Weekly Mortgage Rate Commentary - Week of December 30, 2007
After enduring days and weeks on end of extreme market volatility. And Like the many weeks before ;ast week was one of extreme volatility, events in Pakistan brought on even more volatile moves in the markets. There is global concern over the possibility that the Pakistani government may become destabilized - and if this should happen, which political faction may end up in power with control over its nuclear arsenal. This is an example of how unforeseen political events around the world impact domestic mortgage rates. Bond prices moved higher due to the increased demand for a "safe haven". Mortgage note rates improved by about .125% for the week overall.
As, mortgage rates moved little last week and are ending 2007 very near where they started the year. A great deal has happened in the past year. Residential real estate anal the mortgage industry struggled after years of record growth. Credit markets dried up, with many mortgage products disappearing. While many analysts had predicted doom-and-gloom for the economy in 2007, it never materialized. The economy powered through the housing and credit market challenges.
Will 2008 he a year of economic recession and plummeting real estate values, or will housing finally hit bottom and return to pushing the economy forward? While only time will tell, the first economic reports of the year will likely set the tone for the next few weeks. Lf the ISM Index and employment data point to healthy manufacturing and labor markets, we should see mortgage rates remaining stable. However, if the year starts with troubled manufacturing data, or signs of a weakening employment environment, we’ll see mortgage rates declining in anticipation of future Fed rate cuts.
Sunday, December 30, 2007
Friday, December 28, 2007
2007 - What a Year
Financial market history will show 2007, as the year of the Mortgage Market Meltdown, with a similar impact as t that of the Savings and Loan Crisis of the 1980s and the Dot Com bubble of 2001. Collateral damage, mortgage market meltdown, subprime crisis, credit crunch, distressed debt, ratings downgrades, and rate freezes are terms that we’ve been seeing hearing and reading in the mainstream news. We have also been hearing for about a year from many in the media and from some economists that the U.S. economy is going into recession. So far it has been very resilient to the housing problems and it has proven the gloom and doom " proponents wrong. The unemployment rate remains below 54% and GDP continues to grow. Watch out for inflation to rise as oil prices are near the $100 per barrel level, a weak US dollar combined with $500 million in subprime mortgage resets that are coming in 2008. Some economists feel the economy will continue to grow as a whole, albeit at a slower pace, as individual sectors or industries will have their own compartmentalized recession.. Meanwhile the press continues to create a self fulfilling drastic collapse of home values, when most markets are not experiencing any or very slight reduction in home prices.
Some in the government believe that they should get involved and interfere with the free market. This is bad policy. If the government sets a precedent that they will cut the returns investors of mortgage backed securities then much of the incentive for making such investments will be eliminated. This will translate significantly less mortgage products available a higher costs for those still available. Furthermore some want to grant a government agency the right to dictate underwriting guidelines. Time and time again it has been shown that the free market will provide the most efficient, lowest cost, lowest hassle product. The government should not get involved in restricting returns on existing investments or dictate underwriting standards.
Most agree that the real estate, mortgage and financial markets will slowly return to some sort of normalcy in the next ten to eighteen months. Until this time it is even more important that those looking to purchase or refinance a home work with a local, knowledgeable mortgage professional and to call on that loan officer early on in the process.
Wishing the mortgage market a better 2008.
Some in the government believe that they should get involved and interfere with the free market. This is bad policy. If the government sets a precedent that they will cut the returns investors of mortgage backed securities then much of the incentive for making such investments will be eliminated. This will translate significantly less mortgage products available a higher costs for those still available. Furthermore some want to grant a government agency the right to dictate underwriting guidelines. Time and time again it has been shown that the free market will provide the most efficient, lowest cost, lowest hassle product. The government should not get involved in restricting returns on existing investments or dictate underwriting standards.
Most agree that the real estate, mortgage and financial markets will slowly return to some sort of normalcy in the next ten to eighteen months. Until this time it is even more important that those looking to purchase or refinance a home work with a local, knowledgeable mortgage professional and to call on that loan officer early on in the process.
Wishing the mortgage market a better 2008.
Thursday, December 27, 2007
The Mortgage Planning Process
from the CMPS institute
The mortgage planning process is different than the typical "shopping for a mortgage" experience.
