VanDyk Mortgage - Blog

In case you missed it, WRAL 5 had a report about the local housing market and new buyer incentives in HR 3221 this week. For the report, they interviewed me as a “local mortgage expert” along with a local Realtor and a first time homebuyer.  It was broadcast on the Tuesday 5:30 PM and Wednesday morning news broadcasts, and you can also watch the video and read the story online at:

http://www.wral.com/news/local/story/3368671/

http://www.wral.com/news/local/video/3369172/

Although I have been interviewed for radio and newspaper articles before, this was the time on television.  It was an interesting experience and it is great to see a positive story on the housing market.  Hopefully it will balance out a little of the “doom and gloom” that is predominating the media  coverage- which is as over blown as all the “get rich flipping” coverage and shows of the past few years were.

Guidelines are a little tighter, but there are still many great financing options available including FHA, USDA and Community Loan Programs.  We can help you determine which of these programs fits your needs and assist you in  becoming pre-qualified if necessary.  Read more at our website, or contact us now for a free analysis.

·         Shred financial documents and paperwork with personal information

     All bills and account statements, credit card offers and other pieces of mail that contain personal or financial information should be shredded and not just thrown in the trash.

·         Protect your Social Security number

     Don’t carry your Social Security card in your wallet or write your Social Security number on a check.  Give it out only if absolutely necessary or ask to use another identifier.

·         Don’t give out your personal information

     Whether on the phone, through the mail, or over the Internet don’t reveal your personal information unless you know who you are dealing with.  Check with the Better Business Bureau if you have questions about a company’s legitimacy.

·         Never click on links sent in unsolicited emails

     If it is a company you know and have an existing relationship with, type the web address you know directly into your web browser.  Use firewalls, anti-spyware, and anti-virus software to protect your home computer.  Keep them up-to-date to guard against the latest threats.

·         Don’t use obvious passwords

     Common and simple passwords like your date of birth, your mother’s maiden name, or the last four digits of your Social Security number are too easy for a thieve to guess.

·         Keep your personal information in a secure place at home

     This is especially important if you have roommates, employ outside help, or are having work done.

Identity theft is the crime of obtaining the personal or financial information of another person for the purpose of assuming that person's name to make transactions or purchases.  It has become the most common crime in America and happens every day to individuals all over the country and received much attention in the media recently.

Identity thieves can gain access to personal and/or financial information and ruin the good name you’ve worked your whole life to establish.  And If you’re unprepared and don’t recognize that the crime has taken place, months or even years worth of damage can accumulate before being noticed and action can be taken to resolve the problem.  The effects can be devastating, putting your and your family’s well-being in jeopardy.

However, precautions can be taken to reduce the chances and safeguards set in place to minimize the effects in the event you become a victim of identity theft. By taking just a few minutes, you can learn how to protect yourself against identity theft.

What if it happens to you?

Knowing what to do once the crime has been committed is crucial in minimizing the damage and putting your accounts and credit status back in good-standing as quickly as possible.  If you become a victim, just knowing what steps to take can save you from many wasted hours and dollars when dealing with the situation. 

The Federal Trade Commission has broken the process of dealing with identity theft into 3 phases in their new Deter, Detect and Defend Campaign and outlined several steps to take.  Over several posts we will outline these steps and what you can do to protect yourself.

After several months of negotiations and veto threats by the White House, HR 3221, the "Housing and Economic Recovery Act of 2008" passed Congress last week and was signed by the President today.  The nearly 700-page final bill combined a number of measures to modernize and reform the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac, and the Federal Housing Administration (FHA).  The bill will assist at-risk homebuyers and stabilize the mortgage market. 

