Mortgage by Randy
monthly update to our clients, colleagues, family & friends
By: Randy Mitchelson, August 2011
In Issue 41 We Touch On:
Refinances: Double Edge Sword
Think Twice Before Buying Credit Scores
Hurricane Irene Scams
This short and sweet newsletter comes to you from Upstate New York. After a couple of weeks of travel the road trip is winding down. After experiencing an earthquake and a hurricane within one week in New York, it's time to saddle up and return to the peaceful paradise of the Southwest Florida gulf coast. The soft landing I look forward to when my head hits my own pillow is not being shared by our economy and mortgage market. Read on to learn about the ongoing challenges we face as we struggle through this long term sluggish economic period.
The current newsletter and all prior newsletters are archived at the Mortgage by Randy blog. Bookmark it and share with your friends and family. You can make your own comments and feedback as well. Time for the news…
Mortgage Market: Historically Low Interest Rates Not Accessible By All Homeowners
Despite historically low interest rates, mortgage refinancings remain hard to come by for homeowners.The underwriting and pricing standards that are set by Fannie Mae and Freddie Mac and adopted by the banks make it very difficult for struggling homeowners to take advantage of this favorable interest rate environment. Some experts claim that the root cause of this situation is greed. The investors that own the mortgage securities are enjoying above-market returns on the older mortgages and to allow for a wave of prepayments via refinancing would wreak havoc on the banking and mortgage investment community. In other words, Fannie and Freddie may be manipulating their pricing requirements to block homeowners from qualifying for a refinance - something that is in direct conflict with the Obama Administration's public goal of helping as many struggling homeowners as possible.
This week's HSH Survey explained the situation well, "Refinancing is truly a two-edged sword, beneficial to homeowners but problematic for investors. The a process of trading in an old, high interest rate mortgage for a shiny new one with a lower interest rate can be a boon to the consumer but a bane of the investor, since the increase in cash flow for one means a decrease in cash flow for the other. In the present environment, many homeowners are current on their old high-rate loans but cannot refinance due to a loss of income, or equity, or a credit rating which now falls below market norms. So far, programs to address some of the borrowers -- Making Home Affordable's HARP and FHA's Short-Refi program -- have fallen woefully short of goals of helping millions of borrowers, and the administration is studying ways to get more people into the program. That potential intervention has spooked investors in mortgages, especially those holding high-yielding older mortgage securities, which are the most likely to be refinanced. This stepping away from the market is starting to push up interest rates up little bit, or at least serving to keep them from declining further."
On the purchase side, the historically low interest rate environment is opening doors to homeownership for more people. Even folks with some credit challenges still have hope of qualifying via an FHA Loan which places heavier emphasis on employment, monthly income and debts. For those who are unable to get approved for any mortgage from a bank still have the option of purchasing with a hard money loan. In some cases, a 30% downpayment and a 50% debt to income ratio is all it takes to qualify for a single family home mortgage.
Personal Credit: Think Twice Before Purchasing Your Credit Score
Supposedly, curiosity killed the cat and although curiosity about your credit score won't kill you, think twice before shelling out the money to purchase it. First of all, remember that there are three major credit bureaus and each one has its own credit score for you. Lenders typically take the average of the three scores (or sometimes the middle score) to base their lending decision on. Purchasing your credit score from each of the three credit reporting agencies will cost about $30. Let's say you do that. Now what? What use are those scores to you? A lender will still charge you for a credit report when you apply for a mortgage. The score that you purchase is not the same score that a lender gets when they pull your credit. Your score represents a single point in time. It becomes outdated with every passing day. If you pay your bills on time, then chances are you have a pretty good score - sleep well knowing that. Spending your hard earned money to purchase your score adds very little value to yor life. One more thing....those free credit score advertisements on television are not real - they require enrollment in credit monitoring service which entails a monthly fee. I am all for credit monitoring - it has saved me more than once, but don't get sucked in to the free credit score bait and switch. Instead, shop around for the best credit monitoring service that meets your needs. Try your bank first and compare their service to what is available from the three credit bureaus, Equifax, Experian and TransUnion. Monthly pricing ranges from $5 to $30 depending upon the bells and whistles that are included in the service.
Economy & Financial Insights: Hurricane Irene Not Exactly The Stimulant We Wanted
An unexpected event has caused the back to school shopping season to be severly interrupted and its name is Hurricane Irene. Although not on the scale of Hurricane Katrina, Irene has caused billions of dollars in damage and lost revenue which cannot be recovered. Another impact is on household savings. Prior to the storm, people were spending every last dollar to purchase batteries, water, bread, generators and other supplies. Many people relied upon credit to cover these expenses. Additionally, people impacted by the storm face clean-up and repair expenses and down the road, higher insurance costs as flood maps get revised and insurance companies raise rates to recoup losses from claims. Higher insurance prices are another sign of inflation which is already on the rise and we are at the mercy of the Federal Reserve to try to keep it under control. Remember, they want inflation because it keeps more paper money in circulation and devalues our debt at the same time. It is a balancing act out of our control and we can only hope to avoid the hyperinflation that our parents and grandparents faced in the late 1970s and early 1980s.
Question of the Month: I Am 75 Years Old - Will The Bank Give Me A Mortgae?
Age is just a number and when it comes to mortgages, you need not worry about it. If you qualify for a mortgage based on your income, debts and credit score, then you will be off to the races regardless of age. In some cases, homebuyers who are seniors have the ability to pay cash for a new home but prefer not to burn such a huge chunk of cash. In this scenario, consider paying cash for a new home and after the transaction is complete, apply for a home equity line of credit. There are several advantages from this. First, cash buyers almost always have a leg up against competitors for the same property. A cash buyer is attractive to a seller since there's no mortgage application to worry about. This speeds up a sales transaction dramatically. Second, a home equity line of credit is much less expensive to set-up than a traditional purchase mortgage. In fact, many banks offer home equity lines of credit at no cost. Third, a home equity line of credit gives you control over if and when you tap into that cash source. Unless you need to draw upon your line of credit you do not need to pay any interest. It is a back-up source of cash in case you need it and is basically a pay as you go tool.
Giving Back: Beware Of Hurricane Irene Relief Scams
It is sad that reminders like this one have to be published, especially after a natural disaster that affects so many families. There are bad people in this world who are expert at separating you from your hard earned money through scams that are built upon the gut wrenching emotion caused by a tragic event - in this case Hurricane Irene. If you receive an unsolicited telephone call, email or regular mail from a charity that you have not heard of that is helping Hurricane Irene victims, do your homework before making a donation. You can always trust the Red Cross or Salvation Army with your money. However, lesser known charities -that inevitably have very trusting names - deserve your suspicions. Always ask for information to be mailed to you so that you can make a decision about donating after you have had the chance to check on the charity. Use websites such as Give.org and Charity Navigator to research charities.
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to firstname.lastname@example.org by the 5th day of each month and we will do our best to include your information in the next issue.
Thank you to everyone for the out pouring of birthday wishes this month. It was a milestone birthday and the sting was definitely lessened by all the love. No matter what your age, it is important to have goals and as you accomplish them, to set your mind to new ones. Goals may even become outdated or unimportant as life moves on causing you to reprioritize what is important. Family and health are two of the biggest things that seem to affect what we hold to be most precious. I might not have understood that in 1995, but time and experience has gifted me that wisdom.
Mortgage by Randy newsletter, Copyright 2008-2011 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with over 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval. He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products. Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Treasurer of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle’s Angels Foundation Inc. He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.