The Ben Borden Mortgage TEAM; The leading source for home loans throughout Virginia!

What a great Super Bowl game! Eli Manning sure quieted the critics tonight. I am not fan of either team but I was rooting for the Giants to win. There were two big reminders for me tonight. The first would be no matter how hard you work, how hard you train, how many games or battles you win, if you do not take home the prize, all is lost. The New England Patriots had the opportunity to continue in the history books and lost in the final seconds.

When working a financial plan, I see all sorts of folks go out of the gates leading the race and somewhere along the line things seem to fall apart. Working a plan is a long and arduous process. It’s crucial that you are in constant contact with your coach (financial planner) and stay on course. Its very easy for folks to get “tired” in the 2nd and 4th quarters.

No one expected the Giants to win. They were underdogs according to every sports poll, broadcaster and viewers. Not only did they not expect the Giants to win but some expected the Pats to win pretty easily. After a lackluster finish last year, Tom Coughlin was on the cusp of losing his job. After the first two games of this year Eli Manning was about to be taken out and be stoned. EVERY publication and news show was telling him how bad he was a quarterback.

The second thing I was reminded. That everyone has the same opportunity to be successful in life. Every morning we get up and put our clothes on just like everyone else. So what separates the successful from the unsuccessful? Beliefs. What limiting beliefs are holding you back from achieving what you want most in life?

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I received a call Friday January 25th, 2008 from a freelance reporter in Los Angeles named Marcie Geffner who was doing a story for a well known bank website called BankRate. She wanted to interview me to get my opinion on whether those with adjustable rates should take advantage of the lower fixed rates and refinance.

You can see the whole Bank Rate article here.

This interview led me to some important points that I want to make. It’s not a marketing secret that scaring the crap out of consumers is a pretty useful sales tactic. People buy on emotion and make emotional decisions and the news media and advertisers sell products that way.

I have been pounding the table since May 2007 that the Federal Reserve would start to lower rates in the fall of 2007; you can see my Blog post. So this big whoop la comes as no surprise.

What needs to be understood is that mortgages just like any investment should be managed. Just like investments, different loan products “perform” better during certain periods and working with a Certified Mortgage Planner allows customers to take advantage of changes in market sentiment and conditions and save $10’s of thousands of dollars.

Managing a mortgage is not about getting the lowest interest rate. It’s about matching the mortgage to the client’s financial goals. When you match the mortgage to their financial goals rates do not matter. The loan program that you have is meeting a certain financial need of the borrower.

This is part of wealth creation I explain to clients. In this business I have meet many people who have achieved great wealth by aligning their mortgage (s) to their financial need. I have never met one that achieved great wealth because they received the lowest mortgage rate. [Read more →]

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In an emergency phone meeting, Monday night, the Fed Cut Rates .75%. The biggest one time rate cut since 1984. The Fed meet before its scheduled January 29th-30th meeting and is expected to cut ANOTHER .50% at that time. This move all but says we may be in a recession.

The stock market is scheduled to open with its worse drop in recent memory and bad news for Bank of America, reporting it a 95% drop in net income and may call in to question the buy out of beleaguered Countrywide.

If Bank of America does not go forward with the Countrywide buy, Countrywide is all but assured a spot in Federal Bankruptcy court and that would send additional shock waves through the financial markets.

Those with adjustable rates gotta be loving the current rate environment. I have been saying since May 2007 the Fed would lower rates and I would go with short term adjust ables. Those with a home equity line of credit will see their rate decline this month of at least .75%. All the short term adjustable rate indices’s, such as the LIBOR, MTA and CMT will have huge declines today and over the coming months so we will all see our payments going down. Who would have ever thought we would see the 30 year near 5%?

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It ALMOST cant get any better than this. Mortgage rates are smoking going into 2008. The current interest rate environment is great for adjustable rate mortgage holders. My ARM loan rate is down nearly a 1/2 % just in the last few months and looks as though it will continue to go down throughout this year. This morning I found myself calculating how low my mortgage payment would go if………..Kind of funny. Like when you buy a stock and you start calculating all this money your going to make if this winner you picked goes to the moon.

With the Jobs Report for December showing only 18,000 new jobs when estimates were looking for 70,000 thats quite a surprise. Unemployment is creeping up as well to 5% this is a pretty large increase from Novembers level of 4.7%. Bad news for stocks but great news for mortgage bonds!

The bad news with the slide in interest rates as is with all the so called help from the government for those facing foreclosure or arm resets is that the majority of those wanting to take advantage of the lower rates and refinance can not. Its nearly impossible for even the best of credit scores to refinance their loan right now at anything over 80%. I have had four loans in December alone, all rate and term refinances (no cash out), all mid 700 credit scores not get approved. Its ridiculous right now, mortgage bonds are at the best they have been since summer of 2005 but its increasingly harder for approvals on refinances to take advantage of them.

