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True for the Boy Scouts, and true for anyone and everyone looking for home financing today.

Much has changed in the mortgage world in the last few years, and our last year has seen the most changes yet. Underwriting guidelines have gotten much more stringent, and processing times have lengthened. A good loan officer these days will look for ways to trim down the time between application and closing, but the loan officer can only do so much. Borrowers, the easiest thing for you all to do is to GET PREPARED. If you are looking for a home, or refinancing a current one, gather your documentation before you even start shopping. Why? Having everything ‘at the ready’ will enable you to move fast when documents are requested. It will make you feel LESS stressed about the process by knowing what will be required, and what is expected from you. 

Remember taking tests in school? The nerves were always worse, and the test always more frustrating if you were NOT prepared. So do yourself and your loan officer a favor, and gather up all the documents listed below. Note: your lender may request some or all of the documentation listed below. It’s always better to be on the safe side.

One month of pay stubs (all borrowers)

2 years w2′s or 1099′s

2 years Federal Tax returns (with signatures!) If self-employed or if you have income from investment properties. Include all schedules.

2 months bank statements (ALL PAGES) from ANY account that will be used for the transaction. Also, it’s a good idea to show SOME assets on a refinance, but there is no need for your IRA and stocks and bonds and all of that. That would be overkill, just use what’s necessary to qualify, and maybe a little more.

Copy of divorce decree or separation agreement, if you are divorced, receive or pay alimony or child support etc. VERY IMPORTANT to have this on hand.

Copy of canceled checks for deposits on a property OR gift funds. Document every step of the way if you are using a gift- that could even mean a bank statement from the person who is giving the gift! Paper trail, paper trail, paper trail. Remember those two words.

A copy of your HUD Closing Statement from the purchase of your home, if you are refinancing a second mortgage that was used in the purchase. 

As you can see, the amount of paperwork does look rather daunting. But it’s not that bad- most of this stuff you may not even need. Discuss your file with your loan officer to find out what to expect, and which documents will likely be requested. If he/she doesn’t know, and wants to wait for it to come out of underwriting, well… I hope you like waiting.

Be proactive, be prepared, and you will close with ease. 

Hey, it’s a great bumper sticker quote, but it’s also REALITY. It’s time that we, as Americans, get OUTRAGED. To be honest and up front with you all, I am what most would consider a die-hard Democrat. Spending money=Yay! right? Well I have complained about this particular ‘phenomenon’ before, and here I am again. Take a look at this: http://www.newyorkfed.org/markets/mbs/index.html

To put this in terms we can all understand, the Federal Reserve MBS Purchase Program has WASTED (that’s right, WASTED!) 621 BILLION dollars since the beginning of the year, and will WASTE approximately $640 BILLION more. Now, why should this anger us all? Well for one thing, it’s 10 times as much as our annual Federal education budget- in SIX MONTHS. That ticks me off. But to put this bluntly, the Fed is ‘Pissing in the wind’. Can I say that? I guess we’ll find out.

Let me explain- What is the money being used for? To purchase Mortgage Backed Securities, which in my not-so-humble opinion should not even exist. Period. See, the Fed thought that buying the MBS would drive rates down and provide stability. It has done everything BUT. We have seen more volatility, and more wild swings than ever. Instead of letting the market take it’s course, the Fed has decided to print up some fake money to buy some fake pieces of paper to accomplish what exactly? Sorry, but letting investors determine mortgage rates is like asking Michael Jackson’s monkey to run the rides at Neverland. BAD IDEA. Did Michael Jackson die by the way? They keep playing his music on the radio….

Back to the seriousness- Can we do anything about this travesty? Probably not. But the next time you get into an argument over how our government spends money, just remember the Fed is printing 1.25 TRILLION fake dollars this year to stuff in the pockets of moronic investors. If someone could explain to me why it’s a good idea to have mortgage rates determined by a bunch of fickle numbskulls, I’d really like to know. Bring it on. 

IF YOU ARE NOT OUTRAGED, YOU ARE NOT PAYING ATTENTION.

In my next blog, I’ll explain why haggling for a ‘rate’ is a complete waste of time.

I am not going to go all ‘NAR’ on you and cheerlead on behalf of the marketplace. BUT, there should be a lot of first time homebuyers out there this year, and we are already seeing an increase in purchase transactions. 