Key measures include:

•  Permanently increase the cap on GSEs (conforming loans) to $625,000 from $417,000
•  Increase FHA loan limits in high-cost areas to $625,500 from $362,790
•  Allow the FHA to insure up to $300 billion in 30-year fixed rate loans to help refinance at-risk home owners
•  Imposes a 12-month moratorium on the newly released “risk-based” mortgage insurance pricing on FHA loans
•  Bar seller funded down-payment assistance programs on FHA loans and increase the down payment requirement from 3% to 3.5%
•  Create a “tax refund” of 10% of a home’s purchase price (up to a $7,500) to many first-time homebuyers
•  Authority for the Department of Treasury to provide funds to aid the GSEs over the next 18 months if it becomes necessary
•  Give states $4 billion in grants to buy and rehab foreclosed properties
•  Establish a nationwide loan originator licensing and registration system

The new FHA refinance program will help at-risk borrowers in owner-occupied homes refinance into affordable, fixed-rate loans.  The current lender must write down the loan balance to 90% of the homes' current value and pay upfront fees to the FHA of 3% of the homes’ value.  The  borrowers must also pay an annual premium to the FHA equal to 1.5% of their new loan balance and to share with the FHA any profit they gain from selling or refinancing.  It is estimated that this provision will help ~325,000 borrowers to avoid foreclosure and remain in their homes.

The ban on seller-funded DPA programs (which we will cover in detail at  another time) is the result of studies showing an increased incidence of foreclosure in those mortgages.  In fact, the FHA claims that a main reason that their reserve fund has fallen is from the improper use of seller-funded DPA program.  The FHA in recent years had tried to implement risk-based pricing (charging higher mortgage insurance premiums for lower credit scores and down payment) and to eliminate the DPA program.  Both have met with resistance, but it appears that seller-funded DPA programs will now be banned, while the recently imposed (July 14^th) risk-based premiums will be suspended for another year.

Possibly the most controversial provision will allow the Treasury Dept. to provide liquidity to Fannie Mae and Freddie Mac if necessary.  This is hoped will reestablish confidence in the GSEs and halt the steep declines in the government supervised but privately owned corporations stock prices.  Combined, the GSEs own or back $5.2 trillion in mortgages and are vital to the mortgage industry.  The bill allows the Treasury to offer them an   unlimited line of credit and to buy their stock during the next 18 months.

One part of the bill receiving little mention in the media but crucial for   consumer protection is the new all originator registry.  Currently mortgage brokers in many states are required to obtain licensing, with mandated education, testing and background/credit checks.  However loan officers at banks, credit unions and direct lenders are not licensed or required to meet these standards.  The national system will ensure all mortgage originators are properly trained and screened and provide protection from unethical and criminal  participants entering the mortgage industry.  Our branch and company supports increased standards to make sure that our customers receive the level of service and value they deserve.

You can read more details and commentary on CNN Money.

Raleigh keeps getting positive attention in the news!  In addition to the great rankings we noted recently, Raleigh has received several favorable reviews by bizjournals.com. 

Raleigh was ranked #1 in “metros offering the best opportunities for young professionals”.  The study looked at markets that offered the best prospects for people in the 18-34 age range and looked at growth, income levels and education to range the countries 67 largest metros. 

Raleigh was also the only city in the top 10 in three categories:  population growth, job growth and the percentage of young adults with college degree.  It was also noted Raleigh also enjoys a relatively low cost of living which is helpful to those starting their careers.  Raleigh was also ranked #8 in the “smartest metros” list.  The area is one of only eight metros where at least 40% of adults hold at least a bachelors degree.

Why is this important?  According to bizjournals.com studies these factors have a large impact on the economic vitality and prosperity of a region.  Hopefully Raleigh and the rest of the Research Triangle Park area will continue to grow and be a great place to live for many years.

The Center for Responsible Lending just released a report titled "IndyMac: What Went Wrong?" analyzing some of the mistakes they, and many others lenders, made in the last few years.  This is quite good timing considering the recent closure of IndyMac's mortgage unit and it falling under FDIC protection this week.  In the report, the Center "finds substantial evidence that IndyMac routinely made loans with little regard for their customers' ability to repay the loans".  The investigation also found that in the Center’s opinion "IndyMac's current problems appear to be largely the legacy of top-down pressures that valued short-term growth over making responsible lending decisions."