The typical shopping for a mortgage experience includes:
Wasting your valuable time trying to save $25/month by comparing rates, fees and closing costs among different lenders.
Wasting your valuable time trying to baby-sit the mortgage company you’ve reluctantly chosen to work with.
Being promised one thing and then getting something different.
Being "sold" on one mortgage product over another.
The mortgage planning relationship is about you:
Receiving valuable financial advice and guidance that can literally save you hundreds of thousands of dollars.
Trusting a professional who is committed, qualified and equipped to deliver what they promise.
Experiencing a "concierge" level of service when you are in the market to buy a home, refinance your mortgage or make cash flow changes to enhance your lifestyle.
Implementing a defined financial plan of action in helping you achieve your life goals and dreams.
Maintaining an ongoing high trust relationship with a team of financial advisors who can help you make necessary changes in your debt, cash flow and home equity planning strategies.
This is a relationship, not just a transaction. As such, it requires a defined system of accountability in order to work effectively. The Mortgage Planning Process consists of the following five steps:
1. Establish and define the client-planner relationship.
Mortgage Planner Should:
Ask you for information about your financial situation and your time frame for results and success.
Gather all the necessary documents before giving you the advice you need.
Clearly explain or document the services they will provide to you.
Explain how they will be paid and by whom. Unless you are willing to pay a flat fee for mortgage and real estate equity advice, mortgage planners are typically compensated through a commission structure set up with the lenders.
You Should:
Clearly explain how financial decisions are made in your household and include all the key decision makers in consultations with your mortgage planner. Be prepared to share personal and financial information with your mortgage planner in order for them to be able to advise you on how best to achieve your goals.
2. Analyze and evaluate your financial status.
The mortgage planner should analyze your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analyzing your credit situation, real estate equity, debt situation and cash flow.
3. Develop and present mortgage planning recommendations and/or alternatives.
The mortgage planner should offer mortgage planning recommendations that address your goals based on the information you provide. The mortgage planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The mortgage planner should also listen to your concerns and revise the recommendations as appropriate.
4. Implementing the mortgage planning recommendations.
You and the planner should agree on how the recommendations will be carried out. The mortgage planner may serve as your "coach," coordinating the whole process with you and other professionals such as CPAs, CFP® professionals, attorneys, Realtors, builders, insurance professionals and other qualified advisors.
5. Monitoring the mortgage planning recommendations through a quarterly or annual mortgage and equity management review.
You and the mortgage planner should agree on how you will both monitor your progress toward achieving your goals. During this review, your mortgage planner can adjust their recommendations, if needed, as your life changes. Most often, this process involves periodic assessment of:
Your fluctuating cash flow needs.
Changing market interest rates and mortgage strategies.
Income and career alterations.
Family changes including:
Children’s financial needs.
Caring for elderly parents.
How your real estate equity and investments are performing from both a cash-flow and "internal rate of return" perspective.
CMPSinstitute.org
The mortgage planning process is different than the typical "shopping for a mortgage" experience.
The typical shopping for a mortgage experience includes:
Wasting your valuable time trying to save $25/month by comparing rates, fees and closing costs among different lenders.
Wasting your valuable time trying to baby-sit the mortgage company you’ve reluctantly chosen to work with.
Being promised one thing and then getting something different.
Being "sold" on one mortgage product over another.
The mortgage planning relationship is about you:
Receiving valuable financial advice and guidance that can literally save you hundreds of thousands of dollars.
Trusting a professional who is committed, qualified and equipped to deliver what they promise.
Experiencing a "concierge" level of service when you are in the market to buy a home, refinance your mortgage or make cash flow changes to enhance your lifestyle.
Implementing a defined financial plan of action in helping you achieve your life goals and dreams.
Maintaining an ongoing high trust relationship with a team of financial advisors who can help you make necessary changes in your debt, cash flow and home equity planning strategies.
This is a relationship, not just a transaction. As such, it requires a defined system of accountability in order to work effectively. The Mortgage Planning Process consists of the following five steps:
1. Establish and define the client-planner relationship.
Mortgage Planner Should:
Ask you for information about your financial situation and your time frame for results and success.
Gather all the necessary documents before giving you the advice you need.
Clearly explain or document the services they will provide to you.
