Archives for June 2009

Do ARMs Give You Goose Bumps?

Adjustable rate mortgages are becoming attractive once again for those who do notMortgageportergoosebumps plan on retaining their mortgage beyond the fixed period or who can stomach the unknown of what exactly their rate may be once the fixed period is over.

Today I quoted the following rates for a home buyer in Seattle with a 740+ mid-credit score who is buying a home with just over 20% down payment to have a loan amount at $417,000. 

30 Year Fixed:  5.125% with 1 point (APR 5.281%) Principal and interest payment of $2,270.51.

10/1 ARM:  4.625% with 1 point (APR 5.883%).  Principal and interest payment of $2,143.96. 

5/1 ARM: 4.125% with 1 point (APR 6.480%) Principal and interest payment of $2,020.99.

Let me begin by saying there is nothing wrong with a 30 year fixed rate in the low 5s.  In fact, historically speaking, it's a great rate.   What I'm most excited about is the return of the 10/1 ARM.   The 10/1 ARM offers a long term at a lower rate.  Based on this scenario, the monthly savings is $122.97.  Over a five year term, if you put that savings into a mattress; this is a savings of $7,378.20.  Use this amount to pay off non-tax preferred debt or to apply towards reducing the principal balance and it's even more beneficial.

Do factor how long you're planning on staying in your home and/or retaining the mortgage.  Remember that "life happens" and should you opt for a shorter period ARM, such as the 5/1 ARM, with intentions of moving–you may find yourself dealing with an adjustment that you were not planning on.   It's all about knowing what your options are, understanding your choices and the terms of the mortgage and making an informed decision.


A Few Adjustments to Mortgage Porter: Do Not Adjust Your Screen

I've recently made a few tweaks to Mortgage Porter…hopefully one's that will be beneficial!   The most significant change is that Mortgage Master has changed the provider of our secure on-line loan application around mid-June.  If you began a loan application prior to mid-June 2009, you may need to re-do it here (please contact me first).  Note: I am only licensed to lend on homes located in Washington State.

A few of my smaller adjustments include swapping my profile photo to an introductory video (in the upper right corner) and moving up my Facebook Fan Page–if you haven't signed up as a "fan", please do!  I've also redirected my url of www.rhondaporter.comto my Facebook page (this is different than my profile).  You can still assess my blog, The Mortgage Porter, by

I've been trying to "clean up" the look of my blog, so many links have been moved to back pages–you can assess them by the links along the top of Mortgage Porter.


Last, on my "about me" page (link found under the video in the upper right corner) there is a list of places you can find me in the "social media" world that I have recently updated.  Let's connect!

Do you have any suggestions about Mortgage Porter, or if you notice anything wonky, please let me know.

HVCC issues impacting transactions in Western Washington

Aubrey Cohen of the Seattle PI wrote an article interviewing several mortgage professionals about HVCC and how it's impacting local real estate transactions, including me.  From the article:

But even Porter had one transaction held up for more than two weeks because of a [a bank's] appraisal management company review, jeopardizing the transaction's interest-rate lock.

"It's creating havoc for people who are trying to sell their homes and not allowing some homeowners to refinance at lower rates (possibly preventing a future foreclosure)," Porter wrote in an e-mail.

Mortgage Master is a Correspondent Lender and HVCC allows correspondent lenders to create their own appraisal department as long as it meets HVCC's criteria.  I, as a mortgage originator, cannot have any say in selecting who the appraiser will be and I do not know who the appraiser will be on my transactions until I receive the appraisal.  Appraisals are ordered by a separate department that is removed from origination or production. 

What happened in the situation referenced above had to do with an appraisal that was ordered prior to HVCC's effective date.  The bank the mortgage is being sold to required a field review by their AMC (even though the home came in at a slightly higher value than what we needed for the transaction).   The AMC's value actually came in slightly higher than what our appraisal did–costing my client $250 in field review fees, delaying the transaction by a couple weeks and creating anxiety over a lock potentially expiring.