Fannie Mae and Freddie Mac have all but closed up funding higher loan to values. I do not see this getting better anytime soon and even see it getting worse before it gets better. Most lenders have already added Risk Based Pricing to loans that Fannie and Freddie are officially starting in March 2008. Some lenders are starting to take away Investor loan programs for cash out. That is correct No Cash Out for Real Estate Investors, not even $10. Also some lenders are pulling Expanded Approvals as well. Then you have the automatic 5% value reduction for declining markets.

The storm is not over yet. There are going to be many more limiting changes that are coming down the pipe I am sure and It will not matter how low rates go if mortgage holders can not take advantage of them.

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With the current market real estate investors have to look at other “back to basics” ways to move investor properties. The three alternative options for investors below are not new but seem to be forgotten, great ways to rethink the marketing and selling of your properties and get your asking price and even more. First you can move your property very quickly. Second, you can name your selling price and most often it can be much higher than the general market will bear. Third, all of these strategies can actually increase your investment return exponentially more than just out right selling your property on the market.

Seller Held Seconds – This is a great option for those rehab investors to get their initial capital out of their property and move on to the next project and also opens the market to many more potential buyers. Let’s say you buy a property for $150,000 and spend $15,000 in renovations. Let’s say after renovations the property is worth $200,000.

The potential home buyer secures a conventional 1st deed loan at 80% of the value of the home and takes out a mortgage for $160,000. This pays your loan off and also you’re out of pocket expense renovating or updating the property. It’s essential, that there is a down payment from the buyer of at least 3% to 5 %. In this instance, you hold a second deed for $30,000.

You become the second deed of trust with all the rights of any 2nd trust deed holder. Most often the terms of the loan are higher rates and shorter balloon terms; let’s say a 36 month balloon (36 months is typically the shortest balloon term a first deed lender will accept) at 12% interest rate with an interest first payment option. So during the 36 months you’re receiving interest payments of 12% and by the end of 36 months the buyer needs to refinance the property to pay your loan off. [Read more →]

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First off I want to stress that I am not a licensed Real Estate Agent nor am I a licensed Appraiser but I want to take a quick view at the 3 most recent home sales in a neighborhood in Midlothian, VA. I just could not resist posting this as its such a glaring example of hiring a professional not only for real estate but hiring a professional in any field. Its so much cheaper in the long run.

There were three recent home sales in the Lenox Forest Section of Riverdowns. Two of the sales were full service listed homes and one was For Sale by Owner. Riverdowns subdivision is located off Robious Rd. in Midlothian, VA about a .5 mile east of Rt 288. [Read more →]

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There is a word that is used in investing that I think a lot of “real estate investors” had forgotten over the years. The word is eval·u·a·tion. Webster defines evaluation as:
1 : to determine or fix the value of
2 : to determine the significance, worth, or condition of usually by careful appraisal and study

The current market can make it more difficult to evaluate investment properties. The determined sale price at the beginning of renovations can be 5% or 10% less at the end of renovations. Not to mention you have to account for marketing expenses, carrying costs, tax implications and even have a Plan B.

Its very important that real estate investors align themselves with competent advisor’s that can advise them how to properly structure and progress the transaction. This includes a Certified Mortgage Planner, CPA, Realtor, Property Manager and Appraiser. There are many DIY’s “speculators” out there getting absolutely hosed and even foreclosed.

Its essential that you spend a large amount of time of due diligence when considering an investment property to purchase. Initially this may take some time to develop your specific goal but properly structuring a consistent standard upfront will save much time down the road and allow you to move quickly as investment opportunities arise. A very brief overview of considerations are below: [Read more →]

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For those in the market to buy a home in the next 6 months you better act fast because its about to get more expensive. Already mortgage lenders have cut back dramatically and totally removed loan programs off the market and now Freddie Mac and Fannie Mae are starting to increase fees on loans making buying a home more expensive and maybe even pricing out some home buyers altogether.

Freddie Mac states “In response to continuing volatility and turmoil in the mortgage market, including the deteriorating performance of higher-risk mortgage products, we are expanding our use of risk-based pricing by adding fees based on Indicator Score and loan-to-value ratio. We are also increasing our delivery fees for certain Mortgages with increased risks.”

Reason 1: Starting in March 2008 there is going to be a .25% delivery fee called a Market Condition Delivery Fee. So for a $200,000 purchase price this would equate to a charge of $500. The Market Condition Delivery Fee is in addition to the announced Indicator Score/Loan-to-Value delivery fee.

Reason 2: The Indicator Score/Loan-to-Value Delivery Fee is the most significant. You will see by the chart below that depending on your credit score this fee can range from a fee of $1,000 to $4,000 based on a hypothetical $200,000 purchase price, this is IN ADDITION to normal closing costs.

