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Major Points

• Fannie and Freddie have been placed in conservatorship. (Federal government has taken 79.9 percent of common stock and all dividends in return for buying $1 billion of preferred shares.)  Top Fannie/Freddie executives have been replaced.)  In return, the Treasury will receive new senior preferred stock and warrants on the GSE’s (Government Sponsored Entitites) common stock.
• Treasury Department says both are open for business with no major changes in operations.
• Fannie/Freddie can grow their guaranteed mortgage book with no limits and grow their retained portfolios with limits. Ultimately, the government plans to shrink their portfolios (10% per year starting in 2010).
• The federal government will provide capital to keep Fannie/Freddie’s net worth positive (up to $100 billion)
• The federal government will begin buying Fannie/Freddie mortgage-backed securities (MBS) on the open market.
• Treasury Department will create a Secured Lending Credit Facility, a liquidity backstop for GSEs

• World markets respond positively to news: stocks up on Monday, September 8, 2008.

• Federal Reserve Chairman Ben Bernanke: “These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets.”
• Investor Warren Buffett: “Secretary Paulson has made exactly the right decision for the country.  He is minimizing the problem of moral hazard and maximizing the benefits for the housing market and for the smooth functioning of financial markets.”

GOOD NEWS for the Colorado Market… act now before it’s too late

For Colorado as a whole, prices rose by 1.82% in the past year and by 0.32% in the second quarter please see the attached article from the Denver Business Journal for more detail.

As a mortgage professional in the industry I have the opportunity to talk with all parties involved in the transaction- both buyers and sellers and Realtors. The vibe is positive out there. People are feeling good about the inventory going down and the increased number of “SOLD” signs in their neighborhoods.

As rates remain in the low 6’s for a 30 year fixed mortgage it is a wonderful time to take advantage of Real Estate in Denver. Consult your Realtor and your Mortgage Professional on how to buy with 0% down before the down payment assistance programs are no longer available.

Seller funded down payment assistance programs

will be available until September 30, 2008.

YES- we can close the loan this fast!

First-time buyers and people who have not owned a home in the past three years may get a $7,500 tax credit if they purchase a home on or after April 9, 2008 or if they purchase one before July 1, 2009.

Please feel free to contact me with any additional questions you might have.

Happy house hunting.

Rebecca’s Email

photo credit: TW Collins

Once you feel comfortable that you have a mortgage professional who can advise you, here are some secrets for shopping effectively.

First, just like anything else IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS. No one has a commodity on rates- interest rates all come from the same places, and if the rate sounds really unbelievable, ask a few more questions. Is there a prepayment penalty? Are there extra fees? What is the length of the lock-in agreement? If fees are discounted, is it built into a higher interest rate?

Second, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand the risks, especially with the recent credit crunch you need a TRUE PROFESSIONAL on your side someone who is checking guidelines and is up to speed on the market changes. We have all heard the horror stories from friends and family about missed closing dates, or surprise changes at the last minute on interest rate or fees…usually due to working with discount or internet lenders who may have a serious lack of experience. Remember, the cheapest rate on the wrong strategy can cost you thousands more in the long run.

Third, MAKE CORRECT COMPARISONS. When looking at estimates, there is more to it than just the bottom line. You must compare apples to apples the Lender fees are the only costs that the Lender controls all other fees are third party costs. You may be familiar with the term “junk fees”. All Lenders have a fee to process your loan- simply the cost of doing business. Many Lenders have both a processing fee and a funding fee, typically these fees together do not exceed $1,200. If you see a number of other Lender fees listed I would ask your Mortgage Professional for more information.

A Lender is responsible for quoting the other fees associated with a mortgage loan such as title insurance, hazard insurance, appraisal, days of interest., ect.. Keep in mind since they are third party costs – they are often under-quoted up front by a lender to make their bottom line appear lower. Keep your eyes out for these discrepancies and be sure to ask questions about fees you do not understand.

Lately we have seen hidden discounts fees that are NOT included in the bottom line estimate. This hidden fee will appear in small print typed at the bottom of a good faith estimated “X” discount point to be charged ect… again- if it seems to good to be true it likely is.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. A good way to view loans is either Cost, No Cost or Shared Cost– if you are looking for a no cost loan understand that this comes at the expense of a higher interest rate- there is no free lunch. It all depends on what your goals are.

For instance:

How long will you be in the property?

Are you close to retirement?

Is this your primary residence, 2^nd home or an investment property?

