I have been a mortgage lender since 1995 and have heard every negative comment, story, rant, and opinion about Private Mortgage Insurance (PMI).  I never really understood why people had such strong negative opinions about PMI.  I would, from time to time, try and explain that without PMI most people wouldn't have been able to buy there first home.  Mortgage insurance, in my humble opinion, is great.  That's right I said great.  Without PMI I would never have had the ability to buy my first home, which would also have stopped me from buying my second home.  Yea, sure I didn't like paying for it every month but I also didn't like paying the interest on my mortgage.  Come to think of it I don't like paying the light and heat bills, greens fees, gasoline, or most bills.  However without them I would be sitting in a cold, dark cardboard box dreaming about the days long ago when I played golf on Sundays instead of digging through dumpsters for dinner.  Ok my rant is over. 

For the past five years I would rarely close on a home loan that had PMI.  With the availability of Two-step or Piggy Back loans (the 1^st mortgage for 80% and the 2^nd  loan for 5%, 10%, 15%, or even 20%) the PMI option was more expensive.  Well with the Sub Prime meltdown that has been changing quickly.  Many of the nation's largest mortgage lenders have closed there 2^nd mortgage operations which makes it difficult to find inexpensive 2^nd mortgages.  Over the past six months I have found that more time then not when I run the numbers for a client, offering them a mortgage with PMI is less expensive then doing a Two-step loan. 

Below I have explained the four types of PMI offered for conventional loans.  I hope you find this informative.

Monthly Paid PMI is considered the old standard and most commonly used PMI option.  Monthly PMI charges a fee every month for the first five to seven years of the loan.  After the five to seven years (which is the amount of time required to pay down the loan to less then 80%) the PMI payments stop.  The amount of time before the PMI payments stop depends on the amount of down payment made when the loan was made as well as if any extra principle payments were made.  The amount of the monthly PMI payments depends on the amount of the original down payment as well as the credit score of the borrower.  This monthly fee is based on a percent of the loan amount.  The more down payment made will reduce the percentage.  Wither or not the PMI payments can be tax deductable will depend on the income level of the borrower.

Lender Paid PMI is were the full amount of the PMI is charged at closing and the lender pays the premium. The lender in return provides the client a slightly higher interest rate to recoup the cost.  We have found in most situations this option has the lowest monthly payment and lowest total expense then other PMI programs.  Lender Paid PMI also has the benefit of being completely tax deductable for all borrowers regardless of income.   While this program has been available for many years it has only recently become popular because of the diminishing availability of good equity loans for Piggy Back loans (one mortgage loan at 80% and a 2^nd mortgage loan at 5%,10%,15% or 20%).  The adjustment to the interest rate for this program depends on the down payment made, the borrower's credit score, the loan program, and the loan amount. 

Single Premium PMI is very similar to Lender Paid PMI in which the full amount of the PMI is charged right at closing.  The main difference between these two programs is who pays the fee.  With Single Premium PMI the barrower is responsible for the fee.  Once this up-front amount is paid at closing, there are no monthly charges.  This program is very rarely used because the other options tend to have lower costs.  The amount paid for the policy is used up over five to seven years depending on the down payment.  If the loan is paid off sooner then the allotted time then a portion of the premium is refunded back to the borrower.  In most cases, and especially in our current market, the Lender Paid PMI is usually the better option, however in certain situation the Single Paid Premium should be considered.

The forth and perhaps least used program is a combination of the Monthly and Single Paid PMI programs.  This program has both an upfront fee at closing and a monthly fee for the first five to seven years.  Both of these two fees are lower then other programs however to total expense is higher then any of the other options. 

I believe that, at least for the near future, PMI will play a larger roll in the real estate financing picture.  So for all of you PMI haters out there I recommend you put aside your for-gone conclusions and look at all your options.  You just might find that if you don't have a 20% down payment then using one of the above PMI programs will be the least expensive way to get into that dream home. 

