San Francisco Schtuff

By: Jason Russell

I’ll end the year by offering a few thoughts about the new tax law that was passed as one of the last acts of the 109th Congress – providing a tax deduction for PMI, known better as mortgage insurance.

When you buy a house and make less than a 20 down payment, lenders give you one of two options to compensate for the absence of a 20% down payment - mortgage insurance or a piggyback loan (known also as a 2nd mortgage).

Mortgage insurance is the old-school method. The borrower (you!) pay for the policy, but the lender is the beneficiary. You are essentially paying to guarantee you can make your payments. If the lender has to foreclose, the mortgage insurance policy reimburses the lender for the associated costs. Premiums depend on the size of the loan, down payment, your credit score and the type of mortgage insurance you opt for. What people fail to realize is that you are not only paying the entire financed amount but the PMI as well (90%, if you have a 10% down payment, for example). This is a strategy without merit in my opinion.

Piggyback loans or 2nd mortgages loans are the new way of dealing with a down payment of less than 20 percent. With a piggyback loan, you have two home loans: a 1st loan of 80 percent and a second mortgage for the balance. With a 5 percent down payment, you would get what’s called an 80-15-5 mortgage: an 80 percent loan, a 15 percent piggyback and the 5 percent down payment. The 2nd loan is either a fixed-rate home equity loan or a variable-rate home equity line of credit and eliminates the need for PMI.

Although many experts argue PMI is logical and should be examined as an alternative to a 2nd mortgage. I would not recommend this option for anyone – partly due to the flawed logic of PMI and partly because it won’t apply to many of us (good reasoning, eh ?). Would you pay an insurance policy that names your doctor as the beneficiary? To me, PMI seems similar to this idea. The tax deduction applies only to mortgages that are closed in 2007, has income limits (you get the full deduction if your income is $100,000 or less and phases out rapidly after that; no mortgage insurance deduction is available if you make more than $110,000).

My 2 cents – I have always felt as if PMI was a waste of money – and I have a feeling the lobbying to pass this tax break was heavily funded by the folks that write private PMI policies.

Rates are looking very attractive – rates are in the low to mid 6% range. If you are holding a short-term loan that will start to adjust before you plan to move or sell the house, you may think about a refinance into something more stable. You do sacrifice the lower payment you have now, but it may pay off in the long run – as most economists are pointing to higher interest rates in the future.

Happy New Year….Please let me know if I can be of assistance.

 

Best Regards – Jason

_____________________________
Jason Russell, Broker
Rob Wolf and Associates
Residential & Commercial Financing
850 Montgomery Street, Suite 100
San Francisco, CA 94133
1-415-788-1334 – office
1-866-313-5709 – fax

Most of you probably have Home Equity Lines of Credit as your 2nd mortgages, which may not be the best strategy given the inherent
risk with this type of loan. The HELOC, as it is called, increases in rate as Prime Rate rises, which has doubled over the last few years and may still rise further, depending on the economy. A few years ago, the HELOC was a smart option, but now the HELOC doesn’t make sense for those of you purchasing a new home or those of you with high balances on your existing lines of credit.

The alternative to the HELOC is the Home Equity Loan or “HELOAN.” The key difference is that the rate for these loans are fixed for a period of 15 years, when the loan is due, rather than adjusting at any time, as the HELOC does. You also draw out the whole amount rather than pay as your draw out the equity and make an interest and principal payment, as opposed to just an interest-only payment with the HELOC.

For those of you with HELOCS that are ‘tapped out,’ switching to a fixed loan may be a great option. Closing costs are usually next to nothing and most lenders require no asset or income paperwork.

Jason Russell, Broker
Rob Wolf and Associates
Residential & Commercial Financing
850 Montgomery Street, Suite 100
San Francisco, CA 94133
1-415-788-1334 – office
1-866-313-5709 – fax

By Jason Russell:

This month I’ve decided to offer some words I’ve recently read about regarding Bankrate.com – and a great way to avoid 411 charges.