Why? Well for starters, rates are fantastic! Check out this chart on one of my favorite sites: 

http://www.mortgagenewsdaily.com/mortgage_rates/charts.asp

Couple that with the fact that home values have plunged to where they should be (or at least close!), and you have a ‘perfect storm’ to help kick start the real estate market.

Oh, and I almost forgot. The IRS is giving 1stTHB’s an $8000 tax credit (or $4000 if you are married but filing separately)! That’s $8000 YOU DO NOT HAVE TO PAY BACK. So, to all those who bought last year with that so-out-of-date $7500 ‘loan’, I actually cry a tear for you. You just missed out on this whopper of a deal. 

For more detail on the first-time homebuyer bribe, please visit:

 http://www.irs.gov/newsroom/article/0,,id=204672,00.html

If you want to buy a home this year, follow these easy steps:

1) Get approved for a mortgage by an actual lender. You can use a mortgage broker if you want, but make sure they obtain an actual approval before you start making offers.

2) Do not buy beyond your means. Come up with a comfortable payment total, and work BACKWARD from there to determine your price range. Of course, you will be capped at what you can actually afford. Comfort matters- listen to your instincts.

3) Gather and keep at the ready the following documentation (you will need some or all):

2 years of w2′s and tax returns

2 most recent bank statements for all accounts, and be sure to keep ALL pages, even the silly advertisements

Most recent paystubs from each borrower/job

4) Go house-hunting. Make sure you work with BUYER’S agents who actually care about your best interests. I cannot tell you how many times I have seen agents foist houses upon people who could not handle then- for example, homes that need a LOT of work, and the buyers have small children running around. Rusty nails and toddlers feet? Not a good mix. Common sense, please! If your agent does not have any, move on.

5) Look out for imperfections in the properties- Especially if you decide on FHA financing. FHA only requires a 3.5% down payment, so this is a very popular program. However, they are more strict when it comes to property condition. However, even conventional financing will be difficult to obtain if there are defects such as lack of railings on stairs or decks, roofing issues, siding issues etc. These items will need to be ‘cured’ prior to closing- so keep your eyes peeled when you are house hunting! The sooner the issues are brought to the attention of the owners, the better.

6) When submitting a contract, try to get some concessions from the seller. Instead of offering $200,000, offer $210,000 with $10,000 for closing costs. Presuming the house appraises, you just kept $10,000 of your own money in your bank. Everyone loves a nest egg- so use the fact that sellers want out to your advantage. 

So, you have great rates, great prices, plenty of homes to choose from, and some good advice. What are you waiting for? Get out there and start hunting!

President Obama,

It seems that a relatively decent plan of ‘stabilizing mortgage rates’ by way of dumping $500 BILLION dollars into Mortgage Backed Securities (MBS) has turned into nothing more than an investors ‘get rich quick’ dream come true.

Beginning the first week of January, the government, by way of the Federal Reserve, has WASTED $114 BILLION dollars of their total allotment on trying to steady a market that is simply not willing to steady. You would think that a consistent flow of MBS purchases would bring some sense of stability to the mortgage rate world, but instead, we have seen the exact opposite.

WHY?

1) Lenders are NOT formulating their rate sheets with any rhyme or reason. We will see a HUGE rally in the MBS market (as we have on SEVERAL days since the inception of this worthless program), and not really see a benefit to rate sheets (consumer rates). Lenders are reluctant to make a move to lower rates accordingly, and blame it on idiotic claims such as ‘we can’t handle this volume yet! We just don’t have the man-power…. maybe next time??’ This is a ridiculous statement. If they can’t do it NOW, when the government IS trying to help the market, how could we trust them to do it when the government pulls out? Call me crazy, but I wouldn’t trust them for a second.

2) Pesky day-traders have taken it upon themselves to manipulate the market as much as possible to reap the most profits. When we have a “rally day” or even two, what happens IMMEDIATELY? The market sells off, often to a worse place than the last time. What happens to warrant such a withdrawal? NOTHING. No big news in the mortgage world, no massive doom and gloom attack. The MBS investors merely want to sell-off and reap their gigantic profits. Easy to do when you have a government-backed program that will, periodically, drive prices up again.