HVCC is hampering home values.  Everyone should care about this issue and contact their representatives in Congress today…especially if you're considering buying, selling or refinancing your home.  If home's in your neighborhood are appraising and selling for less due to bad appraisals, it impacts your home's appraised value–your neighbor's homes may become the sales comparables that your appraiser will have to rely on to arrive at a value of your home. 

July’s Furlough Dates and Recording Office Closures for King, Pierce, Snohomish and Kitsap Counties

If you have transactions scheduled for closings in these counties on the dates below, please contact your real estate professional. 

July 1, 2009 – Snohomish County closes early at 3:30 pm. [updated 6/30/2009]

July 2, 2009 ~ Snohomish County's Recorder's Office is closed.

July 3, 2009 ~ King, Pierce and Snohomish Counties recorder's office will be closed in observance of Independence Day.

July 6, 2009 ~ King County's Recorder's Office will be closed.

Closing in the first week of July are really going to be pinched on time in Snohomish and King Counties due to the combined furlough and holiday closure.

This means you need to be extra sweet to your funders and escrow officers before and after a furlough day…missing that extra day to record a transaction is enough to cause a few furrowed brows!

Don't forget, Kitsap County's Recorder's office is closed every Friday for the remainder of the year!

Happy Father’s Day


Me with my Dad.  Check out the encyclopedias tucked away in the corner.

Before You Negotiate the Patio Furniture into your Purchase and Sale Agreement

You find the home you've been waiting to write an offer on and the Seller has patio furniture (or a bbq,Patiofurnmtgporter riding lawnmower, furniture, etc.) that you'd like to make part of deal.  Perhaps the Seller's offering to leave you these items because it's convenient for them as well.  You and the seller include the items as part of your real estate purchase and sale agreement.  The agent is keen to include on the addendum that these items "have no value"…which may be true or it may be just to try to avoid having to deal with having a sales concession.

A sales concession is something that is not part of the real estate, such as cash, furniture, automobiles, decorator allowances, moving costs, or other "giveaways".  The value of the sales concession must be deducted from the sales price when calculating loan to values. 

For example, if you have a sales price of $200,000 and patio furniture valued at $3,000; the sales price the lender will use is $197,000 (200,000 – 3000).   Let's assume you're putting 10% down payment.   Without the sales concession, 10% down would be $20,000.   With the sales concession, 10% down is going to be a bit more:

The loan amount would be based on 90% of the adjusted sales price of $197,000: $177,300.  However the sales price, per the purchase and sales agreement is $200,000.  So the down payment would be $22,700: $200,000 less the loan amount $177,300.

The underwriter may (or may not) call for the concession item to be appraised or other supporting documentation to determine what the value is (or isn't)–even if the purchase and sale agreement states there is no value and the item was just left for convenience.  

It may sound silly or nit-picky to you…but would you buy the home at $200,000 without the concession?  The lender does not want the concession to be a part of what's factored into the financing.  If you have a significant down payment, this may not impact you.  Even with a 20% down payment, it could. 

20% down payment of $200,000 equals a loan amount of $160,000.  With a sales concession of $3,000; this can be treated a couple of ways:

  • Sales price is reduced by the concession to $197,000 (in the lenders eyes).  20% down payment based on 197,000 equals a loan amount of $157,600.  $157,600 less the actual contract sales price of $200,000 equals an actual down payment of $42,400 in order to have the mortgage still treated as an 80% loan to value with no private mortgage insurance or…
  • Sales price is still reduced to $197,000 and the loan amount remains $160,000.  Now the lender will treat this as mortgage with a loan to value of 81% which means: private mortgage insurance…even though the borrower is putting $40,000 down (20% of $200,000).

So you may want to think twice before you include items that are not real property in your purchase and sale agreement…unless you're putting a significant amount of funds towards your down payment or the items are truly worthless and you can prove it to the underwriter.

