CNC Mortgage Blog

Dear Rick,

I agree with your interview with Rep Murry (?) from Arizona.

I think there are some differences that we see with the illegal immigrant workers in Minnesota.

The IRS provides an ITIN ( Individual Tax Identification Number ) so that the illegal immigrants can prepare their Federal tax returns. That same ITIN is given to foreign investors (in London, Frankfurt, Sao Paulo, etc) when they have investments in the US that produce interest or dividends.

That way they declare their taxes and sometimes have taxes returned to them when they have been withheld in excess. The government still collects some income taxes from them.

The ITIN cannot be used to obtain employment. To obtain employment the illegals have been using either an invented social security number or someone else's (yes, identity theft.) So the employer sent the Social Security contributions to either someone else's account or nobody's. The SSA black hole you spoke about.

I did not see too many cases of ID theft (by illegals) that resulted hurting the original customer. Sometimes they were able to obtain a mortgage with the fake social security number.

Some banks gave mortgages based on the ITIN and the income reported on the tax returns. This was a legal mortgage because the customer presented legal documents.

If you consider that the 12,000,000 million illegal immigrants could buy 3,000,000 houses, you might think that it could make a good dent in the housing glut.

On Anderson Cooper’s show where they showed grape pickers and spoke of the percentage of illegals in the construction business you can appreciate the benefits these people bring to the US. They help to keep down farm prices and the cost of construction.

Saludos,

Last week I was at a dinner with a friend and he was opposed to the US helping to support the Euro so that the value does not fall. I tried to counter his arguments but didn’t have all my numbers ready.

Now I think I have come up with a good explanation of why the US should help to prop up the Euro.

Assume you need to buy a nice new car and you have been looking at four options, Cadillac, Continental, Mercedes and BMW. They are all pretty similar except for the price; the two European cars are running at around US$60,000, the US built cars are costing US$45,000 each. At an exchange rate of US$1.55 = e1.00 the European cars have a price of e38,709.

If the Euro drops to US$1.20 = e1.00 the price of the European cars would drop to US$46,451.

If the price of the Euro goes to US1.10, those foreign cars would cost $42,580.

At that point you would decide between the US built cars at $45,000 or the European cars. If you decide to go for the European cars it will probably cost some jobs in Detroit.

Home buyers, both first time homebuyers are reaching a small milestone at the end of April this year. On that day purchase agreements need to be signed to qualify the tax credit offer for buyers from the Federal government. That is $8,000 for first time buyers and $6,500 for repeat buyers.

We don’t know if that tax credit is going to be extended. It was already extended in November. I heard MN Senator Amy Kloubichar this week on the radio saying that it might be extended. Some people feel that it has not helped enough to promote purchases. Of course it has been in place during the slow home buying season. An $8,000 tax credit should not be the driving force to invest $200,000 in a new home but it is an incentive to be considered.

More important are two considerations. One is that housing prices I believe are close to the bottom so they will probably stabilize or start to go up. That house could cost you more soon. The second is that we have seen mortgage rates creep up in the last few months. One pundit predicted 6% on 30 year mortgages by the end of this year. That 1% is $45,165 in additional interest over 30 years when you compare a $200,000 loan at 5% and 6%.

Keep in mind that the purchase agreement needs to be signed by April 30 and that the closing must take place by June 30, 2010.

Happy house hungting!

By Carlos Gutierrez March 29, 2010

I am not a realtor so I don’t have my ear to the ground to get a really good feeling for the state of the real estate market. Business on the refinance side of mortgages has been slow in February and March of 2010.

I don’t think the $8,000 and $6,500 tax credit for buyers is moving too many people to invest in real estate so I don’t think it is going to be extended after April 30, 2010.

I assume that some home owners will be pressured to drop their asking price after April 30 because they did not sign the purchase agreement by that magical date.

On some weekends I go visit open houses to offer our loans to realtors and maybe snag a buyer. A year ago the realtors were really happy to see me because no one else had shown up. Yesterday I concentrated on the area around Lake Minnetonka. Those were more expensive homes ($600,000 to $3,000,000.) I was happy to see potential customers at most of the open houses. I don’t know if they were serious buyers, low ballers or just tire kickers, at least they were looking at houses.

Maybe housing will soon rebound.