Picture this for one second. If people KNEW that the government was going to artificially inflate the stock price of let’s say General Motors, a LOT of people would join in that fun, no? You buy low, wait for the government to drive the price up, then SELL SELL SELL baby. Rinse and repeat, as long as the getting is good. To my mind, we would see LESS stability, not more. And that’s what has happened in the mortgage world. DISGUSTING!

What is the point of this exercise? This is FAILED POLICY, and it should come to an end. The rest of that $500 BILLION dollar fund can go to MUCH more effective places. Roads, schools, energy- just to name a few. Putting tax dollars where they do not belong, and where they are making VERY LITTLE difference is, for lack of a better term, asinine.

Everyone is UP IN ARMS about the ‘Stimulus Package”. An $800 BILLION dollar, comprehensive- to say the least, plan to get the economy going again. Where is our anger and outrage over the Fed’s complete and total WASTING of $500 Billion? From now until July (the projected end of this idiotic experiment), we will see no stability, we will see no benefit. Might we see lower rates? Absolutely. But we’ll see lower rates with or without this astronomical waste of funds. And again, what good is a low rate when housing prices are stil inflated, people are losing their jobs, and no one can buy or refinance? Read an old blog I wrote here:  http://www.zillow.com/blog/mortgage/2008/12/05/i-bought-my-house-at-45-too-bad-i-lost-my-job-the-next-day/

Stop the madness, tell the Fed to stop handing their money over to an unruly market who is just pocketing as much money as they can. Thank you so much, Mr. President.

Sincerely and with the warmest regards,

Jennifer Monastero

PS- I hear you are in need of a Commerce Secretary. Is there an application I can fill out on line? It sounds intriguing.

We live in a world where our top policy-makers can’t seem to fill out their tax returns properly, so is it really any wonder that those same policy-makers can’t seem to spend our tax dollars with any sense of rationality?

We, the tax payers, have given BILLIONS of dollars to big banks such as Citi, Chase and Wells Fargo. By all accounts, this money has been used to cover up bank losses and to decorate offices and bathrooms with all the accoutrements fit for a SOCIOPATH. Not a single person has explained to me why paying for investor losses makes sense. In a true free-market, this should not have even been an OPTION. The banks made the loans, the banks sold the loans, the banks made money, the banks lost money. NOT OUR PROBLEM. But I digress. I am truly, truly irked by the cavalier attitude shown BY THE BANKS toward American homeowners who are in trouble, or who just want out of their 10% interest rate!

Case in point, I received a call this morning from a woman in Ohio who has a funny situation with Chase.By ‘funny’, I mean totally aggravating. She had an ARM, which was set to adjust this past December, and she inquired as early as LAST JULY about refinancing into a fixed rate. Keep in mind that her LOAN is with Chase, and she was willing to STAY with Chase. 7+ months later, no refinance, and the rate is now 9%. Chase told her to not pay her loan for December, January and February. I could be wrong, but I would put money on them reporting her as ‘late’ on her credit report. Bottom line for her- no help from her current lender. They have declined to modify her loan. Chase wants her to keep paying her 9% rate, or ruin her credit to get out of it. Great, thanks a ton for that! Why don’t you go hire another MBA that will show you how to ruin the US economy in 4 short years?

Doesn’t it bother people that these banks, who made money hand over fist during the ‘boom’, mismanaged everything and now have the nerve to throw up their hands and say ‘Sorry, can’t help you. You have to miss a payment and ruin your credit first. Oh, and you have to lose your job and find out you have a terminal disease too. It’s in the fine print’.????

Am I crazy, or should we all be shouting ‘GIVE US OUR DAMN MONEY BACK!’. If the banks aren’t going to help US, why in the world should we help them?

The point of this silly ‘bank bailout’ exercise was to CREATE lending opportunities, but every time I open my inbox, there’s another program being cut, or guidelines changed. What this does is make it that much more difficult to either obtain financing for a purchase OR refinance. This helps no one. The banks are NOT lending, and all of the ‘disasters’ that were supposed to be avoided are STILL HAPPENING. Companies are closing down, people are losing their jobs, no one is BUYING anything on credit or otherwise. The plan is not working- period. It’s time to recognize that and MOVE ON. Let the banks fail, and use the rest of the bailout money to create JOBS. We need JOBS. We do not need fake money being tossed around so we can buy HUMMERS. If people are working, they will spend money. Put people to work!