David Crisp

Senior Loan Officer

Ann Arbor Mortgage Company

Mortgage News You Can Use

November 16,  2007

The Good News That Does Not Get Reported:

1. Thirty-five percent of the homes in the U.S. do NOT have a mortgage.

2. Some 94.88 percent of the loans ARE performing.

3. The foreclosure problem in this country is really a story about seven states.

4. The biggest foreclosure problems are in Michigan, Ohio and Indiana.  These are manufacturing states that had horrible job losses.  Since 2001, our fair state has lost 300,000 jobs.  These states would probably have had problems no matter what the market was doing.

5. The other four states-California, Florida, Nevada and Arizona-experienced significant overbuilding.  Twenty-five percent of the foreclosures in these states are on properties that are held by investors who were speculating.

6. Only 25 percent of all mortgages are subprime, and of these, 75 percent are performing.

7. In the other 43 states, foreclosures have fallen in 2007 from 2006.

There's no question about the fact that there is bad news in some markets.  Frustrating to me is that there is also a lot of good news that is either being buried or is not being reported at all.

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Rate Update:  For the week ending November 15, 30-year fixeds averaged 6.24%, down from 6.26% the week before.  A year ago 30-year fixeds were at 6.33%.The rates for ARMs fell following the Federal Reserve's interest-rate cut.

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Some timely and important tips from an underwriter that spoke at the Michigan Mortgage Brokers annual conference last week:

· Make your time to closing longer in your contracts-at least 45 to 60 days.  The rest of the country is busier, the lenders have reduced their staffs and the time a loan spends in underwriting has been lengthened.

· Make your inspection dates shorter-5 business days

· Make sure your lender uses local appraisers who use realistic comps-underwriters go to www.zillow.com to check values and distance between comps used by the appraiser.

· If the underwriter asks you/your lender for more comps "consider yourself fortunate"!  The underwriter's other option is to decline the appraisal or lower the value they will accept for that home.

· And, a big item-PICTURES TELL A 1000 WORDS.  The pictures the appraiser uses tell the underwriter the whole story about the house-The pictures are the first thing the underwriters look at and give the most weight to.  So, spruce up the house before the appraiser arrives!

The hubbub over the sub-prime mortgage meltdown has abated a bit.  A month ago 151 major U.S. lending operations had imploded since late 2006.  In the last month the number has increased to 161 operations.  We have seen the Federal Reserve cut the Federal Funds Rate by .5% causing short-term rates to dip a bit and long-term mortgage to rise a bit.  The stock market has seen a new high in the last two weeks.  Jumbo rates had jumped up and have now moderated back down.  The Federal government is still debating on how to intervene to stave off a high number of foreclosures.  There are still billions of dollars of ARMs yet to reset. 

So there have been some good and some bad developments in the past few weeks.  Tomorrow's job report is important beyond the Fed and interest rates.

If the September jobs report is again much weaker than expected, especially if it shows another drop in employment, it will be very bad news for the economy.  The specter of recession may be looming on the horizon.  Economists surveyed by Briefing.com are forecasting a 100,000 gain in payrolls in September.  That's close to their forecast a month ago that proved to be wrong.  David Wyss, chief economist for Standard & Poor's, and many other economists say they're expecting job growth to be sluggish all the way into next spring and summer.

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Be very careful if you are setting up Leases With An Option To Buy-

As the market slows down a number of sellers may want to sell their home through a lease with an option to buy.  Typically, the seller will tell the lessee (the buyer) that they will devote a portion of the monthly lease toward the buyer's down payment.  Example:  Lease fee is $1,500 per month with seller agreeing to credit $200 per month toward the buyer's down payment a year from now (equating to $2,400 down payment credit a year from now).  A year later the option is exercised.  The lender will require that the appraiser determine the fair-market rental of the property at that time.  If the fair-market rent is determined to be $1,300 per month, $200 (or $2,400 aggregate) may be applied to the down payment.  However, if the fair-market rent is determined to be $1,500 at that time,

then no monies may be applied toward down payment.  So be careful because the fair market rent a year out may be different than it is today!

