Refinance - The Mortgage Porter

Picking your next mortgage by rate shopping? You might as well be playing Liar’s Poker.

October 23, 2007 by Rhonda Porter 8 Comments

Rate shopping to select who will be assisting you with your next mortgage is similar to playing “liars poker”. The Loan Originator who is the most successful at bluffing wins. The fact is, unless you’re locking in the rate at the moment you’re shopping, you don’t have that rate. It’s a rate quote–that’s all. Mortgage rates change throughout the day. They are based on mortgage backed securities: bonds. Some lenders I work with offer “live pricing” and others issue rate sheets; sometimes we can have several rate sheets offered by a lender during one day.

I’m happy to adopt your ARM…no refi required!

September 24, 2007 by Rhonda Porter Leave a Comment

One of the Realtors I work with sent a Seller to me since they were having second thoughts about the lender they were working with for the property they were buying in Arizona. I reviewed their estimate and discovered their proposed loan had a prepayment penalty that they were not aware of. Long story short, they decided not to buy (not just because of the lender…I believe their house did not sell in time and they were "bumped"). I’ve told their story in a previous post.

They recently contacted me wanting to know if they should refinance. They have 5 years left on their 7 year ARM which is currently at 5.5%. Since their mortgage is not set to adjust until the summer of 2012 and they still hope to move from their current residence, I recommended that they do not refinance at this time. Even though I’m not her original loan originator, she asked me if I would mind watching her rate and keeping tabs on her ARM. Managing mortgages is part of my standard business practice for my clients. I added her information to my database and told her I will gladly add her to the mortgages that I care for…even though I did not originate her current mortgage.

It got me thinking… if you or someone you know have an adjustable rate (or actually mortgage) and you don’t have a Mortgage Professional who is helping you manage that debt (watching current mortgage interest rates and trends, keeping tabs on when your mortgage payment may adjust), and you’re in the beautiful Washington state, I’m glad to include include your existing mortgage to my database. No refinance required. If you’re satisfied with your Loan Originator, then ask them to manage your mortgage for you. I’m sure they’ll be happy to do so (again, no refinance is required).

Now if I could only figure out a way to be paid for all the times I’ve talked people OUT of refinancing! Seriously, if you have an adjustable rate mortgage, please contact a Mortgage Professional to review the terms.

Filed Under: Mortgage Programs, Financial Planning, Mortgage, Refinance

Question from a reader: Are the 30 year fixed interest only fixed for the full 30 years?

September 5, 2007 by Rhonda Porter Leave a Comment

The answer is yes, the rate is fixed…BUT… The rate is fixed for 30 years however depending on if you select the 10 year or 15 year interest only period, once the interest only period is over, the mortgage will be amortized at the same rate for the remainder of the term.

For example, let’s assume your mortgage balance is $350,000 and the rate for the 30 year fixed with interest only payment is 6.50%.

The interest only payment is: $1895.83

If you have the 10 year interest only product (usually a slightly better rate), the payment will adjust to a fully amortized mortgage based on the remaining 20 year term. The new payment would be: $2609.51

If you opt for the 15 year interest only product, the fully amortized mortgage based on the remaining 15 year term be: $3048.88

Both of the above scenario’s are assuming that there are no additional payments made towards the principal during the interest only period. NOTE: borrowers may need to qualify at the fully amortized payment (not the interest only payment).

Here is the email from the reader:

"Currently, we have a subprime loan with a 2-year penalty which expires March 2008. We were told that it is a 40 year fixed at 8.83% and if we refinanced prior to the 2-year penalty expiration date, there will be a 6-months of interest penalty. However, we recently reviewed our loan documents and with a better understanding called the lender. The lender confirmed that we have a subprime loan and the rate will be adjustable after the two years.

We are considering the 30-year fixed, 10 year interest only, but want to be sure that the rate is definitely fixed for the full 30 years. We are in our mid-40s and have no intentions of selling our home, and consider this home to be our retirement home. From your financial expertise, do you think this is a good option for us?"

It’s difficult to provide advice for someone when you don’t have their entire financial picture. This couple does not live in Washington State (where I’m licensed to practice).