What this scenario shows, too, is the issue we have when banks don’t really LEND their own money, and don’t really SERVICE their own loans. When a lender gives up a loan on the secondary market, they no longer have much of a say in how to keep it going. Investors care about one thing, and one thing only- making money. That’s great and all, but when it comes at the expense of the American taxpayer, restraint might be in order! If anyone is going to take tax-payer money, they should be obligated to illustrate UP FRONT how that money will be used. Covering past losses IS NOT ALLOWABLE. Asking homeowners to sacrifice their credit to be able to obtain a lower rate is NOT ALLOWABLE. Cutting programs at a time when we need people to be able to refinance with ease IS NOT ALLOWABLE. 

This is garbage, and to steal a really good quote from somewhere- ‘If you are not angry, you are not paying attention’. It’s time to get mad, and it’s time to call out these people for what they are. Greedy, classless, brainless money-grubbers. And that is an understatement! Here are some thoughts:

1) Require banks who wrote ARM’s and Stated Income/Stated Asset loans to refi people out of them with the SAME documentation requirements. If SISA was good enough then, it is good enough now. Low, fixed-rate mortgages ONLY.

2) Require banks who are receiving bailout funds to document WHAT THEY WILL USE THE MONEY FOR before they get it. Make sure they do what they say!!! Seems like common sense, but for some strange reason no one gets it.

3) Allow banks that have made bad choices to FAIL. They are not irreplaceable. 

4) FORCE lenders who take bailout money to restructure loans based on TODAY’S market value. Investors will lose money, but remember that investments are RISKS and they knew they could lose money going into it. If someone kept bailing out your bad investments, would you learn anything???

5) Regulate the ‘secondary market’. The good old days of lending meant banks would lend on their own assets, and keep the loans in their portfolios. That meant keeping money IN local communities and not on some Wall Street execs spreadsheet. Real money, real people. Instead, we have had fake money, and no benefit to our local communities at all. Very, very sad.

You know, sociopaths really burn me up. If you don’t know what it means to be a sociopath, ponder the following ‘signs’ and symptoms:

• Glibness and Superficial Charm
• Manipulative and Conning

They never recognize the rights of others and see their self-serving behaviors as permissible. They appear to be charming, yet are covertly hostile and domineering, seeing their victim as merely an instrument to be used. They may dominate and humiliate their victims.

• Grandiose Sense of Self – Feels entitled to certain things as “their right.”
• Pathological Lying –
  Has no problem lying coolly and easily and it is almost impossible for them to be truthful on a consistent basis. Can create, and get caught up in, a complex belief about their own powers and abilities. Extremely convincing and even able to pass lie detector tests.
• Lack of Remorse, Shame or Guilt –
  A deep seated rage, which is split off and repressed, is at their core. Does not see others around them as people, but only as targets and opportunities. Instead of friends, they have victims and accomplices who end up as victims. The end always justifies the means and they let nothing stand in their way.
• Callousness/Lack of Empathy –
  Unable to empathize with the pain of their victims, having only contempt for others’ feelings of distress and readily taking advantage

What does this have to do with mortgages? Well, I want consumers to be aware that, just like in all other professions and facets of life, sociopaths find their way into this industry. Whether they are the mortgage broker who sold 2/28 ARM’s with 3 year Pre-Payment Penalties, the lending giant’s President who thought it would be a great idea to run up the company stock, and then bail like a coward, or the head of a large investment firm who took people’s money without a thought as to what he would do with it- they are out there muddying the mortgage market.

If that awfully kind-hearted <cough cough> Bernie Madoff doesn’t make you think twice about just how COSTLY it is to let sociopaths hold positions of power in this country, I don’t know what will.

Think about this: If people weren’t so driven by greed and need for ‘dominance’, we wouldn’t be in the mess we are in today.