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Rate Watch-Long term mortgage rates during the previous week did not respond at all to the drop in the Federal Funds Rate announced by the Federal Reserve a little over a week earlier (as forecasted to you in an earlier communiqué).  Shorter term rates did decline slightly.  The 30-year fixed-rate mortgage averaged 6.42% for the week compared to the previous week at 6.34%.

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Disclaimer: The information contained in this newsletter has been gleaned from various sources and is intended to be current and accurate, however we cannot and do not warrant or guarantee as such.  This newsletter is for informational purposes only and is not intended to be, nor should be considered as, investment advice.  It does not take into consideration the financial circumstances, needs or investment objectives of any specific person who may receive this newsletter.  Individuals should seek financial advice with regard to specific circumstances before making any investment decision.

Copyright 2007 Ann Arbor Mortgage Company, LLC

By David Crisp, Senior Loan Officer

Ann Arbor Mortgage Company

ANN ARBOR, MI - Subprime mortgages have now been credited for bankrupting well over 110 lenders and seriously damaging operations at many major mortgage firms. They've reportedly wiped out 5 hedge funds, tens of thousands of jobs, and have led to millions of foreclosures with millions more on the way. And, as if that weren't enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures, and real estate markets here in the US and around the globe. Some say losses in the mortgage securities market alone could reach hundreds of billions of dollars this year.

This means that, for any Americans looking to buy, sell, or refinance a home, they are confronting a very different market from the one that existed just 6-12 months ago.

How did this happen?
The recent real estate boom was fueled by a period of record home appreciation and historically low interest rates. Banks, in order to compete, loosened guidelines and began offering more funding to more borrowers through riskier, non-conforming or "exotic" mortgages.

These ideal lending conditions persisted for several years, supported by high demand, historical real estate data, home prices, and massive trading volume/profits on mortgage-backed securities and other financial instruments on Wall Street.

Then, in 2006, a slowdown in real estate led to a deterioration of home values, an increase in inventories, and ultimately to today's tightening of credit guidelines, leaving many investors unable to sell or refinance out of their existing positions. Many Americans who had tapped into their equity were suddenly tapped-out and overextended as home values fell. Foreclosures followed in record numbers and a re-valuation of mortgage bonds and other financial instruments created the credit/liquidity domino effect we're now experiencing.

Unfortunately, it's going to get a lot worse before it gets better. According to the latest estimates, over 2 million subprime and Alt-A adjustable rate mortgage (ARM) holders will face payment increases of up to 30%-100% when their loans reset in the next 2 to 18 months. These loans make up less than 40% of the total mortgage market, but the negative effects, as we have seen, of increased foreclosure activity can have a ripple effect throughout the industry and around the globe.

What does this mean to you and your mortgage?

Sellers: If you're planning on selling your home, be prepared for an even smaller pool of qualified buyers. While some experts predict a settling of this credit crisis over the coming year, tightened credit guidelines and diminishing mortgage products could knock out as many as 15%-30% of potential qualified buyers. Now is not the time to sit and wait for the best possible price. Have a serious talk with your real estate agent. Having experienced buying/selling transactions in your area, he or she can help you price your home accordingly. He or she can also help ensure that your buyers are pre-approved and stay pre-approved throughout the entire transaction.

Buyers: Get pre-approved by your mortgage professional. While there are a lot of great deals out there, getting credit is becoming tougher and tougher, and it's taking longer and longer to complete a transaction. Remember, what you qualify for today could change tomorrow in a volatile market. For those looking to refinance, keep this in mind. There is no time to delay! Communicate with your lender. Don't do anything that could negatively affect your credit, and make sure you get all your documentation in on time.

ARMs Borrowers: If your ARM is scheduled to reset in the next 2-18 months, you need to schedule an appointment with a mortgage professional right away. Whether your ARM is subprime, Alt-A, or even if you have a pre-payment penalty, don't let a default or foreclosure situation sneak up on you. Did you know that your monthly payments can increase anywhere from 30% to 100% once your loan resets? At the very least, give yourself the peace of mind of knowing what your adjusted payment will be.