The Bankrate website draws millions of visitors, promising to give a listing of companies and their rate and cost offerings for mortgage loans, and even passes that information on to most of America’s largest newspapers as fact. It has always proclaimed itself to be a tool for the consumer – delivering information and advice.

A lawsuit is in the works against Bankrate, after hundreds of consumers complained about lenders who failed to deliver the rates and terms they promised on the website. Why would a lender post rates and terms they are unwilling or unable to honor ?

Unfortunately, this is a common tactic to lure consumers who want to believe that they are getting an interest rate or cost package that is significantly lower than all the competition. When the consumer finds out they are not getting the package they were promised, they likely have wasted enough valuable time that they feel somewhat stuck to use whatever terms the lender offers .

There are genuine reasons that the terms of a loan package can change. When working with a reputable lender, it would generally only be caused by a change from what was submitted on the loan application, a change in credit, income, employment, debts or assets.

There are reputable lenders on Bankrate, and some of those lenders were the ones who prompted the lawsuit in the first place. As they were offering ‘real’ interest rates and terms they could actually honor, they could see that consumers would instead be contacting the less-reputable lenders who were posting completely unrealistic rate and cost offers. And the consumer might not find out the difference until it was too late.

The internet at large can be a great place to gain basic information about a home loan, but the lawsuit illustrates the need to tread carefully when using the Internet in researching mortgage rates. A home loan is generally the largest financial transaction of your entire life – working with a real professional who can advise you on correct strategies and programs for your needs is a must.

A quick consumer tip….this is not an ad…..
The average amount an individual spends on directory assistance calls each year is $36, but heavy users can spend over $300 a year. And those calls can cost anywhere from $1.25 – $1.75 each…worse yet, directory assistance calls from a land line come with an even steeper price tag, as carriers often charge anywhere from $2 to $4 per call.

Use 1.800.373.3411 from your cell phone or land line and avoid those charges. The service works just like GOOGLE, commercial radio, or television in that businesses pay to sponsor the service in exchange for presenting their advertisements to customers. When you call 1.800.FREE.411 an automated voice recognition system will ask you for a location, type of listing and name. And in return for the free info, you’ll occasionally hear an advertisement from one of the sponsors.

*Market Insights*
The news week has been slow but the Fed speakers were out in full force, injecting opinions about inflation and the economy. San Francisco Fed President Janet Yellen said that inflation was still a risk, and the Fed should be prepared to raise interest rates further. Cleveland Fed President Sandra Pianalto believes inflation is moderating…and further believes that the economy still has not fully absorbed the rate hikes. She voted for a pause in order to accumulate more information before deciding if further hikes are needed to keep inflation contained.
So is inflation running rampant, or under control? Is the economy still picking up steam, or moderating?

The market isn’t quite sure how to react to the somewhat mixed messages of the week – and home loan rates remained relatively stable for the week overall.

For what it’s worth, inventories are increasing, which means more choice and buying power for the consumer…..always a good thing.

Best Regards – Jason
_____________________________
Jason Russell, Broker Rob Wolf and Associates
Residential & Commercial Financing
850 Montgomery Street, Suite 100
San Francisco, CA 94133
1-415-788-1334 – office 1-866-313-5709 – fax

I’ll start out talking about a popular subject of late – Credit Scores – A topic we all love to hate (even me).

All of us have our story about dealing with little annoyances and big deals on our credit reports. A while back I sent a note
about how to obtain a free copy of your credit report at the following website :
https://www.annualcreditreport.com/cra/index.jsp, which I still strongly encourage you to do. It is important to do this
at least once a year, as your credit history sticks with you for a number of years.

I’ll pick up where I left off last time – which is what to do if you spot an error. As of late, I am seeing a trend among most credit reports, that being inaccurate information being reported from creditors and for a variety of reasons. Some are just minor errors and others are more egregious, such as not reporting a mortgage as paid off, which can dramatically affect your score.