Andrew Adams and I discussed this a little bit on the mortgage discussion boards, and it is absolutely true. If half of the people that were steered towards HIGH RISK, HIGH YIELD loans, and instead put in safe, simple, LOW RISK loans, like FHA, we wouldn’t be in this mess. I’ll give you a quick example: I once had a manager who was evil personified. She would lie to a client’s face for a few extra bucks. She would take loans that could have gone ‘conventional’ and put them through ‘sub-prime’. She would tell people inaccurate credit scores, and make them feel unworthy of getting a loan- and guess what? She manipulated them to the point that they would actually be THANKFUL to get what she was offering, which was garbage. Within a month of taking over the office, the ‘old guard’ was tossed out, including myself who had moved on to another company. The people that I had known there, and even trained, were kicked out. Why? She did not want ANYONE with experience (she wanted to train people to be just as conniving and dirty as she was), and more importantly she wanted NO ONE left with any loyalty to the owner of the company. She was extremely scared of her competition, and rightfully so. She stayed on there for quite some time, I’m sure she made the company a lot of money. I am also sure she burned every bridge she could, and wrote a lot of BAD loans. Her name was Renee, and I check the banking department website every now and then just to see if she has lost her broker license yet. With any luck, she has moved on to greener pastures modifying those loans she wrote that ruined people’s lives. When I hear people blame it on the ‘victims’, in this case homeowners, all I have to do is think of Renee, and her lies and her manipulation, and any empathy I have for people multiplies by the hundreds.

If bankers didn’t think ‘hey, I’ve got a really good idea. Why don’t we create a loan where people can pay us hand over fist, and still never pay us off? Better yet, why not make the teaser rate so low, that EVERYONE can afford a house 3 times what they should? WOW, WHAT A GREAT IDEA! We’ll all be rich!!!’. Yep, Pay Option ARM’s- great idea, if you have no conscience.

I have met many people along my mortgage journey, some have been truly wonderful, honest, hard-working individuals. Others were completely self-serving, paranoid, jealous of competition, manipulative and downright scary! MOST of those people have moved on to other industries, most notably LOAN MODIFICATION or car sales. But the fact is, we will NEVER get rid of these people. They will always be here, telling you what you want to hear, pushing you and prodding you to do something that is NOT IN YOUR BEST INTERESTS, and constantly looking out for themselves first.

When you think of companies like Enron, Ameriquest, and the scam-artist covers like ‘Privacy Guard’, you think of the lives harmed, money lost, and ethical standards annihilated. As consumers, I think we should all put our guards up once again, and not get caught up in what some fake, super-confident ‘salesman’ has us believe we need. We need our country to flourish and be strong once again, and I can guarantee you we won’t get there if we just keep handing our money and trust over to people who do not deserve it.

End of the rant. I’m just frustrated with the way things are going.

To a happy, safe and prosperous February. It’s almost February??? Where does the time go….

Jennifer Monastero
First Choice Bank

I’m just going to throw out a few ideas and see if any of them make sense, does that sound like fun?

1) Since the government is such a fan of spending money we don’t have to buy mortgage-backed securities, why not go a step further and buy actual loans? If they did, perhaps they could buy and refinance loans for borrowers who bought homes using stated income, or low-documentation loans. A good chunk of this ‘mortgage crisis’ began when banks started eliminating ‘Stated Income’ programs, so that when borrowers who purchased homes USING those programs, and often times had adjustable rate mortgages, they could not qualify for a refinance. I am NOT saying banks should bring these programs back for new loans, all I am suggesting is that if someone used that program when they purchased, they should be allowed to qualify using that same program to refinance. This will help at LEAST two people. In seriousness, no investor wants these loans on their books. So there are very few options on the open market- even though these loans were their brainchild, and marketing favorite for quite some time. A huge segment of delinquent borrowers could be attributed to the inability to refinance out of their skyrocketing payments- if the loans were still available, we would still be in the mess we are in, but at least a few less people would have lost or given up their homes.

2) Force banks to start working with borrowers BEFORE they are late on their payments! I am SICK of hearing that lenders are refusing to discuss short sales, or loan modifications until borrowers are late by a month or two. What good does that do anyone? If someone needs to sell their home, presumably to MOVE, how can they buy another home with poor credit? They can’t. Let people keep their good credit, and do what is right! Lenders need to start cooperating and being proactive. 

