Saturday, December 27, 2008

Michigan Rewards Goof-off Grasshoppers instead of Attentive Ants

The Michigan Loan Officer Registration Act (LORA) deadline of January 1st, 2009 proved unobtainable, so an extension has been granted.

December 27, 2008 -- BLOOMFIELD, MI – So much for being on the ball. Michigan just turned the Aesop Fable of The Ant & the Grasshopper upside down by announcing a LORA deadline extension on December 8th.

Aesop’s Fable told the story of a lazy grasshopper playing all summer long and making fun of an ant hard at work storing food for the winter. When winter comes, the starving grasshopper begs the ant for some food.

If you were a Michigan loan originator (Ant) that took the original LORA legislation seriously and signed up for the required testing ASAP, you just got the rug pulled out from under you. All those LO’s that procrastinated (Grasshoppers), or didn’t even know about the new legislation, get to laugh at you now for stressing out, studying and taking the test at 8am on a Sunday morning.

For those scratching their heads as to what I’m writing about, the Michigan legislature passed a bill, called the Loan Officer Registration Act (LORA), that Governor Granholm signed into law April 3, 2008. LORA requires Michigan loan originators to register with the Office of Financial Services (OFIR), requires taking a 24 hour class or having 4.5 years of experience, passing a test, annual continuing education, background check and fingerprinting.

The original deadline for all this was January 1, 2009.

A disagreement arose though, with the Michigan State Police concerning interpretation of the fingerprinting and background check requirements. This resulted in the extension announced December 8th pushing the deadline back to April 1, 2009.

The only good thing about the extension was that the legislature took the opportunity to stiffen the requirements a bit more. The FBI will also now be involved in the background check and fingerprinting.

I’ve written before that LORA is way over due. Too many crooks and incompetents got in the mortgage business for the fast cash and took advantage of unsuspecting homeowners, helping to contribute to the current housing crisis. The industry needs a housecleaning! When similar legislation was enacted in Indiana & Ohio, over 30% of the mortgage originators “disappeared”. More need to go. Just this past week, I met a guy who has his own mortgage brokerage and he didn’t even know about LORA. How scary is it, that he could be doing mortgages and not know about state requirements concerning his livelihood?

Overall, the extension is really a shame. All the bad eggs we want out of the business get more time to do more damage. Is it just a coincidence that the new deadline coincides with April Fools Day?

Show your support for higher standards in the mortgage industry by only doing business with those that have already passed the required LORA test. Don’t settle for a verbal verification of this. After taking the test, we all immediately get a printout with our picture on it that tells us if we passed or failed.

Monday, December 22, 2008

To Refinance, or not to Refinance?

Mortgage rates have dropped, but many homeowners are saying, “So, what”.

December 22, 2008 -- BLOOMFIELD, MI – the Federal Reserve dropped the overnight rate to a record low of 0.25% on Tuesday, December 16th. More importantly, they announced a plan to buy mortgage-backed securities in quantity. This sent mortgage rates to their lowest levels in 50 years.

Mortgage lenders around the country rejoiced, expecting another refinance boom just in time for Christmas. Stories spread about the millions of dollars of loans locked and there was even talk of lenders hiring again.

Homeowners though, don’t seem to care.

In addition to blast emailing everyone in my database with what I thought was great news, I personally called over 70 clients that had a rate and loan amount where it could make sense for them to refinance. Surprisingly, I seemed to be the only one excited about this opportunity. Most clients didn’t seem to be interested for various reasons – too busy getting ready for Christmas, savings not enough, too much paperwork to deal with, and the best one, “I think rates will go lower”. Several of my associates in the industry I talked to got the same feedback.

I’ve been thinking about these responses for a couple days, wondering why there hasn’t been more interest in refinancing. In years past, a drop in rates like this would’ve had my phone ringing nonstop. With the large number of lenders out of business and the corresponding dramatic drop in loan originators, one would think the “survivors” would be swamped.

Me thinks homeowners are a lot more cautious these days, which is a good thing. They’re not willing to just refinance for the sake of refinancing or to convert home equity into dollars to spend. Too many have been burned by mortgage crooks or overspent and are worried about losing their homes.

There’s also the fact that a significant percentage of homeowners with mortgages are upside in their homes.

As I’ve written about in the past, it’s estimated almost 25% of homeowners nationwide are upside down in their homes. Nevada leads the nation at almost 53%. Here in Michigan, the number is almost 47%. FHA & VA loans already offer the option of refinancing without needing an appraisal. On December 10th, word leaked out that the government was considering making the same option available for conforming mortgages.

If that comes to pass, I wonder if it would make a difference with homeowners and increase their interest in refinancing?

Then there’s also the issue of interest rates. There are an abundance of news stories from Wall Street & Washington D.C. about how low interest rates may go. One homeowner referred to me stated he wanted to wait to refinance and time the market so he could get the lowest rate. I wonder how that strategy has worked for him in the stock market?