Here are factors that I would consider if I were their Mortgage Professional:

How much funds do they have currently reserved for their retirement? (With their current loan being subprime, I’m assuming they are underfunded. Most Americans are).
What do they anticipate their retirement income to be in 20 years?
How is the appreciation/depreciation in their current region and with their home?
In 20 years, when they retire and their income is different, can they afford the 20 or 15 year amortized payment?
Are they needing the interest only payment to make current ends meet?
What are their financial goals for retirement? To have no mortgage? To be debt free? To hang onto their house with the mortgage as a tax favored debt?

I would caution against doing "band aid" loans that will need refinancing when you’re at retirement or close to then. Depending on what you anticipate your income to be, should you need to refinance out of a 15 or 20 year term mortgage because your income is less, you may not be able to qualify. You may want to consider a traditional 30 year fixed or a Fannie Mae or Freddie Mac 40 year fixed rate (without the balloon or adjustment that you have with your current mortgage).

Here are the rates I quoted last Friday (just to give you an idea of how these rates may vary from product to product):

30 Year Fixed: 6.125% (APR 6.281%). Payment per $1000 = $6.08.

30 Year Fixed with 10 Year Interest Only: 6.500% (APR 6.653%). Payment per $1000 = $5.42.

40 Year Fixed: 6.500% (APR 6.646%). Payment per $1000 = $5.85.

I give them huge kudo’s for reviewing their loan documents and contacting their lender and for getting second opinions. Their Mortgage Professional should review all possible mortgage options with this couple and make sure they understand the terms and any consequences.

Filed Under: Financial Planning, Mortgage, Refinance

Concerned questions from a home owner regarding the “credit crisis”

August 12, 2007 by Rhonda Porter Leave a Comment

The other day, one of my past clients asked me:

“I was wondering if there are issues that could arise if this credit crisis continues in a downward spiral? The market hasn’t been doing well in the past week with concerns about the “credit crisis”.

Is there any reason for concern that we could have our home loan called in early if our mortgage company gets into trouble? Are there other issues that we should be thinking about if this causes a ripple affect to other areas of the economy?”

Don’t let your ARM smack you (or your friends)

August 4, 2007 by Rhonda Porter 2 Comments

If you currently have an adjustable rate or balloon mortgage that is scheduled to adjust within the next 12 months, I strongly encourage you to contact a Mortgage Professional as soon as possible. Especially if you are considering keeping your home beyond the adjustment date.

Don’t wait. Here’s why:

Odds are your payment will increase significantly (depending on your caps) and you won’t want the new mortgage payment.
Underwriting guidelines have tightened significantly. If you have issues with your credit, it is best to start work on repairing or improving your scores now instead of waiting until it’s time to refi (that’s too late).
Lenders are pulling back on programs. Especially non-conforming loans (loan amounts over $417,000 or credit, assets, income or employment not meeting traditional guidelines) and ARMs.
Some lenders are shutting their doors as they are not able to fund loans they’ve committed to.
Less available loans may translate to fewer buyers for properties. This will impact sales comps for appraisals. You cannot count on huge appreciation or values on your home to bail you out of your ARM. We’ve been fortunate in Seattle so far; I cannot see how this won’t impact our local market home values.

This is truly an urgent situation that requires your immediate attention. The more time you can give yourself and your Mortgage Professional to determine the best strategy for your next mortgage, the better off you’ll be. And, if you know that your friends or family members have ARMs that are due to adjust anytime soon, please encourage them to contact a Mortgage Professional as well.

Take control of your ARM or it just may leave you stinging.

Filed Under: Mortgage Programs, Refinance

Are You Preapproved for an Interest Only Mortgage?

July 20, 2007 by Rhonda Porter Leave a Comment

You better double check with your Mortgage Professional. As of Sunday, July 22, 2007 underwriting guidelines are tightening up for interest only conventional (loan amounts $417,000 and lower) mortgages.

Fixed Rate Mortgages (ex. 30 year fixed with 10 year interest only payments) will be based on the full PITI payment using the Note Rate. (If there is a temporary buy down, the qualifying is still based on the Note Rate).
Interest Only ARMs: Qualifying is based on the full principal and interest payment (PITI) at the fully indexed rate (index + margin).
Negative Am. (deferred interest) ARMs: Qualifying will be based on the full PITI at the fully indexed rate amortized over the full repayment term using the loan amount based on the amortization cap. (I am not a fan of Option ARMs and I have never provided one to any of my clients. For some people, they have probably been very successful tools…most of my clients, once they understood how the mortgage works, would opt for an interest only ARM instead of this mortgage).