Explain how they will be paid and by whom. Unless you are willing to pay a flat fee for mortgage and real estate equity advice, mortgage planners are typically compensated through a commission structure set up with the lenders.
You Should:
Clearly explain how financial decisions are made in your household and include all the key decision makers in consultations with your mortgage planner. Be prepared to share personal and financial information with your mortgage planner in order for them to be able to advise you on how best to achieve your goals.
2. Analyze and evaluate your financial status.
The mortgage planner should analyze your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analyzing your credit situation, real estate equity, debt situation and cash flow.
3. Develop and present mortgage planning recommendations and/or alternatives.
The mortgage planner should offer mortgage planning recommendations that address your goals based on the information you provide. The mortgage planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The mortgage planner should also listen to your concerns and revise the recommendations as appropriate.
4. Implementing the mortgage planning recommendations.
You and the planner should agree on how the recommendations will be carried out. The mortgage planner may serve as your "coach," coordinating the whole process with you and other professionals such as CPAs, CFP® professionals, attorneys, Realtors, builders, insurance professionals and other qualified advisors.
5. Monitoring the mortgage planning recommendations through a quarterly or annual mortgage and equity management review.
You and the mortgage planner should agree on how you will both monitor your progress toward achieving your goals. During this review, your mortgage planner can adjust their recommendations, if needed, as your life changes. Most often, this process involves periodic assessment of:
Your fluctuating cash flow needs.
Changing market interest rates and mortgage strategies.
Income and career alterations.
Family changes including:
Children’s financial needs.
Caring for elderly parents.
How your real estate equity and investments are performing from both a cash-flow and "internal rate of return" perspective.
CMPSinstitute.org
Credit Scores
Your credit scores usually determine the price you pay for your money (your mortgages, your auto loans and leases, your credit cards, business loans, etc.).
Perhaps the most significant part of your credit report is your credit score. Credit scores range from 350 to 850, with 850 being the best possible credit score that you could receive, and 350 being the worst possible credit score. There are five factors that determine your credit score:
Your Payment History - 35% impact on your credit score. Paying debt on time and in full has a positive impact. Late payments, judgments, charge-offs, collection accounts and bankruptcies have a negative impact. One of the most important issues as far as payment history is whether or not you have had any late mortgage payments in the last 12 months. Timely mortgage payments are weighted heavily by the scoring systems and are one of the most vital requirements that lenders look for when evaluating your credit history. Many times a single late mortgage payment within the last 12 months can hold up your file or spell the difference between the best interest rate and the next credit level. This is not to say that your mortgage is the only debt you should pay on time. Your payment history on other debts (car payments, credit cards, etc.) is also given a lot of weight.
The credit scoring systems evaluate how many late payments you have had and whether they were 30, 60 or 90 days late, or whether they are currently in default, with default being the worst situation. Additionally the systems look at whether the late payments were consecutive. If you only have one or two minor late payments on your report with no other derogatory marks, your score will not be terribly affected, but you will have a tough time getting over the critical 700 level.
Bankruptcies and judgments are another major area of importance. If you have had any bankruptcies within the last 7 years, it will seriously affect your ability to borrow or establish new credit accounts. Additionally, if you have had any judgments within the last several years, it is very important that you pay off the judgment and get a "satisfaction of judgment" from the court. Any unsatisfied or recent judgments will make a bad dent in your credit scores and adversely affect your ability to borrow. Usually, judgments and liens must be paid prior to the closing. However, in some cases, they can be paid out of the loan proceeds.
Here are four practical steps that you can implement to improve your credit score in the area of "Payments":
1. Make all your payments on time.
2. Past dues on any account will destroy your score - bring your delinquent accounts current immediately. A 30 day late payment one month ago is worse than a 90day late payment three years ago.
3. Pay your bills before they go to a collection agency.
4. Check your credit report for accuracy on a regular basis; and make sure that disputed bills are not negatively affecting your credit scores.
