interest) savings of the 5/1 ARM over the 30 year fixed assuming you do not make any additional payments towards principal is $14,878.

So what happens if someone decides to select a 5/1 ARM and 60 months later, they’re keeping the home?  They can refinance or not based on what the current market and what their finacial plans are.  The monthly savings over 60 months is plenty to cover the typical cost of a refinance ($2000-$2500) assuming rates are not favorable enough to opt for a "no cost refi".

If you decide to retain the mortgage, you will add the margin of 2.25% to the current 1 Year LIBOR rate when your mortgage is adusting.  (As of today, the 1 Year LIBOR is around 3.067%).   Your mortgage is reamortized based on the remaining term (25 years at the first adjustment).   The caps with this particular ARM are 5/2/5 meaning that the highest your rate can adjust is to a steep 10% and the lowest your rate will be at the first adjustment is 2.25%.   That’s a huge range and whatever your rate will be depends entirely on LIBOR.   Some 5 year ARMS offer caps of 2/2/6 which would limit the first adjustment to 2%–the initial rate is typically slightly higher.   Do learn exactly what your cap, margin and index are before you accept any adjustable rate mortgage.

I suggest considering the following:

What is your risk tolerance?  Will having a mortgage with the potential to adjust in 5 years give you a rash or cause you to lose sleep at night? 

How long do you plan on staying in the home or retaining the mortgage?  If you have a tendancy to refinance when rates improve or if this is a home (such as a starter home) where you may not keep it for 5 years, you may want to consider the ARM. 

Picture your life and where you and your family may be five years from now.   Is your income stable or growing?  Do you have retirement in your sights?

How disiplined are you?  $187 per month could make an impact on paying off non-tax preferred debt, paying down principal or building your savings.  Pay yourself the $187 per month in an interest bearing account at 3% and you’ll have $12,000 more in 60 months in addition to the other savings.

Regardless of what program you select for your mortgage…the choice is yours and it is your responsibility to learn as much as you can about the program–ask questions! 

Do you have an existing mortgage you’re unsure of?  Has your loan originator left the mortgage industry?  I’m happy to help Washington State home owners with their mortgage needs–including reviewing your existing financing, such as ARMS.  My mortgage adoption program does not require any refinancing or new mortgage.

Changes to Conforming Underwriting Guidelines and Why You Should Consider FHA

A big thanks to Anne for asking me this question:

"I just looked at your blog and didn’t see any mention of upcoming guideline changes.  Any idea what’s on the chopping block this weekend at Fannie and Freddie?"

You see, I’ve written about the changes that are happening with the release of Fannie Mae’s new underwriting guidelines that will take place over Memorial Day weekend…but I did so earlier this week over at Rain City Guide and not at Mortgage Porter.   Please do check out Get Approved before Memorial Day Weekend:  More Changes with Fannie Mae.

In a nutshell, Fannie Mae is anticipating more Expanded Approvals due to tighter underwriting guidelines and fewer approvals.   An Expanded Approval comes with various levels and means that a borrower is receiving an "a-minus" or lower loan approval and a higher interest rate.

This segues into another post I wrote at RCG this week:  Sellers and Agents:  Don’t Rule Out FHA Buyers.   With the new conventional guidelines, I’m anticipating that we are going to have even more FHA buyers.   Just because a borrower is using an FHA mortgage to purchase a home, doesn’t mean that they are subprime or less desirable than buyer using conventional financing.   Remember, the FHA loan limit for a single family dwelling in King, Pierce and Snohomish Counties is $567,500–same as the conforming loan limit. 

A buyer may select FHA over conventional because

  • They are putting less than 20% down.
  • Reduced monthly mortgage insurance.
  • They received an Expanded Approval for a conventional loan and would rather have the lower rate offered by FHA over the higher EA rat

Thanks for your question, Anne!  If you have an idea that you would like me to address at Mortgage Porter, drop me a line.

Why Your Loan Originator Needs a Complete Application BEFORE Locking a Rate

A home owner contacted me wanting to know how their rate could change so much from their original lock with his current lender for his refinance.   He thought this was his scenario:

15 Year Fixed Rate at 5.375% (I’m assuming that he was paying a point–I cannot tell from this lenders lock confirmation).  Here are the other factors this rate was based on for a $417,000 loan amount:

  • Rate Term Refinance (no cash out, he’s actually bringing cash to closing in order to bring his loan amount down to the conforming level).
  • 700 Mid Scores
  • 62% Loan to Value

The LO locked in the rate based on this information about two weeks ago and just provided a "lock confirmation".  It’s actually a lock request with the lender she’s brokering the loan to.   Two weeks later, the borrower finds out that his loan is being priced based on the following:

15 Year Fixed Rate at 5.75% or 15 Year Fixed Rate at 5.375% plus 1.50 additional points.  Why the change?  After 2 weeks, the LO lets the borrower know that the loan is repriced due to:

  • Cash Out Refinance = 0.75% Hit to Fee.  He has a second mortgage that is being paid off with the refinance that was not from when he purchased his home. Fannie/Freddie classify this (paying off a non-purchase money second) as a "cash out" refinance, even though he’s bringing cash to closing.
  • 627 Mid Credit Score with a 70% loan to value = 0.75% Hit to Fee.  This came to a surprise to the borrower who actually thought his scores were much higher.  With Fannie/Freddie’s credit score (risked based) pricing, this is another whammo to the borrower.

Cash out and the borrowers credit scores should have been known to the Loan Originator if not prior to locking the loan, then mere moments afterward.  The LO should have immediately notified their client of the differences between the information used to lock the mortgage and reality.

Loan to value can be tricky for a LO to know with certainty…especially these days.  We often have to rely on our clients to give us an honest estimate of what they feel their home is worth based on what other homes like theirs have sold for in their neighborhood.   Until we have the appraisal, we do not know how the home will be valued.    

I’m sharing this story because there are valuable lessons here for us to learn from.


  1. If you’re serious about locking in a mortgage rate, complete a loan application for your Mortgage Professional and allow them to run your credit.
  2. Obtain a written Lock Confirmation within 48 hours of locking in your rate.
  3. If you smell something fishy…it’s probably shark.

Loan Originators:

  1. If you have bad news (lower credit score, repriced lock, low appraisal, etc.) deliver it right away.  Don’t wait…it’s not going to go away.  Let your client know in full detail what you’re having to deal with and what steps you’re going to take to remedy with.
  2. Whenever the terms or cost of the proposed mortgage change, contact your client and provide them with an updated Good Faith Estimate. 

Currently, this borrower feels the LO gambled his mortgage interest rate.  After reviewing the documentation I’ve been provided, I think it’s more likely that she was just really a really poor communicator.   Perhaps she was hoping rates would improve enough to absorb the significant 1.5% hit to fee…I can really only guess.

This is far more than a getting a "rate quote" and saying, "that sounds good, lock it".  When you’re locking in your interest rate, you are commiting to the Loan Originator and the Loan Originator is making a commitment to the lender that the loan will be funded.  Your lock is only as good as the information used when it was submitted to the lender.