3) There has been some talk of this one, so I can’t take credit for coming up with it in the slightest bit, but it would help DRAMATICALLY. Allow borrowers to refinance their homes without requiring an appraisal. Don’t freak out yet. If someone wants to stay in their home, and has confidence that their market will bounce back- reward them for their loyalty and willingness to make it work! FHA and VA loans already offer ‘rate and term’ refinances with no appraisal, and even no income verification (VA). The government backs these loans, and since the printing presses are up and running to bail out banks, can’t we also use a little bit of money to back real people who need help? 

Any other thoughts? This is going to be a very rough year for millions of people. If we don’t do something to get off of this track, we are in deep. A combination of borrower AND lender effort can bring us out of this, or at least stabilize things. But then again, when houses prices are continuing to fall, does it really matter what we do? Should we just throw our hands up and wait for the Depression Part Deux to hit? Why does it seem that no matter what the government does to bail out the banks, nothing changes on the streets of the US? Oh, by ‘nothing changes’, I mean- things get WORSE. Maybe they are throwing money around in the wrong places? 

Jennifer Monastero

Citizens Community Bank

Back so soon? Yes, I am. 

I felt like playing my own ‘Devil’s advocate’ in regards to my latest blog. See, I tried to play it off like I don’t know why anyone would want to hold out for the lowest possible rate, even if it may never happen. 

I am a consumer, just like all of you who are reading this. At our most basic level, we all want the same thing. The best deal, at the best time. Sometimes, that works out. Sometimes, we get burned. But I wanted to share a funny story about consumerism at it’s finest. 

I spend most of my time in Connecticut, New York and New Jersey. Gas prices, like everywhere else, were absolutely OBSCENE up here. At the height, let’s say they averaged $4.50 a gallon. In recent months, they steadily dropped. In CT, they hung out around $3.50 for a bit, then $2.50. Then, magically, $2. In NJ, they are consistently 50 cents less. On my most recent journey to New Jersey, prices in CT and NY were around $2/gallon. Naturally, I wanted to fill up in NJ, so I drove to find the ‘best deal’. I SHOULD have been absolutely happy with anything BELOW $2, right? That is what I was used to, and what I had paid most recently. But the fierce consumer in me won out, and I drove to the area with the best prices, I think $1.57/gallon or so. 

I get it. I totally understand the forces that drive us to ‘wait’ or drive an extra five miles. Truth be told, I saved 60 cents. Was it worth it? Of course not, I was totally irrational. But in my mind, for some strange reason, I wanted gas for $1.57, not $1.63. But anything beat the $2 I’d be paying just over the border! Silly, but true stories often are just that. 

What would have happened if I drove ten miles out of the way, and gas prices actually started going up? Let’s say I was waiting for $1.57, but had to take $1.71 instead, or risk running out of gas? Was I going to beat myself up over it? Probably! But I would then be beating myself up for not taking the $1.63 when I had the chance

But that’s just the way things are as an American consumer. Let’s try to not beat ourselves up anymore. New Year’s resolution?

Jennifer Monastero

Citizens Community Bank

Low rates are here, and have been here for a solid month now. People can obtain rates anywhere from 4.5% to 5.125% when just a short time ago we were closing loans at 6.125%+. By all accounts, these are excellent interest rates and they should actually be stimulating the real estate market NOW. 

A very strange thing has happened though, and I am not sure it’s entirely healthy. People seem to be fixated on ‘waiting’ for ultra-low rates that may never appear, and in the meantime they continue to pay their 6.5% or 7% loan payment. Might 4.5% with NO points happen? Maybe. Maybe not. Tchaka Owen, who commented on another blog and writes on Active Rain brought up a very good point. He mentioned that no matter what the government does, it’s the LENDERS who control where rates go. So, while all signs are pointing to 4.25% RIGHT NOW, we are not seeing those rates on the street. Lenders don’t want to do it. Why? Because they are trying to make money, and because they are so understaffed they know they’ll get killed if they open the floodgates. If those rates aren’t there NOW, when they should be, how do we know they will be at some point this spring (or next week)? 

Let’s take a look at what ‘waiting’ for the magical rate does in two examples. One, a loan amount of $150,000 and the second a much larger loan amount of $450,000- both paying 6.5% currently.