HVCC: Why Should YOU Care?

You may or may not have heard about HVCC.  You'll have the opportunity to learn about it first hand if you obtain a conventional mortgage.  In a nutshell, mortgage originators and processors (anyone considered to be in "production") are no longer allowed to order appraisals or know who the appraiser willbe until AFTER they receive the appraisal.  HVCC just went into effect in May, I wrote a post about my experience at Rain City Guide where a Real Estate Agent asked me:

If I understand you correctly:

  1. We don’t know who the appraiser is
  2. We cannot contact the appraiser even if we knew.   [Note:  the real estate agent CAN contact the appraiser if they somehow know who it is…the loan production staff cannot].
  3. We have no idea when the appraisal will be done.

The Home Value Code of Conduct was created as a result of the New York Attorney General investigating Washington Mutual (once a large bank) and eAppraiseit (an appraisal management company) for manipulating appraisers to produce higher values. 

HVCC was suppose to create a professional distance between mortgage originators and appraisers so that an appraiser could perform their task without pressures to produce a higher value.  Appraisals now go through an appraisal management company (which take on average 40% of the appraisal fee from the appraiser) to create this distance and supposedly reduce any conflicts of interest.  However, the code was amended to allow AMCs (appraisal management companies) to be owned by the very banks who are ordering the appraisals. 

From Fannie Mae's HVCC FAQs update on May 9, 2009 (Question 36):

Q. May an AMC Affiliate with, or that owns or is owned in whole or part by the lender or a lender-affiliate, order appraisals?

A: Yes, an AMC affiliated with, or that owns or is owned in whole or part by the lender or a lender affiliate, may order appraisals…

This smacks of the WaMU eAppraiseit scenario all over again!

So big bank owns an AMC where they order all their appraisals through and if a mortgage originator is brokering a loan to that big bank, the appraisal may be ordered through that AMC.  Big bank/title company collects an average of 40% of the appraisal fee from the appraiser just for ordering the appraisal.  If an appraisal cost $500; the AMC keeps $200 just for controlling and placing the order.  The appraiser, who once collected $500 for producing the report now receives $300.  Many appraisers are having to increase appraisal fees in order to make a living since AMCs are stripping them of 40% of their income. 

Instead of being able to select an appraiser by their qualifications, experience or expertise in a certain area; it's a crap-shoot based on which appraisers are participating (agreeing to lower compensation) with the AMCs.  

From CNBC's Diana Olick on the impact of HVCC:

"As many brokers expected, the HVCC is also resulting in some lower appraisals. Since the appraisers now may be unfamiliar with the local market, they will err on the lower side. Of course it may also be that the lack of a relationship with the lender is removing the 'expectation' of a certain appraised value. If the appraisal comes in lower than the sale price, then the deal is off."

HVCC does not allow second appraisals to be ordered due to low appraisal as it's considered "value shopping".  

With a refinance, no value can be provided to the appraiser–I can't even let the appraiser know what the home owner thinks the value of their home may be.  The home owner, if the appraisal comes in low, is out the appraisal fee (typically around $500).  

The National Association of Mortgage Brokers has been trying to battle this code with strong political opposition.  (NOTE to Mortgage Originators: NOW is the time to belong to your local chapter of NAMB if you care about the future of your industry).

The intentions of HVCC to stop the strong-arming of appraisers to create false values are good.  The results are terrible and many of us are trying to have this reversed.  I encourage you to please sign this petition and to contact your representatives in Congress.   

HVCC is going to hurt the consumer and will only help pad the pockets the owners of the Appraisal Management Companies.  

Private Mortgage Insurance Termination

Private mortgage insurance (pmi) is used when a borrower has less than 20% down or home equity in their property.  PMI insures the lender in the event of a borrower defaulting on a mortgage–it does not provide insurance to the home owner.

[Read more…]