This disinterest in learning about clients needs, disregard for the suitability of the recommended financial products and focus on short term “rate/payment” has without a doubt led to many of the problems we now face.  Many in the industry became “sales people” or “order takers”, quoting rates without offering any disclaimers or burying the risks in the fine print.  A true mortgage consultant, like any financial advisor, should focus on the long term stability and financial security of their clients.  It is in this way that we not only serve clients interests but ensure the survival and growth of our business.

The Center’s report also stated that IndyMac:

            • pushed through loans with bogus appraisals and income data that exaggerated borrowers’ finances

            • worked hand-in-hand with mortgage brokers who misled borrowers about their rates and other loan terms and stuck them with unwarranted fees

• participated or allowed bait and switch, discrimination and falsified paperwork to occur

There are currently several lawsuits against many lenders and brokers claiming that borrowers were deceived by loan officers who promised low rates.  Instead, the lawsuits say, the teaser rate evaporated within one or two months to be replaced by much higher interest rates and payments.  

Once again, this stresses the importance of working with licensed mortgage professionals.  Furthermore, it is essential to research your lender and loan officer, including how much experience, licensing and education they have.  After all, anyone can say they have a great rate (they are sales people after all) but not everyone will work diligently and honorably for their clients.

For a full copy of the report, visit the Center for Responsible Lending website or download the report here.

In the new Census Bureau report for the year ended July 1st 2007, Cary made the list of the top 10 fastest growing cities.  Cary actually made #5 on the list with a population growth of 7.3%.  This puts the estimated population of Cary at 121,796.

While smaller cities top the fastest growing list percentage wise, the Census Bureau also prepares a top 10 list of numerical gainers.  This list includes two North Carolina cities, with Charlotte at #9 nd Raleigh at #10.  To see who else made the list, you can read more at CNN.

Although growth has many benefits (increase in housing prices, demand for business services, greater tax revenue) it can also burden our natural resources and cause other concerns.  Hopefully our area will be able to manage the growth responsibly so that Wake County remains a great place to live.

It was recently reported that Wachovia will no longer be offering Pay Option ARMs (aka the Pick-A-Payment loan).  This was a sophisticated mortgage product that was beneficial to many homeowners that understood its features.  It allowed a borrower to choose from various monthly payment options, including a 15 or 30 year term payment, an interest only payment and a “minimum payment” option that only covered a portion of the interest.

Unfortunately, in many cases the risks were not disclosed properly.  The downside is if borrowers make that “minimum payment” their loan balance actually INCREASES every month.  This is what is known as “negative amortization” or “deferred interest” and can lead to complications when selling or refinancing in the future, as there may be little or no equity left.

It is estimated that in 80% of the cases, Pay Option ARM borrowers make the minimum monthly payment of 1% to 4%.  Eventually, sometimes in as little as 1 month after closing, the rate increases and homeowners see drastic payment increases.  Eventually the loan “recasts” or “resets”, at which time the owner has reached a threshold of deferred interest and can no longer choose the “minimum payment” option.

From their official release:

• they will no longer offer products that result in negative amortization
• they will be waiving all fees associated with these loans to allow customers the opportunity to refinance into other programs

It is currently estimated that Wachovia owns ~$200 billion of these loans.  Other major Option ARM lenders include CountryWide, Washington Mutual, IndyMac, Lehman Brothers and Deutsche Bank.  A big problem for banks that hold these loans is that they are allowed to calculate as revenue the fully indexed payment each month.  This can be two (or more) times the “minimum payment” allowed.  

In theory this works as the interest will eventually be earned when the borrower pays higher amounts or pays off the balance via a sale or refinance.  When home prices decrease or foreclosures occur however, this “revenue” is never realized.  This could lead to major restatements on several years of profits and losses from the banks that hold a high number of these loans.

As I wrote recently, this is another reason to interview and be careful when choosing a broker or lender.  What might sound like a “great deal” may not be the right financial product for you and that is why it is important to have a licensed, experienced mortgage consultant to advise you throughout the process.