Archives for August 2009

Back from Vacation

The family just returned our annual summer trek, which must include a long car trip.  This year we checked out Sandpoint, Idaho which is located off of the north end of Lake Pend Orlielle.  We had fantastic weather and I had fun doing goofy photos of where my feet traveled during our trip and posted them on Facebook.  (It doesn't take much to amuse me).


It's good to be back home and Monday will be business as usual…if I have time, I might even post a mini-rate update.  I'm trying to take the remainder of the weekend "off" since our kids all start school this week.

What is your Mortgage Exit Strategy?

I actually wrote this almost 2 years to the day at Rain City Guide.  A recent track-back brought this past article back to my attention.  Since I'm taking a short break from blogging and mortgage this week, I thought I'd share this oldy-but-goodie with you. 

Unless you have a long term fixed rate mortgage, you should develop an exit strategy.   An exit strategy is a well thought plan on how you’re [photopress:airplaneexit.jpg,thumb,alignright]going to leave your current mortgage.  Every time you board an airplane, the Stewardess reviews the “exit strategy”.   They’re not planning on an actual emergency landing, they are simply preparing you for a worse case scenario and informing you where the exits are and what you need to do in that event.  

You should have a plan if your current mortgage is:

Having a plan (being prepared) does not mean waiting until you receive a notice from your mortgage company that your mortgage payment is hiking because your fixed period on your ARM is over.   You need an exit strategy because once fixed period is over and your mortgage adjusts, odds are that your new mortgage payment will not be desirable or affordable.  

You need to start developing your plan well in advance.    Here’s what I recommend:

  1. Find the Note for your mortgage (deed of trust) and determine what your new rate may be using the worse case scenario.   If you have an ARM, you can figure this out by adding the first cap to your interest rate.   For example, if you currently have a 5/1 ARM with a note rate of 5% and the first adjustment rate cap is 5% (5/2/5 is a common cap structure), your new rate could be 10%.   If the first adjustment cap is 2% (2/2/6 is another possibility); your new rate could be 7%.   If your ARM has an interest only feature and will also be converting to amortized payments (some have longer interest only terms beyond the fixed rate period), you’re in for a double whammo if you’re keeping the mortgage.
  2. Determine what your worse case payment may be.  Your new payment will be amortized over the remaining term of the mortgage.   Use an amortization schedule to see what your mortgage balance will be at 60 months (using the 5/1 ARM scenario) and figure your payment based on the maximum possible rate amortized for 300 months.   This new payment does not include taxes and insurance.  In fact, anyone with an adjustable rate mortgage, regardless how long the remaining fixed term is, should contact their LO to determine what their “worse case payment” may be when their mortgage’s fixed period is over.
  3. While you have your Note out, review it to see if you have a prepayment penalty and when the term is over.   It’s possible that you may or may not want to wait for this to expire depending on your personal circumstances.   Even if you have a prepayment penalty, don’t stop preparing your exit strategy.
  4. Visit and review your credit report.  You don’t need to sign up for all the credit bureaus extra stuff.   In fact, I recommend that  you just use one of the bureaus to pull your information for review and select another bureau in 4 months and the last bureau in 8 months so that you are constantly reviewing your credit information.  
  5. If you’re satisfied with the Loan Originator you worked with, contact them and ask them to review this information with you.   Most Mortgage Professionals will provide Annual Reviews for their clients which includes assessing their current mortgage, examining their credit report and reviewing goals (including if you’re planning on retaining your current home and/or mortgage).

Of course selling your home is another way to exit your mortgage.   In this case, I recommend that you price your home correctly.   I’m noticing more “new price” signs on listings in my neighborhood of West Seattle (I guess “new price” sounds more fresh than the old “price reduced” signs).   If you wait too long to work on your exit strategy, you may have to sell if you’re not able to refinance due to not being in the posititon to qualify for a new mortgage (this is why I strongly recommend meeting with your Mortgage Professional ASAP).

You cannot start too soon in preparing your exit plan.   The more time you allow yourself (at least 12-24 months in advance of a rate change), the more improvements you can make to your credit scores, assets, employment and home equity.   Avoid a rough landing and meet with your Mortgage Professional to work on your strategy to be in the best possible position when it’s time for you to exit your mortgage.