Borrowers with less-than-perfect credit: Each week it seems lenders are shedding more and more mortgage products. Many lenders have stopped offering No-Doc loans and are reducing all forms of Stated-Income loans. While it might be challenging, borrowers with credit issues need to see a loan expert. Often they have credit repair resources and other strategies to help you reach your financial goals.

Finally, there's an important concept to embrace: all markets, while cyclical in nature, are self-correcting, be it credit, real estate, stocks, or bonds. For the last 6 or 7 years, real estate was booming and riding high. The correction we're experiencing now - while it seems harsh and could get much worse - is, in a sense, "natural" and directly related to the extremely loose guidelines and perhaps overzealous lending and leveraging during the boom cycle.

 www.AnnArborFinancing.com

Seek a Qualified Mortgage Consultant to Ensure the Best Results

Ann Arbor, MI - Until recently, seniors 62 years of age and older have not had the best choices when it came to getting cash from their homes. Traditional home loans only offered the option of either selling one's house or borrowing against its equity.

With reverse mortgages coming on the scene, seniors now have some additional cash-flow alternatives. This type of loan allows mature borrowers to convert their home equity into tax-free income without leaving their current home or making mortgage payments - and they do not need an existing income to qualify.  

How a Reverse Mortgage Works
Reverse mortgages are probably best understood when compared side-by-side with traditional home mortgages, otherwise known as "forward" mortgages. The following table shows the differences between the two:

Both loans incur debt against your home, and both affect equity, but they do so in different ways. Traditional home mortgages require making monthly payments to a lender. With a Reverse Mortgage, payments are made to you.

What a Reverse Mortgage Involves

Here are some important points to know when considering a reverse mortgage:

Eligibility: To qualify for a reverse mortgage, you must be at least 62 years of age. All owners who are on the title deed must meet this age requirement. You must also have paid off all, or most, of your home mortgage. Lastly, the home you reside in must remain your principal place of residence.

Mandatory Counsel: In order to ensure that homeowners are fully aware of the financial ramifications of obtaining a reverse mortgage, you must undergo counseling with an unbiased third party before completing a loan. HUD and AARP oversee a network of counselors who can provide this service, and it should be offered for either a nominal fee or at no charge.

Tax-Free Income: One of the advantages of a reverse mortgage is that the money you receive will not be taxed. The amount you'll obtain depends on several factors including the plan you select, the type of cash advances you choose, your age, and the value of your home. Typically, the older you are the larger the loan, as you will have more equity in the house.

Cost: The cost of a reverse mortgage varies considerably from one type to the next. However, you can typically use the money you receive to offset the loan fees. The costs will be added to the loan balance and must be repaid with interest once the loan terminates.

Repayment: Reverse mortgages do not require any payment as long as the borrower(s) remain in the home. Should the borrower(s) pass away, sell the home, or permanently relocate, then the loan would be due in full, along with interest and additional costs. If two borrowers are on the loan and one dies, the loan would not be due since one of them still occupies the home.

Home Equity Conversion Mortgage - The Federally Insured Loan

The most common type of reverse mortgage is the Home Equity Conversion Mortgage, otherwise known as a HECM mortgage. This is the only reverse mortgage program that's federally insured and backed by the U. S. Department of Housing and Urban Development (HUD). This type of reverse mortgage is popular for a few reasons:

• Ability to choose your own interest rate.
  You can select one that changes annually or one that changes every month.
  
  
• You have several payment options.
  You may receive monthly loan advances for a fixed term or for as long as you live in the home. You may also choose to receive a line of credit or combine monthly loan advances with a line of credit.
  
  
• The loan can be used for any purpose.
  With a HECM, you don't have to designate the loan to a specific use; you can apply the funds to anything you choose.
  
  
• Protection.
  This is one of the most attractive features of a HECM. This plan protects you by guaranteeing continued loan advances even if your lender defaults.

Sell or Stay?

The main reason people choose a reverse mortgage is to gain financial independence and maintain an adequate standard of living without leaving their current home. The best way to decide if a reverse mortgage is right for you is to compare it to the other option of selling your house. To do this, ask yourself these three questions:

1. How much cash can I get by selling my home?
2. How much will it cost to buy or rent a new place?
3. Is it worth my moving now, or do I prefer to do something else with the money?