Over the weekend I found myself trying to put a purchase by a first time home buyer in perspective. I find that sometimes I am a bad salesman because I don’t want to rush things. Here is a summary of my advise to all involved, with some changes to protect privacy. The buyers and the loan officer are in a hurry to get the appraisal done.

Hi everybody,

I had the privilege of talking to almost involved in this purchase today. I just missed Jodie.

Buying a house is a stressful experience, for everyone, with tax credit deadlines looming, it only makes it worse.

I wanted to summarize what I see now after my chats with all of you.

Jodie and David have found a house that they really like and want to buy.

The sellers have agreed to this sale, but they are underwater. They owe more on the house than the buyers are offering (maybe close to $100,000.) So this is considered a short sale which means that the bank that is holding the mortgage has to agree to receive less money than is owed on the house. In addition to the bank there is also a mortgage insurance company involved that has to agree to the short sale.

Banks are slow to look at and accept short sales, and we on the buyer’s side have very little leverage to make them speed up.

A purchase agreement has been signed by the sellers but not by the financial institutions involved.

I see two advantages to ordering the appraisal soon:

1. Appraisers at Bank of Sometown are slow these days

2. The loan application can move to manual underwriting to approve David and jodie as soon as the appraisal is received

There are 10 reasons to delay the appraisal:

1. We don’t know if the banks will approve the short sale at that price in a timely manner

2. David and Jodie cannot offer more money for the property

3. The listing agent might not allow the appraiser to go into the house until we have bank’s acceptance

4. $400 are at risk, if the appraisal is done and the banks don’t accept, the money for the appraisal will be lost

5. Another $400 will have to be spent for an appraisal on another house

6. There are many other houses on the market

7. With the April 30 deadline looming for purchase agreements to be signed, if this deal falls through there is very little time left to take advantage of the $8,000 credit.

8. There is no guarantee that the bank will sign the purchase agreement by April 30. Yes it could take that long!

9. David and Jodie should have two or three back up houses so that they can take advantage of the tax credit.

10. This house is still in the redemption period. Although it appears abandoned we are not sure of that status for the closing date.

11. We are not sure when the redemption period is over.

I am sure I will think of other reasons to add to both sides of the argument, but for now let’s take the weekend and think things over calmly.

Good luck

In our role as mortgage brokers we want to make this loan process as painless and streamlined as possible for our customers.

Although we try to get as many documents from our customers as possible at the beginning of the process in order to not bother them anymore than necessary, the banks always find that we need to provide more “stuff.”

I just groan every time I need to get more information from my customer. It can be updated bank statements, new paystubs, clearer W2 forms, a better copy of a driver’s license because the state seal covers part of the birth date. It goes on and on.

I can tell that the customers are talking to their friends about these stumbling blocks because often they tell me something to the effect “I heard that no matter how clean a customer is, the banks are being very careful.”

Yes, the banks want their files to be squeaky clean. We are delighted to have you as customers. Please be patient and bear with us.

Have a Happy New Year!!

Adjustable rate mortgages ( ARMs) got a bad name during the sub prime crisis. These mortgage products can be the right product for certain home owners.

The traditional ARMs that are attractive again are fixed for an initial period of time and then adjust by a predetermined calculation. Traditional ARMs are called 3/1, 5/1, 7/1 or 10/1 ARMS. This means that the mortgage is fixed for an initial period of one, three, five or ten years, after that time the rate will adjust once a year based on a recognized index plus a margin. The loan will be amortized over 30 years.

The index can be an indicator like the LIBOR (London Interbank overnight rate),the COFI (Cost of Funds Index), the PRIME rate or other index that the lender can offer. This month the LIBOR is close to 1.1%. If the lender is charging a margin of 2.5% and your mortgage were resetting today your rate would be fixed at 3.6% for the next year.

The changes that can occur to the ARM after the fixed period are usually that they have a maximum rate adjustment of 5% ( called a cap) over the initial rate. That can happen one time at the first adjustment or gradually over the life of the loan. The rate could also go up or down by 2% per year up to that maximum. So that maximum would be 8.875% if the initial rate were 3.875%.To reach 8.875% the LIBOR rate would have to be at 6.625%. The last time the LIBOR was over 6% was in September of 2000.

Who should consider an ARM? On average people keep a mortgage loan seven years. This average has been going down. People no longer stay in the same job forever, they change jobs. Young first time home buyers usually are advised to get a 30 year fixed mortgage (I suppose by their parents who had the same). Chances are very slim that they will be in their first house for 30 years; they might change jobs, have children or simply want to move up from a “starter home.”