[Read more →]

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Its said that most of the general public believe what they read. I was taking a look at The Wall Street Journal’s Real Estate portal called Real Estate Journal and noticed and article on “What Moves Mortgage Rates” written by Teri Cullen. It always gets my curiosity when I see articles like that because 50% of the time they get it wrong, although its predominately fellow peer loan officers are the ones that really get it wrong I did not think the Wall Street Journal, “The King of Finance Media” would.

I will let you read the article but basically Teri Cullen answers the question from a reader named Victor. “Victor, mortgage rates actually follow the bond market, not the Fed-funds rate. The interest rate on a 30-year fixed-rate mortgage tracks the yield on the 10-year Treasury note (at Tuesday’s close 4.383%.).”

This is just not accurate. First, the 10 year treasury is a government backed instrument and has no direct effect on the direction of mortgage rates. Second, mortgage rates follow mortgage backed securities or MBS’s which are issued by Fannie Mae and Freddie Mac. While sometimes interest rates and the 10 yr tsy may move in the same direction, one does not affect the other. Very often they trade in completely opposite directions. You will notice by this quote that 6.0% mortgage bonds where up 6bp’s points and the 10-Year was down 72bp’s.

This brings me to another point. When I talk to prospective borrowers one of my handouts lists “questions to ask your loan officer” and one of the questions on the sheet to ask “What are mortgage rates based on?” Its the very basic of knowledge. This is the largest transaction of your life and far too important not to be handled by a competent, quality professional that’s trained to advise you properly. If they do not answer correctly run…do not walk to a loan officer that does know the correct answer. It always amazes me when talking to borrowers how indifferent some seem at the quality of professionals advising them on such a large transaction. Its like using a stock broker giving you quotes out of yesterdays Wall Street Journal.

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Fixed Rate Mortgage Backed Securities                            November 26th, 2007

Mortgage rates headed south yesterday to a 2 1/2 year low. News that HSBC, the largest bank in the U.K., was bailing out two of its Structured Investments or SIV’s sent investors to a flight to quality buying bonds. HSBC will be moving $45 billion worth of these SIV’s to its own balance sheet in a move that undermines the $100 billion Super Fund that was in the making with the largest banks of the U.S. HSBC has over $2 Trillion in assets to accommodate a move such as this and is unmatched by the larger U.S. banks.

With mortgage bonds trading at a 2 1/2 year high, those looking to lock in, have to at these levels. Even though there may be more room to move, in the nearer term profits will be taken causing rates to possibly tick up.

The only question is the 10 year treasury bond has moved a lot higher, a lot quicker than mortgage backed securities and at some point the 2% point spread between the two would have to narrow. With the U.S. being in a decreasing interest rate environment, I would take a educated guess that the spread will be narrowed by mortgage backed securities trading higher therefore reducing the yield on long term fixed rate mortgages. An excellent mortgage product to take advantage of the longer term view of reduced rates would be the HOA.

(Images Courtesy of Mortgage Market Guide)

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It’s not a surprise to investors out there that properties are staying on the market for what seems like a lifetime, if they sell at all. The Census Bureau estimated that there are approximately 2.1 million vacant homes for sale nationwide, up over 7% from a year ago. The total number of vacant properties not for sale or rent is estimated an astounding 17.9 million units.

For many the one option may be to wait out the market downturn and rent out the properties until the inventory glut clears out. For those that have no history of renting properties be prepared for a whole new world. Mike Mulligan of Property Managers of Virginia states that “investing in real estate is serious business and a big investment. Knowing and keeping up with regulations, legal issues and liabilities in the State of Virginia can seem overwhelming.”

Its is true, there is a whole new world out there of fair housing requirements, landlord tenant laws that may vary from county to county, tenant screening, property maintenance and expense and pricing your property for rental. For those that are not prepared with professional help and professional advice can be set up for disaster.

Of course just by hiring a property manager does not mean that you will be trouble free. But it does mean that you can have a life outside of managing your properties.

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One of my first cars was a yellow 1966 Ford Mustang coupe. When I first got it it looked like a 25 year old car. I can remember when I got home from Marine boot camp at Paris Island my mother, as a present for my return, had totally renovated it and it was a beauty. Painted a glowing yellow, brand new carpet on the inside with beige leather seats. Everything was replaced, the dashboard, all the chrome inside and out. Everything was as original, even the radio. She did a tremendous job.

This car ran on regular gas, I do not think there is a station now that even sells regular gas, but even then, I had to hunt for the few that did. Gas then ranged .95 to .99 per gallon. Those were the days.When I look at gas prices today being at around $2.65 although it sounds like a lot the incremental increase over 20 years, yes I am showing my old age, from that time is not. I am guessing less than 5% a year. Now this is taking a picture of a specific time period and maybe the year before that was .65 or $1.50. I can only remember that Mustang!

