Julia's Blog

Tightening Subprime Standards

Julia Rogers Segovia (Wells Fargo Home Mortgage) — Mon, 05 Mar 2007 18:50:42 -0600

Mortgage lenders are really starting to tighten their standards in the subprime lending area. The subprime customer is one with poor credit history, low equity, those who need to state their income or assets and especially those who want to go to 95% of the value or higher. This represents approximately 15% of potential borrowers.

The reason for the tightening standards: many subprime lenders have gone down in flames in the past few months, due to approving borrowers who ended up defaulting on thier loans. Or, they end up with borrowers who are in "early payment default," meaning that they have missed thier first, second or even third house payment. Investors who buy home loans on the secondary market, required lenders to buy back loans with early payment defaults. When the lenders didn't have the funds, they had to shut their doors. Many of you have probably seen this happen with Ownit Mortgage, and, today, Fremont Investment & Loan. My Account Executive had been with Fremont for 10 years and was blindsided by this...so unfortunate.

Those subprime lenders who have not gone under are now tightening their guidelines in order to avoid the same fate as their former competitors. Underwriting requirements are becoming more stringent and rates are going up to protect the lender, as the loans get riskier, due to the inability of some borrowers to make their payments and the pressure from investors. These new, tighter standards are displayed with requirements such as higher credit scores, bigger down payments and lower loan amounts.

Of course, this doesn't affect many of our borrowers; those who are in the approximately 85% of consumers with higher credit scores and lower loan-to-values. However, it could have quite an impact on those of us who work with both high-end borrowers and subprime borrowers. I think it's a wait and see game for now.

Please share your thoughts...thanks!

Customer Loyalty...a thing of the past or still going strong?

Julia Rogers Segovia (Wells Fargo Home Mortgage) — Fri, 23 Feb 2007 15:23:40 -0600

Okay, I am really going to try not to be pessimistic in this post, even if I may be feeling that way. I really do live by the basic principle that what you put out, you get back. Put out kindness, decency, fairness, etc., and that is what will be returned to you. Sort of like the Law of Attraction, right? So, if I treat potential or existing customers with those qualities, plus excellent service, communication, ethics and kick-ass rates, they will not only flock to me, but send all the referrals they can.

That is how I have always tried to work and often it has come back to me, just as I said above. However, I've noticed a feeling lately of being "kicked when I'm down," so to speak. Basically, treating clients like gold and still not earning their loyalty. Maybe I'm missing something, but it really seems like a no-brainer that when you put out that kind of effort, people will not only notice it; they will truly appreciate it, as well.

So, here's my question: in this day and age of the internet, non-stop marketing, etc., does true customer loyalty on a broad scale still exist like it used to? Of course, I have many clients who have referred tons of people to me and who I know will always call me when they need a loan. I am truly their lender for life and they are comfortable with that. But, I also have clients who I have provided with the exact same level of service that still don't really seem to care where their business goes. It's not even a question of pricing or programs; I'm offering the same or even better. It's more of a lack of understanding that if you work with someone who takes care of you and that you trust, you'll be much better off. We as mortgage brokers (or Realtors) are not just interchangeable machines that will do the exact same thing for you. We are people who make decisions every day about how to create our business and what sort of principles we stand on.

For me, personally, when I find someone who cuts my hair really well and charges a decent price, I not only continue to give them my business, I refer everyone who comments on my haircut. Or, my CPA; she does a great job, I like her and I've been satisfied with her work. So, I continue to come back to her each year and I continue to send her referrals when possible.

Have the times changed so much that we don't, in general, care as much about maintaining these relationships built on trust and a job well done? I'd love to hear your thoughts, stories, etc. on the subject.

Have a wonderful weekend!!

Rate Update...Rates Fall as Inflation Rises (Yes, as inflation rises!)