Even if the errors don’t affect your short-term ability to get financing, over time, these items have a cumulative affect and can end
up coming back to haunt you. Many commodity lending products (car loans and now more frequently, 2nd mortgages) are now ‘FICO driven,’ which mean your score (and nothing else) determines your rate/ability to qualify.

If you discover an error, the first step is to call the creditor in question and figure out what their position is.
Hopefully your quest ends there; they will inform the credit agencies and your report will be corrected over a 1-3 month period.

This can be quite a daunting task, however, if they aren’t willing to assist for whatever reason – and where a bit of patience and creativity come into play.

First off, know that some companies out there have no real interest in helping you. The first line phone staff is often evaluated simply on the number of calls it takes in a shift, with no consideration as to the quality of those calls. This is a strong statement, but one I’ve seen played out hundreds of times over the years.

I’ve tried a number of strategies for clients: guilt, anger, begging – whatever works. I’ve ended a call with one ’support’ representative and gotten right back on the phone and had success. A lot of times the front line support staff will tell you they aren’t ‘authorized’ to write a letter, which may or may not be true. In this case, it makes sense to speak to a manager or supervisor.

Our firm offers quicker solutions for a nominal fee, but those should be approached only as a last-ditch effort. Be patient and be persistent, your credit score is something you should guard carefully.

I’ve included some market insight below – Enjoy your summer and please let me know if I can be of assistance.

***Market Insights****

It appears as if the chances of a Fed Rate hike on August 8th are getting a bit lower, after seventeen consecutive rate hikes. The news showing a potential end in sight was good news for home loans - rates stabilized, or in some cases, improved slightly.

Last week also brought a read on the housing market. The numbers were decent, not far off expectations, and confirmed Fed Chair Ben Bernanke’s recent comments that the housing market appears to be experiencing a slowdown. The week ahead is sure to be tumultuous, as we get closer to the Fed’s next announcement on August 8th.

The week holds an important report that clarify the odds of another Fed Funds Rate hike: the Monthly Jobs Report. Analysts are expecting to see 145,000 new jobs created. If the number misses the mark, it will add to the feeling that the Fed may indeed pause at the next meeting. If the number turns out to be higher, the chance of the Fed raising again may be in question.

 

Best Regards – Jason

_____________________________
Jason Russell, Broker
Rob Wolf and Associates
Residential & Commercial Financing
850 Montgomery Street, Suite 100
San Francisco, CA 94133
1-415-788-1334 – office

As we’ve all seen with interest rates, they have been progressively worsening, but many of you may not know what index mortgage movements are tied to. The 10 year Treasury Note is the financial index tied to the interest rate fluctuations. I’ll keep it simple – as this index rises, interest rates worsen. Economist like to evaluate the patterns of this index to determine which way rates are headed – and some are predicting that this index has hit a “floor” of support that may bring improvement to interest rates.

There isn’t much in the way of economic news, and it seems the market is in limbo pending the Fed meeting on Thursday.
As always, Inflation is a concern; the Fed seems committed to another .25% increase, and may go further.

When the Fed raises the Fed Funds Rate, it directly impacts Home Equity lines, credit cards, car loans, business loans, all of which have been moving higher over the past two years. It is always a good idea to consider restructuring your outstanding debt.
Lots of new data will surface this week – Home Sales, Consumer Confidence and Sentiment, and Personal Income and Spending along with the important Fed meeting. All of which will be telling in the Fed’s next steps after this week’s rate hike.

Please let me know if I can answer any questions….

Best Regards – Jason
_____________________________
Jason Russell, Broker
Rob Wolf and AssociatesResidential & Commercial Financing
850 Montgomery Street,
Suite 100San Francisco, CA 94133
1-415-788-1334 – office
1-866-313-5709 – fax

By: Jason Russell

mortgage market update:

“The changing of the guard with a new Federal Reserve Chairman has ushered in a new era – along with further increases to the Federal Funds Rate, which directly affects Prime Rate.