So even if it is actually 5% price increases that is just a tad above normal and I do not think its reason to sound the alarm bell. What alarmed me was paying $5.65 for a gallon of milk last week. Now that is high. I have to say, I think its the only gallon of milk I have ever bought as I do not shop unless its for a 1/2 pound Hershey Bar, but how outrageous is that? Almost $6 bucks! For a gallon of milk? I think the fed should keep an eye on those milk prices, forget the gas.

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On October 30 and 31st the Fed meets again. Looks like the odds of a .25% reduction in the Fed Funds is 100%. Chances of a reduction of .50% are sitting around 20%. Primarily the reason for the increased optimism of a reduction has been related to the horrible earnings announcements by the big banks and mortgage lenders, such as Bank of America who reported $1.45 billion in trading losses, Wachovia with $1.3 billion in losses and write downs, Countrywide reporting a 1.2 billion loss and Merrill Lynch who reported a $8.4 billion third-quarter write-off all due to their exposures to the subprime mortgage market. On the economic front all has been fairly well the last few months.

The only major news this week will be Wednesday’s Pending Home Sales and the ADP employment report. The ADP number has been historically inaccurate. The actual Employment number will be released on Friday.

Going into next week, I would float all short term rates and lock long term. Right now we are looking a 30 year fixed under 6% these rates have not been seen for a long time and should be taken advantage of before the fed announcement. Longer term I would float all loans as I believe we will have lower rates overall in the months to come.

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There is a mortgage product that was introduced to the U.S. during the last few years. With this mortgage, homeowners can accelerate their payoff, with no monthly payment change in as little as 10 years to 15 years. Thats right, in most cases, you can continue to pay your current fixed rate payment and save 20 years of mortgage interest. I have to say, I love this product.

How it works, its simply a Home Equity Line of Credit just not a normal Home Equity Line from any bank. This loan combines your checking, mortgage and home equity line accounts into one super account. Each week you receive a paycheck, rental income or any other income and its automatically deposited into your bank account.

How it works, lets say your current mortgage payment is $2,500 a month and your paid net income of $2,000 a week. Well each week your depositing that $2,000 into your bank account, your mortgage immediately falls $2,000 and the lower balance used to calculate the interest. So every 30 days you’re essentially reducing your mortgage balance $8000 for 30 days at a time and then at the 1st of the month your bills are due and you simply write a check out of this bank account for the bills. Its really that simple.

Using the accelerated payoff calculator, a borrower with income of $4,000 per month, a $200,000 mortgage at 6.25% would have a payment of approximately $1,231. Lets say that after paying bills this homeowners has 20% left over each month or just $800. This particular homeowner would pay off their mortgage in 12.7 years. Remember, they are still paying only the $1,231 per month! So just by changing HOW they pay their mortgage NOT changing how much, they save $133,745 in interest expense and are mortgage free in just under 13 years!

One thing to point out this is an adjustable, home equity line of credit, based upon the 1 Month LIBOR Index. The highest the 1 Month LIBOR has ever been is 9%. An important point to make that the LIBOR tracks, nearly exactly, the U.S. Fed Funds rate, so its very transparent. But lets assume worst case. [Read more →]

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Fed Chairman spoke at The Economic Club of New York last night and todays stock market sell off was at least in part a reaction to his comments on the current financial crisis. Chairman Bernanke stated in his conclusion, that although the credit markets have seen some improvement, he thinks that a “full recovery of market functioning may take some time” and “we may well see some setbacks.”

Some positive notes to point out from his speech:

• Core Inflation has moderated but overall inflation risks remain
• Consumer Spending has thus far has not been effected

So, just what is core inflation? Core inflation itself, has no specific definition. There are 3 core measures the Fed uses.

1. PPI or Producer Price Index - measures prices on a wholesale level
2. CPI or Consumer Price Index - CPI measures a basket of goods or services. There are eight groups from where price data is collected. Housing, Food and Beverages, Transportation, Apparel, Education, Medical Care and Communication, Other goods and services
3. PCE or Personal Consumption - measures the prices paid by consumers on a domestic level for goods or services

(CPI numbers will be reported tomorrow morning 10/16 at 8:30 am. Estimates are for 0.2%)

Consumer Spending was mentioned more than once throughout the speech and will be a heavyweight for a decision at the next FOMC meeting on October 30 - 31 and going forward. Chairman Bernanke and the rest of The Dream Team will have a watchful eye for any “spill over to other parts of the economy–for example, by acting as a restraint on consumer spending.” Consumer spending is huge for the overall economy as it accounts for a full 2/3rds of GDP. So its the uncontested heavyweight in the feds eye for now.

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