Don’t be greedy. Besides the odds being against you in trying to time the market, there are several other possibilities that could work against you: your home value could fall below that needed to refinance or enough to require PMI, mortgage rules could change again for the negative, you could lose your job, your credit could get damaged or your neighbor’s foreclosure could drop your home’s value.

Contact me to discuss refinancing. If you’ve dealt with me in the past, you know I take pride in only refinancing when it makes financial sense. Also, please refer your family and friends to me that have financing questions or are looking to buy.

Have a great & safe Holiday Season.

Saturday, December 13, 2008

The Great American Housing Challenge

What can be done to stop foreclosures and the resulting drop in housing values?

December 13, 2008 -- BLOOMFIELD, MI – Mortgage rates dipped this past week to 40 year lows and although many homeowners would like to refinance and lower their mortgage payments, a significant portion cannot due to being upside down in their homes.

Nationally, as of October, almost 25% of financed properties have less than 5% equity in them or are upside down. Nevada leads the nation at almost 53%, followed by Michigan at almost 47%. Refinancing to lower mortgage payments will be difficult for many homeowners as they would have to bring money to the closing that they probably don’t have.

The government’s efforts in creating programs to help homeowners, have so far failed to significantly slow the deluge of foreclosures.

FHA Secure, designed to help homeowners refinance out of subprime ARM’s, has reported questionable result numbers according to the New York Times. In fact, the definition of the program was changed to pump up the program’s numbers.

FHA’s Hope for Homeowners has also generated dismal results. A 47 page list of participating lenders, updated by HUD December 12th, doesn’t have any of the top ten lenders in the country on it. These lenders account of almost 70% of the mortgage market, if they’re not on the list, consider the program a failure.

On November 11th, the government announced an initiative for lenders to modify mortgages held by FNMA & FHLMC. An $800 per loan incentive was even offered. This program was so well received by lenders that there’s now talk about tying the receipt of federal bailout funds to participation in the initiative.

So, what would be a better solution to help keep people in their homes and seriously slow foreclosures? It’s all about affordable monthly payments. So, how about doing away with appraisals altogether on refinance transactions that don’t pull any cash out of a property and lower the homeowner’s mortgage payment?

Through ownership of FNMA/FHLMC/FHA/VA the government already effectively owns over half the residential mortgages in the U.S. As such, we’ve got nothing to lose by ignoring appraised values. We can only gain by lowering monthly payments to make it more affordable for homeowners to stay in their homes and avoid foreclosure.

This solution also avoids the issues of trying to force lenders into doing loan modifications and the investor lawsuits associated with those same modifications.

Anyone have a better idea?

Saturday, December 6, 2008

Santa, all I want for Christmas is a 4.5% Mortgage Rate

Homeowners get excited about a Holiday rumor.
Even IF it somehow stuffs our stockings, will it just be a lump of coal?

December 6, 2008 -- BLOOMFIELD, MI – On Wednesday, December 3rd, beleaguered homeowners thought Santa really did exist and they were getting an early Christmas present. A rumor hit the media that the government was going to lower mortgage rates to 4.5% to help people stay in their homes and slow foreclosures. CNN picked up the rumor CNN Article.

On Thursday, emailed stories were flying around the internet and phones at lenders started ringing off the hook. The Wall Street Journal picked up the story WSJ Article.

By Friday, TIME Magazine had the story on their internet site TIME Article. The rumor had evolved into only applying to mortgages used to purchase a home.

The serious coverage and how fast the rumor spread, shows that a solution to the housing crisis is near the top of everyone’s Christmas Wish List this year.

How much relief would such a rate drop give a homebuyer? As the graph here show, a 1% rate drop on a $200k mortgage would save $122/month. A 2% drop would double that amount.

Experts are all over the board on how many more homes would sell if this rate was available, if the increase in sales would be enough to prop up home values and slow foreclosures.

Of more immediate concern is how likely the rumor is to become reality? To do so, the government could just set FNMA/FHLMC rates at 4.5%, something they can do now that they own the two. These would lead to issues though, of either the government owning individual mortgage or having to sell the mortgages on Wall Street at a loss. The government’s other option would be to buy all the mortgage-backed securities it can to drive market yields, and hence rates, down.

Either way, the government ends up subsidizing or owning mortgages. Can you say, “Socialism”? How about, “Communism”?

What should a homebuyer or homeowner do? Well rates dropped last week and although they’ve given some of that drop back this week, they are lower than they’ve been all year. The dip last week was short-lived, but another may be coming. Borrowers need to get a mortgage application in NOW to be ready to lock at a moment’s notice!

If Santa does stuff our stockings with a 4.5% rate, borrowers can always refinance again.