So what does this mean?

Previous Guidelines: If a buyer was preapproved using a 5/1 Interest Only LIBOR ARM based on an interest rate of 6.125% (note: this is NOT a rate quote and is only for purpose of illustrating the guideline changes) earlier this week qualified for a payment in the amount of $2041 (plus taxes and insurance), they could borrow $400,000.

New Guidelines: The current index for LIBOR is 5.4 plus the margin of 2.375% for this particle loan program = a fully indexed rate of 7.775% for the same ARM mentioned above. Qualifying the borrower for a $2041 payment based on a 30 year amortization at 7.775% means the borrower now qualifies for a loan amount of $284,200.

This will obviously have a dramatic impact on purchases and refinancing out of interest only products. This is still very new and we’ll see if non-conforming products follow suit.

Here’s what you need to do:

Agents: Contact your Mortgage Professional today to see if you have clients who are preapproved for conventional financing with any interest only payments. Confirm your buyer is still qualified. (Your LO may need to check Fannie Mae guidelines).
Buyers/Borrowers: If you’re using interest only products with loan amounts of $417,000 or less, contact your Mortgage Professional to verify you are still approved.
Buyers: Now more than ever, it’s crucial that you meet with a Mortgage Professional prior to buying a home to become preapproved. With mortgage programs and underwriting “tightening”, there will be less options compared to just a few months ago.
Buyers/Borrowers: Having solid credit is also more important. You should review your credit a couple times a year. If your scores are below 680, work on improving your credit.
Borrowers who currently have ARMs: Do not wait until just before your ARM is about to adjust if you are considering retaining your home. Contact your Mortgage Professional six months in advance to review your credit in case you need to make adjustments and/or repairs.

This is not the time to be hiding or not dealing with your mortgage…guidelines are changing quickly and you need to be proactive and responsible with your largest investment. If you need help, find a qualified Mortgage Professional such as a Certified Mortgage Planning Specialist, who has been acquired additional training and education or get a referral from someone you trust and respect.

Filed Under: Mortgage Programs, Interest Rates, Mortgage, Refinance, Residential Purchase

Those Amazing Low Rate Offers to Refi Now in the Mail

June 9, 2007 by Rhonda Porter 1 Comment

Even at our home, we’re getting more and more amazing offers from lenders. Recently one of my clients asked,

"We keep getting info in the mail from some odd place that says that we have a mortgage through Mortgage Masters and that they can reduce our house payment to $900.00 per month. We shred them every time we get them but now I am curious if it is true? It does not have the Mortgage Master logo on it, it just says that they know we have a mortgage balance of $266,000."

It’s amazing how much personal information that you would assume is private, is actually public. Any lender or real estate agent can obtain a fine tuned list from a title insurance company or various other marketing companies for a fee. It’s my opinion that if a Loan Originator has to use "cold marketing" (letters, post cards and phone calls to people they don’t know) to drum up business, it’s because they lack referral and/or repeat business from their past clients. No one wants to work with them or their company again nor refer someone to them…therefore, they must buy leads and mail to strangers (you and me).

Many of these offers are suspect…if it seems too good to be true, it is. Bait and switch tactics of offering low rates like 1% or skipping several months of your mortgage payment are hung out in order to have you call "Slick" at the mortgage company. Often times, the ads will appear as if they are coming from the mortgage company you obtained your financing from (check the very small print at the bottom of the letter). The gimmick marketing may even appear to be from a government agency or as if it’s a "special limited time offer". Chances are, it’s a hoax.

As I mentioned at the beginning of this post, we are personally getting deluged with "amazing offers". I think it’s because we have an adjustable rate mortgage. And, the mortgage marketers know this…many of the pieces we receive state that and have emotional rich phrases such as "stabilize your monthly mortgage payment…it’s urgent to refinance now." Our ARM is fixed for seven years. We have five years left on it. It’s not urgent for us to give up equity for closing cost to have a 30 year fixed mortgage at this time.

Another beauty, which I am going to send in to DFI to see if any actions will take place…came in a gold envelope from the "Department of Public Records" appearing as though it’s a check for $660,000. When you open this piece (of crap…sorry, this bugs me) it claims that the "sponsored lender" is Mortgage Master Service Corporation. I can assure you, this is not true. It also offers us a 1% interest rate and that this loan will fund in 10 days. This piece is from a Consumer Loan Lender. They have different guidelines they abide by than Mortgage Bankers or Mortgage Brokers.