The Balance You Owe vs. Your Available Credit Lines - 30% impact on your credit score. Keeping your credit balances below 50% of your available limit is very important. Keeping your balances below 30% of your available credit is even better. This is perhaps the single most misunderstood part of credit scoring. There are a lot of misinformed people that don't understand how the credit scoring systems work, and yet they insist on pretending to be experts in this area. Here are just a few of the common myths:
1. You should close all your credit accounts if you are not using them.
2. You should not have credit accounts appear on your report after they have been closed.
3. You should not have any open credit card accounts at all.
4. You should not have high limits on your credit lines.
First of all, the credit scoring system looks at the percentage of debt that you owe compared to your overall credit lines - not the amount of credit that you have available to you. For this reason, most of the time it is better to leave your credit accounts open. By not using the credit that is available to you, the system regards you as having enough financial restraint and discipline not to overload on debt.
Remember, the credit scoring system looks at the percentage of debt you owe compared to your overall credit line.
For instance, if you owe $10,000, and you have $100,000 of credit available to you, you are only using 10% of your available credit line. On the other hand, if you owe $10,000 and you only have $20,000 of credit available to you, you are using 50% of your available credit line. This is negatively interpreted by the credit scoring system as being a strong dependence on credit. Furthermore, if you owe $10,000 and you only have $10,000 available to you, you have "maxed out" your available credit and your credit scores will be very negatively impacted. Therefore, it is not how much you owe, but how much you owe compared to what you are able to borrow.
Additionally, if you have no debt and no credit lines open or available to you, you will end up with a lower score than someone who has no debt and a few lines of credit available to them. Financing is a game of percentages and ratios. The credit scoring system does not look at the dollar amount of debt you have; only the balance you owe, compared to how much credit is available to you.
Here are three practical steps to improve your credit score in this area:
1. Do not close your credit accounts unless it is necessary to do so. It is better to have many open accounts with little or no balance than to have just one or two accounts regardless of the balance.
2. Do not concentrate large balances on just a few accounts. Pay outstanding debt down as close to zero as possible, and evenly distribute the remaining balance across all your open credit lines. The key is to keep the balances down below 30% or at the very least 50% of your available credit line(s).
3. Call your credit card companies and try to increase your available credit lines if they can do so without pulling a new credit report.
Your Credit History, or how long your accounts have been opened - 15% impact on your credit score. The longer your accounts have been opened, the higher your score will be; newly opened accounts will bring your score down.
Here are three practical steps for you to improve your score in this area:
1. Do not close your credit accounts. If you have too many department store credit cards, close the newest ones - do not close the old accounts. If you keep your accounts open and use them every once in a while, your score will improve over time.
2. Think twice before jumping on that latest 0% credit card offer or opening a new card just to get a 10% discount at a department store.
3. If you dont have much of a credit history, and you are planning on taking out a mortgage in the future, it would probably be a good idea to establish a few open credit lines with little or no balance on them. Although newly opened accounts tend to lower your score initially, they will improve your score once they have been open for awhile, somewhat active and paid off with little or no balance.
The type of credit that you have open - 10% impact on your score. A good mixture of auto loans and leases, credit cards and mortgages is always best. Too many credit cards is not a good thing, and having a mortgage does increase your score.
Practical steps to improve your score in this area are:
1. Having 3-5 revolving credit cards open is optimal.
2. Having a good mix of auto loans, credit cards and mortgages is positive for the score; rather than having a concentration in credit cards only.
The number of recent inquiries that have been made by creditors - 10% impact on your credit score. Inquiries affect the score for one year from the time the inquiry is made. Personal inquiries do not count toward your score. In other words, you can check your credit report as often as you like and that wont affect your score. The score is only affected if a potential creditor checks your credit. Potential creditors include credit card companies, auto finance companies, department stores and mortgage companies.
The reason that inquiries impact your credit score is because the scoring system assumes that if you have many recent inquiries, you must be strapped for money and in some type of "panic" mode, trying to get credit wherever you can find it. The system also assumes that all these inquiries will eventually result in new accounts being opened, and as stated before, the system doesnt like you to open new accounts and punishes you by giving you a lower credit score.
Here are three practical steps that you can take to improve your credit score in this area:
1. Multiple auto and mortgage inquiries are treated as only one inquiry if made within 45 days of each other. So, it is better to shop for a car or a mortgage over a two week time-frame, rather than to prolong it over a longer timeframe.
2. Don't apply for a lot of credit or open multiple credit cards at the same time.
3. If you are thinking of applying for a mortgage within the next 90 days or so, it would be good to wait until after your mortgage closes before you apply for any new credit.