At $150,000, the payment is: $948

At $450,000, the payment is: $2844

They can both obtain 5% with no points currently- and those payments are:

On the $150,000 loan: $805 (savings- $143)

On the $450,000 loan: $2415 (savings- $429)

Let’s say they are holding out for 4.5%, what would their payments be?

The $150,000 loan would carry a payment of: $760. This would mean an additional savings of $45/month.

The $450,000 loan would carry a payment of: $2280, or an additional savings of $135.

Based on these numbers, one could argue strongly for holding out for the lowest rate on the higher mortgage amounts, but not so much on the smaller mortgages. The difference in payment, in my opinion, is not ‘earth-shattering’ enough on the $150k loan to get worked up over. And honestly, even on the $450k loan, is missing out on 4.5% reason to cry? I doubt it. Both scenarios are saving so much at 5% that holding out for a little extra may end up costing them. And how do we know where rates will bottom out? We don’t!

What happens if someone closes at 4.875%, and rates continue to fall? Are they going to beat themselves up for ‘not holding out’ long enough?

My suggestion would be to not get all wrapped up in the rate, it will drive you crazy. While I understand the want behind getting the best rate, I can’t get behind the current obsession. If you want to close, and it will save you money, the sooner you do it, the better. End of story. Rates may continue to fall, and if they do, remind yourself that you had 6.5%+/-, and you were one of the lucky ones that could refinance and get out of it. People can beat themselves up over many things, getting the lowest interest rate should not be one of those things!

2009, here we come! Hold on to your hats!

Jennifer Monastero

Citizens Community Bank

Well, here we are. Nearing the end of 2008, another month of ups and downs and BIG market news. Another month full of bailout propositions, political mutterings and musings, and Dow troubles. The government’s supposed plan to artificially lower mortgage rates to 4.5% is still getting some air time. It’s all very fun and exciting!

As with all things ‘fun and exciting’, there are certain new things that we all need to be aware of. Most importantly, investors are changing the way they pay us, and this in turn affects YOU. It used to be, one of us could ‘price’ a mortgage deal at one rate, let’s say 6%, and then offer a higher rate (let’s say 6.25%) with no lender fees, and then 6.5% with all closing costs paid. OR, we could offer a slightly lower rate, 5.75%, with one point charged to the borrower. The spreads between the rates were not very wide. Oftentimes, it made sense for some people to go the no-cost route, and very rarely did it make sense to pay a point.

Well, the spreads on rates are wide now. This is an unintended consequence of the fictitious 4.5% rates.

See, investors are smart savvy (sometimes). They don’t want to pay us loan officers much money if we are going to hand them a loan that’s just going to get refinanced in three months! They don’t make much money on those types of loans, so they try to avoid them. So, now, let’s say 5% is the ‘one point’ rate. What would the ‘no-point’ rate be??? Probably 5.5 or 5.75%! Such a huge difference, it’s amazing. This means to us (me, and others in the profession) that the lenders and investors don’t necessarily want to pay us very much, so they are stretching out their ‘premium’ levels. We get paid in Yield Spread Premium, Service Release Premium- Some sort of ‘premium’. To deter churning of high-profit loans on OUR end, they are paying us less. Plain and simple.

Way back when (only a month or so ago in reality), a person could get a no closing cost loan very easily. Add .5% to the rate, and have all your expenses paid by a lender credit. Very simple. Now? Impossible. You’d have to add 1-1.5% to the rate to accomplish that. Who wants to do that?

On the flip side, I am recommending to most of my borrowers that they pay points. The affect on the rate is much larger than ‘normal’ (old, .25%, NOW .5%+), so paying a point or two definitely makes sense.

Here’s a little chart as an example (all rates are illustrative ONLY):

Then:                                                             Now:

6% (2% in premium to US)                                6% (2% in premium to US)

6.25% (3% in premium)                                    6.75% (3% in premium)

AND THE CAPPER

5.75% (1 premium/1 point from borrower )       5% (1 premium, 1 point)

These are NOT normal times. And this is just one of the many changes we’ll be in for over the coming weeks and months.

Bottom line- don’t shop for no-closing cost loans, they are not worth it. And if you can, pay a point or two. The rewards are much greater!

Good luck out there

Jennifer Monastero