Category: General

At the end of last year, the Federal Reserve did something ghastly! They raised rates by a whole .25%. Egad! (I believe that’s an Olde English word meaning, “what the heck!”) Before we get our English riding pants in a twist, let me put something in perspective: this rate increase is only the second one in A DECADE. I know some of you are saying, “Sure, but they’ve already indicated that they are going to raise the rates THREE TIMES in 2017!”

That indication from the Fed explains the recent National Housing Survey from Fannie Mae which reveals that 60% of consumers believe mortgage rates will head north (no, they’re not talking about the rates upping sticks and moving to Canada) in the next 12 months. Although unlikely, mortgage rates COULD spike to 5% in response to the Fed’s three increases – that’s about where it was in 2010.

Since 1971, the benchmark rate has averaged at 8.25% – that’s a good 3.25% HIGHER than the worst-case scenario for 2017 that some are projecting. Want something else to give you a warm fuzzy about our present and near-future circumstances? In 1981, 16.63% was the average rate for a 30-year fixed-rate mortgage. Last I checked, lots of people bought lots of houses back in the ’80s.

Want another shot of the warm fuzzies? The number of mortgage applicants getting approved has reached record highs – that’s a DEFINITE sign of a continued loosening of credit and lending requirements. What’s more is that this will be a good year for folks seeking to finance more expensive homes with Fannie and Freddie (they sound like an old married couple where one of them gives the neighbor kids candy while the other tells them to get off their lawn) raising the limits on the loans they’ll purchase from $417,000 to $424,100. An older couple like Fan and Fred doesn’t increase that lending limit by even a dollar without A LOT of confidence in the market – they wouldn’t be able to keep buying candy for the neighbor kids and maintain such a lovely green lawn if they weren’t careful with their money.

I can’t see into the future – and it has nothing to do with the tinfoil hat I wear on occasion to keep the government satellites from reading my thoughts – but I think it’s safe to say 2017 will most likely see a slight increase in the mortgage rate. While I don’t believe it’s a possible rate increase that will present you with a challenge, I do believe that the increasing values of homes will – their value is outpacing the growth in most people’s wages. Buying now (or in the very near future) will get a better price and allow you to build equity much more quickly. And if you end up buying the house next to Fan and Fred, let me know what he uses on his lawn to get it looking that green.

For all the “old” people out there, you’ll instantly know the name Daryl Hall. For those of you who are still on your original set of adult teeth (perhaps because you got your braces off fairly recently), Daryl Hall is a musician (the blonde half of the duo Hall & Oates – the one who DIDN’T have a mustache that looked like it was straight out of an ’80s adult film) with a number of albums (albums are these big, black 12-inch vinyl “platters” that look like a pregnant CD) that have been certified as gold/platinum and hit songs to his credit, some of which he recorded himself and some he wrote for others.

Going back to 2007, he started a show on the internet called Live from Daryl’s House; in 2011, he took it to cable where it currently airs. The concept is relatively simple: he has musicians from all genres and eras come to his house to jam with him and his band. In between songs, they talk about music and memories, and they usually end up eating something – not a bad gig if you can get it. Because he pulls artists from so many different musical stylings, you get some very interesting combinations that you would never expect to hear – and they sound really good. In many instances, you might find yourself saying, “They should record that for real and release it as a single.”

In the mortgage world, we have one of those rare “crossover” singles that could bring a lot of people to the dance floor: it’s called “Financed Mortgage Insurance” (granted, that’s not the sexiest name for something to appear on iTunes, but I could think of a lot worse names like “Every Time I Eat Vegetables It Makes Me Think Of You” by The Ramones, among others). When folks don’t have 20% to put down on a house, and they don’t qualify for certain programs, they’re required to add mortgage insurance. On a $200,000 loan, for example, that monthly premium can add over $100 to the total monthly payment. For most people who couldn’t come up with the initial 20% down payment, an extra $100 each month is sort of a big deal.

Paying the premium for the insurance up front in one lump sum is an option, but it was hard enough for the buyers to come up with the small down payment needed, much less a down payment of 20% of the loan amount – so it’s not really an option. However, in many cases, that one-time insurance premium can be financed as part of the mortgage. On the same $200,000 loan, the single premium could be just over $4,500. By combining the two, the buyer might be able to get a loan for $204,500 (30-yr @ 4.00%) resulting in a payment of just $20.00 more/month.

That’s over $80.00 less than the overall payment for someone paying a monthly premium. In just five years, that’s a savings of around $5,000! That’s a good option with a beat you can dance to.

Granted, this may not be as big a hit as when Run-D.M.C. crossed over from the rap world to give a new twist to Aerosmith’s huge hit, “Walk This Way” (Google it, kids), but it sure beats Mariah Carey trying to have a duet with herself in Times Square on New Year’s Eve. You can’t unhear or unsee that, but saving $80.00+/month could help!

If I were to walk up to you and ask you to explain your cell phone plan to me, that would be relatively easy, right? You have three phones, two of which are smart phones so you pay an upcharge of $XX, and you get 4GB of data each month (you usually use just over 2 GB except for those months when you have to take your car into the shop, and they don’t have free WiFi so you end up using a boatload of data playing Candy Crush and watching videos on YouTube): all of this costs you $XXX/month. Easy enough.