Perhaps you'll confirm what you knew all along, where you now live is the best place to be.

David Crisp is affiliated with Ann Arbor Mortgage Company, a Licensed Broker in the state of Michigan. If you would like to receive a FREE CD containing an interview with Sarah Lyons and John Lucas, the co-authors of Reverse Mortgages for Dummies, please contact David Crisp at (734) 669-5860 / dave@a2mc.com / www.AnnArborFinancing.com

              August 29,  2007

Update:  100% financing is still available.  The availability is dependent upon credit score, reserves after closing, and income levels.  Appraisal are being scrutinized very carefully as we are in an area with declining values.

Rural Development Loans-We participate in the program and it's a great product once you get outside of Ann Arbor and Ypsilanti.  In fact, the rest of Washtenaw County, all of Lenawee and Livingston Counties are eligible for Rural Housing loans.  These are 100% loans with no mortgage insurance.   Please contact us for more information.

Private Mortgage Insurance-The use of pmi is rapidly expanding as combination loans become increasingly difficult to obtain.  Remember, there is nothing wrong with pmi, so please do not tell your buyers to avoid it.  They may not be able to if they want that house!

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Encouraging Signs-It's too early to say for certain, but there are signs that the panicky U.S. credit market is beginning to get a grip.  If so, most Americans should escape relatively unscathed from this month's financial anxiety attack.

One sign that things are calming down: Smart players are starting to look for bargains on Wall Street.  The Bank of America, for example, agreed to invest $2 billion in the ailing Countrywide Financial, the nation's biggest mortgage company.

The Bank of America move gives it the equivalent of about a 16% ownership stake in the company, suggesting that the bottom hasn't fallen out of the mortgage business, that good borrowers still will be able to get loans, that lenders still can make money and that smart people are aware of all these things.

Gary Thayer, chief economist at A.G. Edwards, sees other signs that the crisis is easing a bit.  Investors are starting to venture beyond ultra-safe Treasury bills and move back toward corporate bonds and other forms of debt.  If things keep going as they are, Mr. Thayer said he thinks the credit crisis will produce only a slight hiccup in the economy's overall growth rate.

Are we out of the woods?  No, we still have a way to go but encouraging signs are beginning to surface.  Hang in there!

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Disclaimer: The information contained in this newsletter has been gleaned from various sources and is intended to be current and accurate, however we cannot and do not warrant or guarantee as such.  This newsletter is for informational purposes only and is not intended to be, nor should be considered as, investment advice.  It does not take into consideration the financial circumstances, needs or investment objectives of any specific person who may receive this newsletter.  Individuals should seek financial advice with regard to specific circumstances before making any investment decision.

                                                  ©Copyright 2007 Ann Arbor Mortgage Company, LLC

David Crisp

www.annarborfinancing.com

dave@a2mc.com

There is a lot of talk about reverse mortgages.  What is true and what is false about this program.  In this Blog I will try to clear up some common myths and help you, the reader, to have a solid understanding. 

A reverse mortgage is a FHA insured, government regulated home loan.  Only seniors 62 years old and older qualify.  Reverse loans differ from regular home finance in the following ways;

• There is no credit requirements
• There is no income needed
• There is no asset requirements
• You never make a monthly payment for the life of the loan

The loan is based on two factors;

1. Your age
2. The value of your home

What a reverse mortgages allows you to live the rest of your life with out ever making another house payment.  Sounds too good to be true?  Well it isn't.  This mortgage is a financial tool and can be a powerful way to reduce your monthly expenses.   Here are some points to ponder.