A family whose youngest child is in high school will probably be feeling the empty nester syndrome as that child will be graduating from college in about seven years. At that time they will probably consider moving to another house.

Of course the only reason to consider an ARM over a fixed rate is if the payments will be lower. A $200,000 30 year fixed mortgage at 4.75% would pay $1,043.29 for principal and interest. That same mortgage on a 7/1 ARM at 3.875% would pay $940.47. There would be monthly savings of $102.82, $8,636.88 during the initial 84 months of the loan. On a $300,000 loan the savings would be $12,956 in the same 84 months.

So, don’t dismiss an ARM without considering how long you will be in the house.

For example:

Efraín Perez Martinez (husband, father)

María Lopez Ruiz (wife, mother, maiden name) becomes becomes María Lopez de Perez when she marries Efrain.

Juan Perez Lopez (child)

Isabel Cristina Perez Lopez (child)

This is a good opportunity to explain how people are named in Spanish culture.

Spanish names always cause confusion with US names. Efrain, María, Juan and Isabel are the person’s first name. Isabel Cristina would be the only one in this example that has a middle name (Cristina).

For Efrain, Juan and Isabel Cristina, Perez would be considered their last name. For María, Lopez would be considered her last name.

Unless of course they are illegitimate and the father has not recognized them in which case they would only go by the mother’s last name (Lopez). If Efrain and María were not married and Efrain had not recognized the children as his, then they would be named Juan Lopez and Isabel Cristina Lopez.

Assuming that Efrain and María do get married; then María’s name becomes María Lopez de Perez, the “de Perez” translates into “of Perez.” Some married women choose not to add the “de” to their names.

Sorry to only confuse you a bit more with some culture.

Oct 29, 2009

This morning’s news about the growth in gross domestic product close to 3.5% for the US economy in the period July to September 2009 is good news. It doesn’t matter which side of party politics you are on. Growth is better than shrinking. A lot of the growth was fueled by government spending (cash for clunkers and first time home buyer credits). So???? Critics can question these results and what has been the cause for the improvement but we would all be very disappointed if growth had been negative again for a fifth consecutive quarter. But fortunately growth is estimated as positive 3.5%. We should be happy about that.

There are bills in the Senate extending the $8,000 first time home buyer tax credit beyond November 30 to April of 2010. A lot of first time homebuyers have been scrambling to get their purchase agreements done. Some first time home buyers are still waiting for the housing market to bottom out. They think that if the house goes down in value more than $8,000 they will be ahead if they are still able to buy it even if they don’t get the tax credit. They are gambling against two unknowns; will the house go down in value and will interest rates change.

Another important part of the bill in the Senate is a $6,500 tax credit for people who are not first time home buyers. This should move the middle and upper layers of the market. There is an $800,000 cap on houses for this stimulus money. In Minnesota $6,500 will cover most of the closing costs on a $360,000 mortgage loan.

The interest rate market has returned to a situation where Adjustable Rates Mortgages (ARMs) are below fixed rate mortgages. Today a conventional $200,000 5/1 or 7/1 ARM is below 4%, while the 30 year fixed is close to 5% and the 15 year fixed is near 4.375%. The drop in rates for ARMs makes refinancing an interesting option for people who plan to stay in the house less than seven years.

I asked one of the bank representatives with whom we deal a lot as to their level of activity. Her response was that they were not very busy.

It is not totally clear as to why there is so little activity because rates are back down to almost historic lows.

There might be a few reasons I can think of:

1) Appraised values of properties are too low to refinance. That is partially true.

2) Many homeowners are already at good rates.

3) Homeowners are worried about the general economy. Not a good reason not to reduce mortgage payments.

RATE OVERVIEW

30 year fixed mortgages are close to 4.625%.

15 year mortgages are available at 4.25%, often with reduced closing costs.

3/1 ARMs are at 3.625%, 5/1 ARMs are at 3.75% and 7/1 ARMs are at 3.875%. These are not the horrible ARMs sold with subprime mortgages in the past. They are capped at 5% over the initial rate and based on LIBOR plus a margin for the bank. LIBOR today is at 1.24% and the margin is 2.25%. So if the 5/1 ARM were resetting today the rate for the next year would be 3.49%.