Mortgage Disclosure Improvement Act: New Waiting Periods on Mortgage Transactions

I'm taking a break this week from blogging and work.  I'll be back to the mortgage grindstone on Monday, August 24, 2009 like a bright and shiny new penny.   While I'm taking some time off, I thought I'd repost some of my articles.   You can read this original post at Rain City Guide.

In an early post, Ardell wrote about the significance of a buyer being able to close quickly…new regulations may put a damper on that.   With mortgage applications taken after July 30, 2009, waiting periods will go into effect with regards to when and how disclosure forms are provided to the consumer.   The Mortgage Disclosure Improvement Act (MDIA), which modifies the Truth in Lending Act (TILA), was originally going to become effective on October 1, 2009, however the effective date was moved up two months which may catch some real estate professionals by surprise.

Here are some of the details:

Good Faith Estimate and Truth in Lending Disclosures….required waiting periods.

Under MDIA, early disclosures are required for "any extension of credit secured by the dwelling of the consumer."    Three business days from application, the consumer must receive an initial Good Faith Estimate and Truth in Lending (unless the borrower is denied at application).   

The earliest a transaction can possibly close is seven days after the initial disclosures have been issued by the lender (delivered in person, mailed, emailed, etc.).    This is assuming no re-disclosure is required.

Re-disclosure (waiting periods after the early disclosure and corrected disclosures) of the GFE/TIL are triggered if the fees and charges are more than 10%; if the APR is more than 0.125% or a change in loan terms.   Three business days must pass in the event of re-disclosure.   Re-disclosing is nothing new, it typically happened at closing–this will no longer be acceptable.    Mortgage originators "should compare the APR at consummation with the APR in the most recently provided corrected disclosures (not the first set of disclosures provided) to determine whether the creditor must provide another set of corrected disclosures".   Double check those APRs prior to doc!


"The Commentary added by the MDIA Rule expressly provides that both the seven-business-day and three-business-day waiting periods must expire for consummation to occur.  The seven-business-day waiting  period begins when the early disclosures are delivered to the consumer or placed in the mail, and not when the consumer receives the disclosures.  The three-business-day waiting periods begin when the consumer actually receives or is deemed to receive the corrected disclosures.  If corrected disclosures are mailed, the consumer is deemed to receive the disclosures three business days after mailing.  If a creditor delivers corrected disclosures via email or by a courier other than the postal service, the creditor may rely on either proof of actual receipt or the mailing rule for purposes of determining when the three-business-day waiting period begins to run."

Consumers have the right to waive or shorten the MDIA if "a consumer determines that an extension of credit is needed to meet a bona fide perosnal financial emergency".  

No monies may be collected from the borrower with exception to a "bona fide and reasonable" credit report fee until they receive the initial disclosures.   This may cause a delay of when an appraisal is ordered.  Most lenders require an upfront deposit to cover the cost of the appraisal.    The collection of fees rule may also cause potential issues if a borrower is doing a certain type of lock (some with float down or extended lock periods require an upfront deposit).   NOTE:  HVCC requires the borrower receive a copy of the appraisal at least three days prior to closing.

Tim Kane can attest that there is nothing worse than a borrower learning at signing their final loan papers that the fees are significantly higher than what was originally disclosed.  I'd like to think that all mortgage originators redisclosed WHEN modifications to the transaction/fees take place…obviously, this has not been the case.  

DFI covers MDIA here

Re-disclosures could become a "holy hand grenade" to quick closings.

How Do I Plant my Keikis?

A while back I shared a photo of my baby orchid, called a keiki.  This plant (which is my only still living orchid from the plants I started with) has produced three keikis. They're in bloom but I'm sure I need to separate and plant them.  Are any of my readers orchid experts? 


September’s Recording Office Closings for King, Pierce and Snohomish Counities

Be sure to mark your calendars and plan your closings around these dates next month:

September 3, 2009 – Snohomish County closing early at 3:30 p.m.

September 4, 2009 – King, Pierce and Snohomish County closed due to the furlogh.  Mortgage Master will be closing at 3:00 pm for the holiday weekend. 

September 7, 2009 – Labor Day Holiday:  King, Pierce and Snohomish County closed.  Mortgage Master is closed too!

Don't forget that  Snohomish and Kitsap Counties are closing early on Fridays and to hug your Escrow Officers and Funders. 