It is importanat that you make your paymentrs on time. A good Mortgage Palnner will assiist you in implement these and other strategies that improve your credit rating.
Great web sites to check out:
PaulCantor.ProvidesCreditReport.com
MyFico
Perhaps the most significant part of your credit report is your credit score. Credit scores range from 350 to 850, with 850 being the best possible credit score that you could receive, and 350 being the worst possible credit score. There are five factors that determine your credit score:
Your Payment History - 35% impact on your credit score. Paying debt on time and in full has a positive impact. Late payments, judgments, charge-offs, collection accounts and bankruptcies have a negative impact. One of the most important issues as far as payment history is whether or not you have had any late mortgage payments in the last 12 months. Timely mortgage payments are weighted heavily by the scoring systems and are one of the most vital requirements that lenders look for when evaluating your credit history. Many times a single late mortgage payment within the last 12 months can hold up your file or spell the difference between the best interest rate and the next credit level. This is not to say that your mortgage is the only debt you should pay on time. Your payment history on other debts (car payments, credit cards, etc.) is also given a lot of weight.
The credit scoring systems evaluate how many late payments you have had and whether they were 30, 60 or 90 days late, or whether they are currently in default, with default being the worst situation. Additionally the systems look at whether the late payments were consecutive. If you only have one or two minor late payments on your report with no other derogatory marks, your score will not be terribly affected, but you will have a tough time getting over the critical 700 level.
Bankruptcies and judgments are another major area of importance. If you have had any bankruptcies within the last 7 years, it will seriously affect your ability to borrow or establish new credit accounts. Additionally, if you have had any judgments within the last several years, it is very important that you pay off the judgment and get a "satisfaction of judgment" from the court. Any unsatisfied or recent judgments will make a bad dent in your credit scores and adversely affect your ability to borrow. Usually, judgments and liens must be paid prior to the closing. However, in some cases, they can be paid out of the loan proceeds.
Here are four practical steps that you can implement to improve your credit score in the area of "Payments":
1. Make all your payments on time.
2. Past dues on any account will destroy your score - bring your delinquent accounts current immediately. A 30 day late payment one month ago is worse than a 90day late payment three years ago.
3. Pay your bills before they go to a collection agency.
4. Check your credit report for accuracy on a regular basis; and make sure that disputed bills are not negatively affecting your credit scores.
The Balance You Owe vs. Your Available Credit Lines - 30% impact on your credit score. Keeping your credit balances below 50% of your available limit is very important. Keeping your balances below 30% of your available credit is even better. This is perhaps the single most misunderstood part of credit scoring. There are a lot of misinformed people that don't understand how the credit scoring systems work, and yet they insist on pretending to be experts in this area. Here are just a few of the common myths:
1. You should close all your credit accounts if you are not using them.
2. You should not have credit accounts appear on your report after they have been closed.
3. You should not have any open credit card accounts at all.
4. You should not have high limits on your credit lines.
First of all, the credit scoring system looks at the percentage of debt that you owe compared to your overall credit lines - not the amount of credit that you have available to you. For this reason, most of the time it is better to leave your credit accounts open. By not using the credit that is available to you, the system regards you as having enough financial restraint and discipline not to overload on debt.
Remember, the credit scoring system looks at the percentage of debt you owe compared to your overall credit line.
For instance, if you owe $10,000, and you have $100,000 of credit available to you, you are only using 10% of your available credit line. On the other hand, if you owe $10,000 and you only have $20,000 of credit available to you, you are using 50% of your available credit line. This is negatively interpreted by the credit scoring system as being a strong dependence on credit. Furthermore, if you owe $10,000 and you only have $10,000 available to you, you have "maxed out" your available credit and your credit scores will be very negatively impacted. Therefore, it is not how much you owe, but how much you owe compared to what you are able to borrow.
Additionally, if you have no debt and no credit lines open or available to you, you will end up with a lower score than someone who has no debt and a few lines of credit available to them. Financing is a game of percentages and ratios. The credit scoring system does not look at the dollar amount of debt you have; only the balance you owe, compared to how much credit is available to you.