The recent .25% hike is the 15th consecutive increase in rates, raising Prime Rate from 4% to 7.75% over the last few years. The Fed meets again next month, and it seems clear Prime Rate is headed to 8%.

The story hasn’t changed – keep an eye on your adjustable mortgages if you plan to stay in your homes beyond the time they will start adjusting. In the case of the HELOCs, those rates keep rising and rising – close attention needs to be paid here as well.

For those with adjustable rate mortgages or home equity lines of credit, long-term rates and fixed home equity loans are still at very attractive rates. These rates/payments are potentially higher rates that your current ARMs and HELOCs, but paying for security over the long haul can be as important as a lower payment in the short-term and can curb some sleepless nights. The best move if you plan on staying in the home for a few years longer is to think about refinancing into fixed-rate money.

That said, you don’t necessarily need a 30-year mortgage. 10 year ARMS are still very attractive, with rates in the mid 6’s. This rate is a little bit lower than a 30-year loan and you still have 10 years of fixed rate security.

For those with Home Equity Lines of Credit (HELOCs), the rise in interest rates has been more rapid as of late. If you can pay down your HELOC balances, this is your best option, otherwise – think about refinancing the debt into a fixed rate loan.

A Home Equity Loan (HEL) is basically a second fixed mortgage. Unlike a HELOC, where the payments start only once you draw from the account, a HEL gives you a lump-sum loan, and you must start making payments immediately, But, unlike a HELOC, the interest rate on a HEL is fixed — in this environment, it may be your best option.

The best case scenario occurs if the value of your property has increased to a point where you can take your 1st and 2nd mortgage balances, and combine the two into a new fixed rate 1st mortgage. Your new loan amount should not increase 80% of the new appraised value.

For example, If you bought your place for $100,000 and put 10% as a down payment – you currently have an $80,000 1st mortgage and $10,000 2nd mortgage (lower if you have paid down the balances). If the new appraised value is $115,000 or higher, you can take the $90,000 in total loans and get one new loan, which would be about 78% of the new value of the property.

There is a silver lining here – with the increase in interest rates comes increases in deposit accounts. Yields of 4 percent in short-term bank accounts such as money markets or 5 percent interest rates in short-term CDs are available in a variety of locations. “

Jason Russell

By: Jason Russell

With rates still bouncing up and down, it seems as if everyone has an opinion about where rates and the housing market is headed, and these opinions don’t seem to provide much useful advice.

No one can predict which direction rates are going to head or where housing prices will be in the future. Analysts and economists want to believe they have the tools to make such predictions. In reality, they are just guessing.

So, what does that mean for you ?

- If you are shopping for a new home and are nervous about rising interest rates, get into a mortgage that you can afford and that best matches the time you will stay in or keep in the property. If you are sure this is a home you only see yourself in for a few years, then there is no need for a longer term mortgage. Conversely, if there is a white picket fence outside the place, by all means, get into that 30 year mortgage.

- If you are shopping and concerned that prices will fall right after you purchase, I would again give the same advice. Get into a rate/payment that will allow you to ride out the fluctuations in the market AND is a loan/payment you can afford. This way, if the market does correct, you can stay in your home and not worry about selling due to not being able to make your payments.

Of course, this applies for refinancing as well. Rates have been trending up, and if you see yourself needing more security and don’t want to be concerned about rising rates, move into a loan that gives you a longer fixed term.

The down side is that you are almost surely taking a higher rate when they switch from an ARM to a fixed-rate loan. But, the tradeoff is that you don’t have to worry about the rate rising in the future. An interest rate for 30 years in the mid 6’s is still an amazing deal by historical standards.

Prime Rate (the benchmark rate tied to 2nd mortgages) will continue its climb, and those of you with large adjustable 2nd mortgages tied to prime rate should possibly look to refinance out of some of this debt.

Please let me know if I can answer further questions about your financing needs.

Best Regards – Jason

Jason Russell