The bottom line is that there are a plethora of mortgage marketers out there who are trying to take advantage of home owners fears of rates adjusting or debts…you name it. Don’t fall for it. If you need help with your mortgage or have any questions, contact a qualified Mortgage Professional.

Hopefully you had a good experience with the person who helped you with your original financing…if not…contact someone you respect and trust for a referral to one. What ever you do, don’t fall for misleading junk you receive in the mail.

UPDATE: If you have misleading advertisements sent to your Washington State home, mail it to:

Enforcement Unit, Division of Consumer Services, DFI, PO Box 41200, Olympia, WA 98504

Filed Under: Predatory Lending, Refinance

Debt and Your Mortgage

May 9, 2007 by Rhonda Porter Leave a Comment

This is the second part of my series on debt inspired by the blog Dollar Buy Dollar. Before I get too deep into my posts, I want to stress that if you have a mortgage and you are sliding further into debt, please contact your Mortgage Professional as soon as possible. Don’t wait. It may feel better to dig your way out without help, however, credit card lates and even worse, mortgage lates, will ding your credit score down to where either:

Your rate for a possible refinance or equity loan is much higher as rates are credit score based.
You no longer qualify for a mortgage at the loan to value you need for debt relief. (The amount of equity-loan to value-that is allowed to borrower is also credit score based).

I’m not a huge fan for using one’s equity as a cash card. However if your equity can bail you out of a desperate debt situation and if you are capable of changing your spending and savings habits so you don’t wind up having to tap your equity again, then it makes sense.

I cannot emphasize enough how important it is to take action right away. Especially in our current mortgage "subprime" climate where it is tougher to qualify for loans with lower credit scores. If your scores plumet too low and if you are not able to access your equity, you may be forced to sell your home. A mortgage late is more devistating to your scores than a credit card late and any recent lates will zap your score (mortgage lates carry more weight than a credit card late). Credit is reflective, so the more time since a late payment, the more your score will rebound.

Recently I helped a couple where the homeowner, who was self employed successfuly for over 20 years ran into hardships with his business. He wound up relying on credit cards to try to "bridge" his lack of income. In a short period of time, he was not able to pay his credit cards or keep up with his mortgage. He has a beautiful home valued around $700,000 and a mortgage balance of $250,000. He wound up with a 120 day late (3 months of not paying a mortgage–preforeclosure). His then Fiance helped to get him current on his mortgage, he was lucky! However the mortgage he had was ugly. The Fiance contacted me about refinancing their high rate subprime loan he was currently in. She had credit scores over 700 and his were around 400. In addition to the "preforeclosure" on his mortgage, his credit report was full of collections and late payments. Here’s what we had to do in order to help this couple in order for them to receive the best rate and program available:

Wait until the 120 day late was 1 year old. (We were six months away and were waiting for the underlying mortgage’s prepayment penalty to expire).
They married and she was added to the title. The lender wanted to wait until she was on the title for 6 months before they would close.
He remained on the title (is still a vested homeowner) and is not on the new mortgage.
His judgments had to be paid at closing. (This was a cash out refinance to pay off all remaining derogotory debts).

We did a no income verifed loan with just her on the mortgage. The new rate was just 0.25% over the available conforming rates with no prepay penalties. Bottom line, he was fortunate that when he disclosed his situation to his partner, she was willing to stick around and help bail him out. He’s also lucky that he owned a home and had enough equity that he could do the cash refinance or, if he had to, sell the home and have enough proceeds to pay off debt and have a savings left over.

If he didn’t have the mortgage lates, we could have refinanced his loan much sooner. It all worked out for the couple…now newlyweds! Restructuring the mortgage to eliminate the debts has made a dramatic difference in their lives. Your Mortgage Professional may or may not be able to help "bail you out". At the very least, a qualified Mortgage Professional can help you decide which debts to pay first. I’ll address that issue in my next post for this series.

Watch CNN’s video on Dollar Buy Dollar and couples who hide debt from each other.

Filed Under: Credit Scores and Reporting, Debt Restructuring, Financial Planning, Mortgage, Refinance, Subprime Lending