My New Blog

Hello all. I have gone in 2 different directions with my blogs. I am creating video blogs or vlogs at www.HansBlog.com  

I am also becoming very active in Active Rain which is a huge blog with better exposure than I could ever hope to get on my own. Here is the funny part, you can get info from a lot of other real estate professionals there also. You may ask yourself, why would you point me to other real estate professionals..... Because you are going to seek them out anyway. If you choose me as your mortgage guy, I will be happy to help you. If you choose someone else and you like my info... great!

So go here:

The Federal Reserve has taken significant action in the last few weeks due to the credit crunch. And now they've made an unexpected move by cutting the discount window rate – which is great news. I'll get to that in a minute, but first let's look at recent events and understand what they mean.

Market movement
To date, over 120 mortgage companies have closed their doors due to reduced liquidity. The result: Borrowers who want to take out non-conforming loans have fewer, more expensive options.

Many media outlets have incorrectly added fuel to the fire by stating that mortgage lending has stopped altogether and that borrowers can't get a loan without a 20% down-payment. This is not true.

Conforming interest rates and loan programs, those backed by Fannie Mae and Freddie Mac, have not been significantly impacted by recent events. Even better, interest rates have come down from recent highs. While this is good news, the market is experiencing unprecedented volatility and changes could come at any time. Borrowers need to act swiftly and decisively in today's climate.

What did the Fed do?
Now back to the discount rate. This is the interest rate charged to commercial banks and other depository institutions on the loans they receive from their regional Federal Reserve Bank's lending facility. The Fed's decision to cut this rate provides stability in the financial markets and this can be good for all of us.

How exactly does this provide stability? Here's an example: Imagine you just wrecked your car and it requires $5,000 worth of repairs. You have a short-term need for cash to pay your mechanic. Even though you know you will eventually be reimbursed by your insurance company, you still need the cash now. So do you sell off stocks to get the cash, or tap into an equity line of credit? Most likely, you draw from that line of credit rather than liquidating a long-term investment.

This is what the banks are facing in today's liquidity crisis. And Bernanke's move helps them avoid long-term damage by supplying access to short-term cash.

It's important to note that the discount rate is different than the Fed Funds Rate, which directly impacts interest rates that you pay for Home Equity Lines of Credit, credit cards, and automobile loans. Most importantly, the discount window rate cut does not directly impact mortgage rates.

What should you do now?
Information, knowledge, and expertise are the building blocks of sound financial decision making. If you are considering financing or are in the process of financing a home, you should tap into the resources of a skilled mortgage professional. I strongly encourage you to contact me as soon as possible. I would welcome the chance to help you navigate these choppy waters.

Just last week, American Home Mortgage and its wholesale counterpart, American Brokers Conduit, became the latest casualties of the credit crisis. Last year, this company closed over $58 billion in home loans. Despite being, by all accounts, a well-run business, market conditions forced them to file for bankruptcy, leaving billions of dollars in loans in their pipeline unable to close. Tens of thousands of borrowers have now been left without financing as a result of companies like this going under.

Clearly, with over 100 national lenders having now closed shop in the last eight months, this is no longer simply a subprime lending issue. The credit market is experiencing unprecedented turmoil. According to Federal Reserve Chairman, Ben Bernanke, "Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing."

What does this mean to consumers?

Potential borrowers cannot wait any longer. For those who are considering buying a home, be aware that the volatile credit market can change overnight, leaving fewer options available to borrowers attempting to qualify for a mortgage. This is even more true for those looking to refinance. With decreases in home values and fewer available mortgage instruments, delaying any longer could get significantly more expensive.

Borrowers with applications in process must not delay. Applicants should work with their mortgage professional to complete all paperwork quickly, especially on non-conforming, stated-income, and stated-asset loans. Even minor delays can result in funds being yanked at the closing table!

Sellers can no longer be reluctant to accept offers or reduce prices. Tightening credit and diminishing mortgage products will continue to reduce the pool of qualified buyers. This, along with the increase in national housing inventories, means now is not the time to hold out for the "best" price possible.

Buyers with credit issues or who have difficulty providing required documentation can no longer sit on the fence. If market conditions change, buyers who qualify for a loan today may not qualify a few weeks from now for the same exact loan. Just this week, many lenders have stopped offering No-Doc loans, and some lenders have even pulled back on all forms of stated loans. As market conditions continue to change, a buyer's pre-approval status can disappear even more quickly, delaying or spoiling the deal.

Subprime and Alt-A refi candidates, especially those with ARMs scheduled to reset over the next 12 months, need to act now - even those with a pre-payment penalty. ARMs borrowers struggling with monthly payments now might be shocked to know that monthly payments can double in some cases once an ARM resets.

What does this mean to you?
If you or someone you know has any ongoing real estate transaction, I would be glad to help. Please call me right away. As an educated mortgage professional, I will utilize my experience and resources to help you and your loved ones to navigate through these turbulent times. Don't leave your future in the hands of some random mortgage provider. I'm local, accountable, and you can trust that I'll do everything in my power to help you succeed.

Q.   What’s really happening with major lenders – have we seen the last of the 100% financing options?

A. 100% financing is likely to be available only to those borrowers with above average credit, which will impact affordability in our area as potential borrowers diminish. That means credit remediation is more important than ever for those who want to become borrowers. But in my experience consumers don’t really understand what impacts their credit scores. They don’t know there are some straightforward ways that their mortgage advisor can help to increase those all-important credit scores.

Q. What is considered a risky loan by today’s lending standards?

A. Borrowers with credit scores below 620 have proven to bring more risk to the table than those with higher scores. That doesn’t mean they can’t get a loan – but the days of the easy subprime loan are over. Here’s what consumers with less than perfect credit in our area may want to consider: Expanded approval loans. Backed by Fannie Mae, these loans reward borrowers by lowering the interest rate after 24 consecutive months of timely payments. FHA loans. Borrowers should ask their mortgage advisor about these tried-and-true loans, which have been overshadowed in recent years by more exotic mortgage products on the market. Tougher documentation standards. Borrowers will be asked to at least state their income and in many cases they will also be required to provide the documentation to support it.

Q. Are home values going to be affected by rising defaults?

A. Depending on the severity of the rate of loan defaults, it may have a significant impact on our local housing valuations. Consider this: Banks don’t want to hold on to properties – they want to get them off their books. That means they will sell at a discount. We saw this in the early 1990s when there was a rise in foreclosures and a subsequent decline in property values.

Summary:

As an eternal optimist, I am always looking for the positive spin to any story. As a mortgage professional, I need to find the opportunities in a changing market. So, here is my take on things. There are a lot of people who got subprime loans that were fixed for 2 or 3 years and would adjust upward at the end of that period. The margins on these loans are quite high which means that the new payment will likely be 150 to 200% of their current monthly payment (a $2,000 payment will adjust to $3,000 to $4,000). Most people expected that property values would rise and they would refinance into a better loan. Some of these people actually owe more than the home is worth and they are looking at simply walking away and renting again. Most analysts are predicting that foreclosures will peak later in the year so we have not seen the end of this trend.

So…… interest rates are still low, the inventory of available houses is increasing and there are fewer rentals available. I am going to go out on a limb here and say that buying investment property just might make sense right now.

Potential investors need to be very wary and speak with a seasoned mortgage professional. With the easier guidelines and the lower rates of the past 4 years, there are a lot more loan officers in the business today. Over the last 19 years, I have seen them come flooding in when markets are hot and then go right back out again when markets soften. Just to make sure, read my article about how to pick a mortgage professional so that you can get advice that will help you prosper in any market.