Fed Funds are Unchanged

To the average American home owner with a home equity line of credit, the Fed leaving the Funds Rate at a target range of 0-0.25% means that they can enjoy their low rate on their HELOC for the time being.  Once they begin to adjust the Funds Rate upward, HELOCs which are most often attached to the Prime Rate, will rise as well.

Today's Press Release from the FOMC states:

"Conditions in financial markets improved further in recent weeks.  Household spending has continued to show signs of stabilization but remains constrained  by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit…."

The Fed reiterated their commitment to "employ all available tools to promote economic recovery" and to the purchase of mortgage backed securities and treasury securities:

"…to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October…."

I take this last line to mean that we are not going to see the 4.5% conforming rates that were manipulated earlier this year to the artificial lows.  It would take other forces outside the Fed to see rates dip that low again.  Only time will tell.

From the Junk Mail Bag

Seems like junk mail from random mortgage companies are on the rise again.   I recently had a client who I helped with a home purchase utilizing an FHA mortgage send me a piece of junk mail that he had received from a company (NOT Mortgage Master) that bothered him beyond the typical "deluge of refi offers from firms who's marketing strategy is to look up public records for a targeted mailing".

Some mortgage originators will buy list of home owners who have a specific type of mortgage, such as FHA, where they can offer a streamline refinance thinking if they use your originating mortgage companies name enough times, they just might fool someone into calling them. 

This piece of mail junk has many red flags that home owners should be aware of.

Letter 007

There is no return address on the mailer anywhere.  You have no idea who you will be calling or if they are even approved to do business in Washington State.  I would never contact a mortgage solicitor if you have no way of researching them first.

They are also miss-using HUD's logo in the upper right corner as if it is there own.  This is a big time no-no that I'm sure HUD would be interested to see.

There is no APR to go along with the rate and the small print on this doozie must be too small for my old eyes.

It is true that FHA streamline refinances do not require an appraisal (therefore you are not proving equity) and assets are not verified either.  However the scenario still needs to qualify and HUD frowns about this type of marketing.

The eligibility for a streamline FHA refinance DOES NOT EXPIRE.  This is a weak attempt to try to create a "call to action" to the home owner.  HUD or lenders couldchange guidelines that would have an impact on an FHA streamline refi. 

Oh by the way, IRRL is a term used for VA "streamlined" refinances–not FHA.

What really pushed my clients button was the outside of this mailer garbage.


Another attempt to make this look like it came from Mortgage Master and a nice little threat as a bonus to really make sure you don't disregard their efforts.

I've written about junk mail before many times at Mortgage Porter.  You are welcome to forward this type of crap to the local officials.  They do not want consumers mislead or taken advantage of either.  

As a Washington State home owner, or if you're receiving mail from a mortgage company in Washington State, you can forward mail that you feel is misleading to DFI:

Enforcement Unit, Division of Consumer Service

DFI, P.O. Box 41200, Olympia, WA 98504

A letter like this should also be forwarded to HUD.

I strongly recommend not selecting your mortgage professional by what randomly lands in your mail box.  

Are You Doing an FHA 203k Rehab Mortgage Right Now?

If so, you may want to check with your mortgage professional to make sure they are still able to deliver this product.  Yesterday, HUD suspended a major lender, TBW, from doing FHA mortgages leaving thousands of mortgage brokers and their clients in a lurch.   If you're working with a mortgage broker with a standard FHA mortgage that was being brokered to Taylor, Bean, Whitaker, your mortgage originator should be able to find a new source for the financing.  However, it's my understanding that for mortgage brokers, TBW was one of the few lenders offering FHA 203k's to mortgage brokers and their loyal clients.

203k mortgages have been gaining in popularity, especially the Streamlined FHA 203k, as they allow home buyers to make repairs to homes with one mortgage at a rate lower than what you would typically find with a construction loan.  With the amount of homes that have been neglected due to the economy, 203k's have been a good match.

I feel badly for mortgage brokers being thrown yet another curve ball.  If you are in the process of getting a 203k with a mortgage broker, hopefully everything is fine but I recommend that you contact your mortgage originator to make sure. 

NOTE:  TBW is not Mortgage Master Service Corporation's source for FHA 203k (or any) mortgages.

UPDATE August 12, 2009:  It's my understanding that Bank of America may be taking over TBW's servicing of FHA mortgage loans.