What’s more important to you right now cash on hand or a lower monthly payment?

Do you have any life changing events coming up a baby or kids leaving for college?

Is the seller paying any of your closing costs?

A professional advisor will be able to offer the best advice in terms of the balance between interest rate and closing costs that correctly fits your personal and financial goals.

Sample Analysis:

$250,000 Loan with 1% Origination Fee = $2,500 at 5.875% = $1,478.84 principal & interest payment

$250,000 Loan with 0% Origination Fee = $0 at 6.125% = $1,519.03 principal & interest payment

Difference of $40.19 per month divided by $2,500 = 62.20 months or 5.18 years to recoup my costs

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing Lender’s rates and fees – this is a moving target on an hourly basis. In order to have an accurate comparison – you must get these quotes within less than an hour of each other. Be sure the terms are the same- product and program. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

As this is likely one of the largest financial purchases you will make- be smart, ask questions, and seek the advise of a professional advisor not just some one who will quote you the lowest rate out there.

photo credit: sosico

First and foremost in order to shop effectively you need to make sure you are working with a professional, someone who is interested in your goals and plans for the future. This is very likely your largest asset as well as your largest debt.

Ultimately what we are talking about here is a lien against your income – and what is the best way to manage that? You are looking for someone who can advise you not just quote rates and payments over the phone. Get a recommendation from your Realtor they often have professionals they like working with and have completed multiple transactions with in the past. Or it is always nice to have a warm introduction from friends or family especially when you are dealing with your personal financial well being.

Here are four simple things your Mortgage Lender MUST KNOW the answers to otherwise you need to seek another opinion.

What are mortgage interest rates based on?

Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. Often times the 10-year Treasury Note trends in the same direction as Mortgage Bonds, other times it moves in the completely opposite direction.

What is the next Economic Report or event that could cause interest rates to move?

A professional lender will have this at their fingertips.

Do you have access to live, real time, mortgage bond quotes? Mortgage Bonds and interest rates are moving in real time several times a day and you need to make sure you are talking with someone who will warn you in advance of a costly intra-day price change, Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? Of course not.

When The Fed “changes rates”, what does this mean… and what impact does this have on mortgage interest rates? The answer may surprise you.  When the Fed makes a move, they can change a rate called the “Federal Funds Rate”.  This is a very short- term rate that impacts things like- credit cards, Home Equity Lines of Credit, auto loans, etc… On the day of the Fed announcement, Mortgage rates most of the time will actually move in the opposite direction as the Fed change. Typically this is due to the dynamics within the financial markets in response to inflation.

FYI: PRIME is made up of the The Federal Funds Rate plus a margin of 3%. Today PRIME is at 5.00% = federal funds rate of 2.00% + a margin of 3.00% = 5.00%

I hope this helps you understand a little more about how interest rates work. Keep in mind rates are currently at 40 year lows now is an excellent time to learn more about purchasing. My next blog entry will highlight some more secrets for shopping effectively…

Look forward to your comments.

photo credit: amishsteve

There’s no simple answer to how the housing market got into this mess but the bottom line on the credit crunch is you do NOT have to have 720 fico with 20% down to get a loan.

What are Investors (Mortgage Lenders) looking for these days- credit, income and equity. These criteria still hold true, guidelines have tightened up but these are the main areas of concern for all investors.

Credit- what is your credit score? Scores range from 500-800. A credit score of 720 or higher is ideal. Anything over 680 is great. 680-650 is ok. 650 and below would be a perfect fit for FHA. Please look to future posts on the reason why all radio adds you hear now-a-days are all about” the new and improved FHA loans”…

Income- are you self employed (1099) or W2? If you are a self employed borrower all investors are looking for a two year history in the same line of work. If you are a W2 employee you will need a two year history of employment regardless of industry. By the way- Job gaps are acceptable for W2 employees and it is ok to be fresh out of school looking for a job with no history of previous employment.

Equity- are you looking for 100% financing or 80% financing, etc…

Investors determine their products and pricing based upon their layer of risk they are exposed to in the above three areas. There is one remaining category of importance to investors- occupancy. Will the property to be an investment property or do you intend to occupy the property as your primary residence?

We have seen the credit crunch eliminate more aggressive products such as 95% + non owner occupied financing, 103% financing, etc… don’t be fooled by all the press surrounding the mortgage industry. There are still many loans out there for both owner occupied and non owner occupied properties.

Best of luck during your home search, and feel free to contact the Get Home Denver Team with any questions!