Julia Rogers Segovia (Wells Fargo Home Mortgage) — Fri, 23 Feb 2007 14:05:16 -0600

Every week, I send out an email to all local Realtors, titled, "Rate Knowledge going into the Weekend." It includes commentary on the current state of the market and mortgage interest rates and a list of rates and programs. I will also include that information here each Thursday, for anyone interested. It's a concise way of keeping up on rates and also can be helpful when you are working with clients over the weekend and they want more information on where rates are at and where they may be headed. Many local Realtors print them out and use them on the weekend and will often call me during that time to pre-qualify a client. It can save you Realtors a lot of wasted time, if you find out you're spending your weekend showing property to potential buyers who won't qualify or don't really know what price range they are realistically in. I hope you find it useful!! :-)

RATE UPDATE: Rates fall as inflation rises

Rates dropped this week, even with government reports that inflation is actually higher than anticipated. The normal course of things; when inflation is high, rates rise in order to curb it. However, with the Labor Department's announcement that the Consumer Price Index was posting a 0.3 gain in January (minus food and fuel prices) may have had something to do with it.

The Federal Reserve's goal for the annual inflation rate is below 2%; therefore, the Federal Reserve will likely be watching inflation closely for now.

Many experts are predicting that inflation rates will drop throughout 2007, but that remains to be seen. If inflation rates do go down, that should keep mortgage rates low. But, if the Fed is hyper-vigilant and sees a continuing increase, rates could go up to curb that.

Rates for Friday, February 23, 2007:

These rates are all at Zero Points:

Conforming 30 Year Fixed is at 6.25% and conforming 15 year fixed is at 6%.

Jumbo 30 Year Fixed is at 6.5% and jumbo 15 year fixed is at 6.25%.

Conforming 5/1 ARM is at 6.125% and conforming 3/1 ARM is at 6%.

Jumbo 5/1 ARM is at 6.375% and jumbo 3/1 ARM is at 6.375%.

Jumbo 5/1 ARM Int. Only is at 6.375% and jumbo 3/1 ARM Int. Only is at 6.375%.

Jumbo 1 Month MTA/Pay-Option ARM is at 1%-1.5% Start Rate.

The 12-MTA Index is at 4.983%.

The 11th District COFI is at 4.358%.

The 10 Year Yield is currently at 4.67%.

The Federal Funds rate is still 5.25%, with the Prime Rate remaining at 8.25%.

Rate Update

Julia Rogers Segovia (Wells Fargo Home Mortgage) — Thu, 15 Feb 2007 16:33:49 -0600

Every Thursday, I send out an email to all local Realtors, titled, "Rate Knowledge going into the Weekend." It includes commentary on the current state of the market and mortgage interest rates and a list of rates and programs. I will also include that information here each Thursday, for anyone interested. It's a concise way of keeping up on rates and also can be helpful when you are working with clients over the weekend and they want more information on where rates are at and where they may be headed. Many local Realtors print them out and use them on the weekend and will often call me during that time to pre-qualify a client. It can save you Realtors a lot of wasted time, if you find out you're spending your weekend showing property to potential buyers who won't qualify or don't really know what price range they are realistically in. I hope you find it useful!! :-)

RATE UPDATE: Slight Rise in Rates from last week

Due to a lack of significant economic news this past week, mortgages rates didn't change much. It was mainly a week of waiting to see what Fed Chairman Ben Bernanke would say during his semiannual appearance in front of Congress, in which he testifies on the economy and monetary policy.

Basically, Bernanke's testimony did little to shake things up. The economy (in simplistic terms, of course) is running fairly smoothly and it looks as if the Fed intends to keep the Federal Funds rate steady, at 5.25%. With little evidence of growing inflation, hopefully mortgage rates will either stay where they are or possibly fall.

Expect a home refinancing boom in '07?

Experts are predicting that 2007 could bring a refi boom, due to the many borrowers who are almost up on the adjustable-rate mortgage terms. With rates fairly low and fixed rates virtually on par with ARMs, it's a good time to consider a change into something more secure.

Rates for Thursday, February 15, 2007:

These rates are all at Zero Points:

Conforming 30 Year Fixed is at 6.25% and conforming 15 year fixed is at 6.125%.