Here are three practical steps to improve your credit score in this area:
1. Do not close your credit accounts unless it is necessary to do so. It is better to have many open accounts with little or no balance than to have just one or two accounts regardless of the balance.
2. Do not concentrate large balances on just a few accounts. Pay outstanding debt down as close to zero as possible, and evenly distribute the remaining balance across all your open credit lines. The key is to keep the balances down below 30% or at the very least 50% of your available credit line(s).
3. Call your credit card companies and try to increase your available credit lines if they can do so without pulling a new credit report.
Your Credit History, or how long your accounts have been opened - 15% impact on your credit score. The longer your accounts have been opened, the higher your score will be; newly opened accounts will bring your score down.
Here are three practical steps for you to improve your score in this area:
1. Do not close your credit accounts. If you have too many department store credit cards, close the newest ones - do not close the old accounts. If you keep your accounts open and use them every once in a while, your score will improve over time.
2. Think twice before jumping on that latest 0% credit card offer or opening a new card just to get a 10% discount at a department store.
3. If you dont have much of a credit history, and you are planning on taking out a mortgage in the future, it would probably be a good idea to establish a few open credit lines with little or no balance on them. Although newly opened accounts tend to lower your score initially, they will improve your score once they have been open for awhile, somewhat active and paid off with little or no balance.
The type of credit that you have open - 10% impact on your score. A good mixture of auto loans and leases, credit cards and mortgages is always best. Too many credit cards is not a good thing, and having a mortgage does increase your score.
Practical steps to improve your score in this area are:
1. Having 3-5 revolving credit cards open is optimal.
2. Having a good mix of auto loans, credit cards and mortgages is positive for the score; rather than having a concentration in credit cards only.
The number of recent inquiries that have been made by creditors - 10% impact on your credit score. Inquiries affect the score for one year from the time the inquiry is made. Personal inquiries do not count toward your score. In other words, you can check your credit report as often as you like and that wont affect your score. The score is only affected if a potential creditor checks your credit. Potential creditors include credit card companies, auto finance companies, department stores and mortgage companies.
The reason that inquiries impact your credit score is because the scoring system assumes that if you have many recent inquiries, you must be strapped for money and in some type of "panic" mode, trying to get credit wherever you can find it. The system also assumes that all these inquiries will eventually result in new accounts being opened, and as stated before, the system doesnt like you to open new accounts and punishes you by giving you a lower credit score.
Here are three practical steps that you can take to improve your credit score in this area:
1. Multiple auto and mortgage inquiries are treated as only one inquiry if made within 45 days of each other. So, it is better to shop for a car or a mortgage over a two week time-frame, rather than to prolong it over a longer timeframe.
2. Don't apply for a lot of credit or open multiple credit cards at the same time.
3. If you are thinking of applying for a mortgage within the next 90 days or so, it would be good to wait until after your mortgage closes before you apply for any new credit.
It is importanat that you make your paymentrs on time. A good Mortgage Palnner will assiist you in implement these and other strategies that improve your credit rating.
Great web sites to check out:
PaulCantor.ProvidesCreditReport.com
MyFico
Wednesday, December 26, 2007
Benefits of a Mortgage
A mortgage is a debt that is secured by real estate. Mortgages play a large role in the financial markets. When used properly mortgages go beyond the role of providing a way to achieve the American Dream of home ownership: They provide a means of wealth creation, a low cost method of reducing cash outflows, among a host of other benefits.
Mortgages help people manage their lives more effectively. It is important to make sure on has the best mortgage to fit his/her situation. A mortgage is one of the largest debts taken out by households, and choosing the the wrong mortgage program may cost hundreds of thousands of dollars. It is more important to choose the best mortgage for ones needs than to get the absolute lowest rate on the wrong loan product.
Is your mortgage right for you? Will it be right for where you want to be? Happy to discuss if anyone's listening.
Mortgages help people manage their lives more effectively. It is important to make sure on has the best mortgage to fit his/her situation. A mortgage is one of the largest debts taken out by households, and choosing the the wrong mortgage program may cost hundreds of thousands of dollars. It is more important to choose the best mortgage for ones needs than to get the absolute lowest rate on the wrong loan product.
Is your mortgage right for you? Will it be right for where you want to be? Happy to discuss if anyone's listening.
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