• Reverse Mortgages are taken by thousands of seniors every year. That means that someone you know, a friend, a neighbor, or family member has probably taken advantage of this wonderful opportunity?
• Reverse Mortgages allow you to create a safe way to take care of yourself (and your spouse) while having the financial independence you've worked for all of your life? No matter what happens in the future, your home will NOT be at risk.
• A Reverse Mortgage can give you the liquid cash when you need it to maintain your current lifestyle, or for you to be able to have a security blanket so you can cope with the rising costs of everyday living?
• Often a Reverse Mortgage is less expensive than a traditional home mortgage or home equity loan?
• Many seniors who take a home equity loan have difficulty making the monthly payments within the first 5 years? AND, many of those eventually take a Reverse Mortgage to pay off the equity loan to relieve the financial pressure.
• The federal government regulates Reverse Mortgages? This means that the amount of money available to you, and the costs you pay are primarily the same with every lender in the United States.
• Smaller, independent lenders who specialize in working with seniors provide the majority of Reverse Mortgages across the United States?
• At first, many people are afraid of Reverse Mortgages until they find out exactly how they work? When all of the "myths" are dispelled and they see how they can benefit from a Reverse Mortgage, they are no longer afraid.

Some of the myths of a reverse mortgage are

If I have a Reverse Mortgage I can lose my home and all of my remaining equity to the government or the bank.

False: A Reverse Mortgage is only a lien on your home. You still own your home. When you leave the home, the loan balance is repaid in full with the remaining equity passing to you or your heirs.

A Reverse Mortgage will use up all of the equity in my home and there will be nothing left for my heirs.

False: Because you still own your home, and because it will continue to appreciate in value, it is very difficult to use up all of your equity. In fact, in many cases, depending on how much money you use, the amount of equity you have may increase.

Selling my home is better than doing a Reverse Mortgage.

False: If you sell your home, you lose one of the largest and most secure investments you probably have. You would lose 6-10% of your home's equity in sales costs alone. After selling, you would most likely have to pay rent or some other type of monthly payment that would eat away at your savings. For most seniors, moving from their home is physically and emotionally difficult.

I should shop around for the best interest rate on my Reverse Mortgage.

False: The federal government determines the interest rate for HUD Reverse Mortgages. This means that no matter where you go for your Reverse Mortgage, the rate will be exactly the same. You want to work with a lender that is helpful, knowledgeable, professional and that doesn't try to pressure you.

I already have a mortgage, so I won't qualify for a Reverse Mortgage.

False: You can use the Reverse Mortgage to pay off the balance of your current mortgage or equity loan. By doing so, you will "free up" the money you used to use for monthly payments on the old loan.

I have bad credit, so I won't qualify for a Reverse Mortgage.

False: There are no credit, income asset or health requirements to qualify for a Reverse Mortgage. If you are 62 or older and you own a home - you qualify.

Reverse Mortgages are expensive.

False: Even though a Reverse Mortgage has up-front costs that are folded into the loan, there are NEVER any monthly payments. Compared to other traditional types of home loans that have monthly payments, a Reverse Mortgage is much more economical - especially for seniors.

I have to fix up my house to qualify for a Reverse Mortgage.

False: Your home doesn't have to be in perfect shape, however if there are minor repairs that are required by the lender, they can be done after the closing in most cases.

A traditional mortgage loan with monthly payments costs less and is always better than a Reverse Mortgage.

False: Even though a traditional loan with monthly payments might work well in some cases, in general a traditional loan will cost more. In fact, over a 10 year period, a traditional loan of $75,000 will cost you an average of $30,000 more than a Reverse Mortgage. In addition, the traditional loan has the risk of foreclosure, which a Reverse Mortgage does not.

We are not eligible for a Reverse Mortgage because my spouse is not 62 years old yet.

False: While it is true that both borrowers must be 62 years or older, if one spouse is not 62, there are still strategies that can be employed that will enable you to obtain a Reverse Mortgage. These strategies can be very safe and practical.

I have found that for some seniors a reverse mortgage can fit into their long and short term financial goal very well.  The interest rates on a reverse mortgage can be lower then the regular rate some people are paying now.  Whether a reverse mortgage is in your future or not, knowing you options is the best way to make an informed and intelligent decision.  For more information or if you have specific question feel free to contact me at (734) 669-5860 or e-mail me at dave@annarborfinancing.com or visit my web site at http://www.annarborfinancing.com/

David Crisp

Senior Loan Officer

Ann Arbor Mortgage Company