However, if I asked you to explain how you arrived at that particular plan, there’s a 95% chance you’ll just shrug your shoulders and say, “I honestly can’t remember. It’s all a blur now.” Why is that? There are two parts to that answer.

The first part is relatively simple to explain: it’s something you see every month and doesn’t change – you’ve become used to seeing it arrive in your mailbox or inbox, and unless there’s a drastic change in the monthly price you’re accustomed to paying, you don’t give it another look. Am I right? Now for the second part of the reason.

When you originally walked into the store (Verizon, AT&T, Sprint, T-Mobile, etc.) to get your phones and their accompanying plan, you’re immediately “greeted” by a plethora of shiny gadgets (phones that can slice, dice, julienne, AND solve quadratic equations) and a man or woman wearing an ill-fitting polo shirt who stares directly into your eyes so intently you’d swear they can see your soul, and they won’t look away. You’re on sensory overload, and you’re not sure where to look: all this beautiful technology all around you but this sales person with the tractor-beam eyes. Help! While you start salivating over a particular phone (which Mr./Ms. Bad Polo IMMEDIATELY picks up on like a shark sensing blood in the water), the sales person is showing you algorithms and flow charts that only rocket scientists at JPL could have produced to demonstrate each monthly phone plan. Before your head explodes, you ask, “Just tell me: how much?”, and Polo has you! Like a WWII fighter pilot who paints a small version of the enemy’s flag on the fuselage of his plane for each “kill”, these sales people, while they’re retrieving your phones from the back, lift up their shirts and tattoo another stick figure on their backs to represent another “sucker sold”. I wouldn’t be surprised if they used their own blood as the ink for the tattoo – these folks are ruthless!

With that said, though, if you’ve ever had a real estate/mortgage experience similar to the cell phone plan experience, I apologize on behalf of all the good people in the industry. Yes, we’re in this to make money and feed our families, without a doubt. However, our job, first and foremost, is to educate and explain (without using complicated algorithms and flow charts) so the client can make an informed decision – the client should never feel pressured into a transaction, no matter how much they want that shiny house. If we’ve done our job correctly, the client can easily explain the reason they chose our plan over someone else’s – and it’s an added bonus if they can remember whether the shirt we were wearing fit properly.

I’m not exactly sure why the new year is what prompts so many of us to draw up a list of “resolutions” that might include losing 15 lbs., being nicer to the dog, and beating out Brad Pitt and George Clooney on the “Sexiest Man Alive” list, but this time of year seems to be when we look at our lives and think, “We need to make some changes.” On the plus side, such an exercise sort of forces us to take those things we want to do “someday” and give them a timeline. Well, ladies and gentlemen, someday is TODAY. Take a look at this:

If you’ve been waiting for things to “settle down” before you purchase a house, the graphic above should settle things for you. Interest rates aren’t going to skyrocket tomorrow, and they don’t need to in order to keep you from being able to afford the house you want – they just need to creep up by a half or full point, and you could be out of the game. When they increase by half a point, your ability to pay a mortgage drops by $25,000 – another half point, and you’re down almost $50,000. The Fed has signaled that they’re going to raise rates probably three times in the coming year.

When you have your eye on that perfect house – and so do three other people – are you going to have that extra $25,000 wiggle room to knock out the competition? Don’t let someday sideline you.

Full disclosure: what you’re about to read is a full-blown commercial – no lie. While I’m fairly confident it will be better than 95% of the commercials you’re forced to watch between episodes of your favorite reality show (which is a sort of commercial in and of itself, really), I won’t go so far as to say it’ll be better than some of those you see with Tina Fey or Peyton Manning.

Coming very soon, we will be offering an option that will provide greater speed, simplicity, and certainty for everyone – the real estate agents on both sides of the transaction, the buyer, the seller, the lender, and even the title folks – in the buying/selling process. Here are some key features to whet your appetite:

• Validation of income, assets, and employment will be done electronically.
o Borrowers will be able to save time by using electronic data versus collecting documents such as paystubs, bank statements, and investment account statements. We’re going to call that the “where did I put that?” feature.

• Loan application data will be validated up front making the verification of key loan data points easier and faster.
o This means the originators will have greater confidence at the beginning of the process so they can get it to underwriting more quickly. We’re going to call that the “let’s kick this up to light speed” feature.

• It’s estimated that this will eliminate appraisal conditions on 60% of all purchase transactions – we’re going to call that the “it’s about time” feature.

I hesitate to call this a “no doc” loan for a number of reasons, chief of which being the torrents of cold sweat that term induces for anyone who was in this business back in 2005-06 and stayed around to see their crippling effects on so many. With that said, though, there is a certain beautiful simplicity about the “no doc” aspect of this process: we all get the convenience of not having to hunt high and low for a single piece of paper that can make or break the purchase of a $500,000 home, but we have the security of there being someone in the transaction who is going to verify everything electronically on behalf of all parties.

With that said, I now return you to your regularly scheduled programming of watching whether she says yes to the dress or he’s going to accept help out of his 600-lb life – and you know I’m not talking about Tina Fey or Peyton Manning.