Jumbo 30 Year Fixed is at 6.5% and jumbo 15 year fixed is at 6.25%.

Conforming 5/1 ARM is at 6.125% and conforming 3/1 ARM is at 6%.

Jumbo 5/1 ARM is at 6.375% and jumbo 3/1 ARM is at 6.375%.

Jumbo 5/1 ARM Int. Only is at 6.375% and jumbo 3/1 ARM Int. Only is at 6.375%.

Jumbo 1 Month MTA/Pay-Option ARM is at 1%-1.5% Start Rate.

The 12-MTA Index is at 4.933%.

The 11th District COFI is at 4.358%.

The 10 Year Yield is currently at 4.7%.

The Federal Funds rate is still 5.25%, with the Prime Rate remaining at 8.25%.

Tips for Improving your Credit Score

Julia Rogers Segovia (Wells Fargo Home Mortgage) — Wed, 07 Feb 2007 16:32:53 -0600

In my monthly newsletter that I send to my clients, my featured article this month is on how to improve your credit score. This is an important issue to me, because I don't feel that there is enough information and education out there when it comes to understanding your credit and what you need to do to keep your score as high as possible. Besides the tips below, I also work with a credit company that provides me with some great tools, such as a Credit Simulator program; I can plug in possible changes to your credit, such as lowering the balance on a specific credit card and it gives me an estimate of how much that would likely increase your credit score. It's not exact, but I've had some great results from it.

Once we've determined what needs to be done to increase your score, they also have a program called Rapid Re-score, which allows us to receive updated credit bureau results in a matter of days, rather than the standard 30-60 days it normally takes. This is a huge help when a borrower needs to close quickly and doesn't have time to wait 30-60 days for an improved score. Your credit score has an enormous impact on your interest rate and program and not enough consumers know what to do to maximize it!!

The interest rate you'll pay for the money you borrow will be determined, in large part, by this three-digit number that's generated from the information in your credit report.

Most lenders have definite carved-in-stone rules about how to qualify a borrower for the best loan terms, and those rules almost always place a major emphasis on your credit score. If their best rates are offered to borrowers with a score of 700 or higher and yours is a 698, those two points could cost you thousands of dollars!

According to http://www.myfico.com/, the consumer Web site of the Fair Isaac Corp. that created the FICO score (the most commonly used credit score), the interest rate difference between those two scores is one-half percentage point.

The good news: You can take steps to improve your credit score.

The number of variables that play into an individual score make it impossible to say that one particular action will increase a given score by a certain number of points. Sometimes, I have great results when a borrower pays down a credit card or pays off a collection; other times, it makes very little difference. But there are at least some good guidelines to try and follow.

Here are some tips I've picked up along the way:

1. The mantra for getting a great score is pay your bills on time, keep account balances low, and take out new credit only when you need it. This is mainly about plain old common sense. People who do these things faithfully usually have very high scores. To lenders, high scores signify that you're being conservative and cautious about credit. In turn, they see you as a lower risk borrower and will reward you with much better terms and a much lower interest rate.

2. What if you're house hunting and you just need a few extra points to bump you over the line to the great rates? Start by having your mortgage broker (aka: me!) pull your credit report and your credit score to see where you are. If your score is above a 720, you're golden. Even 700 is going to get you good terms. Improving your score from, say, a 720 to a 740 won't get you better terms, though, so don't waste your time doing that. Just continue to follow the guidelines above.

What you're really looking for on your report are factors that could be negatively affecting your score. Look for errors in the report, such as accounts that aren't yours, late payments that were actually paid on time, debts you paid off that are shown as outstanding, or old debts that shouldn't be reported any longer (negatives are supposed to be deleted after seven years, with the exception of bankruptcies, which can stay for as long as 10 years). Every time I meet with a client, I go over their report with them to ensure that the information is correct. I can't tell you how many times there has been old or downright incorrect information in the report!

After repairing errors, the fastest route to a better score is paying down balances on credit cards; there's really no magic bullet, but, in my experience, it's possible to increase your score 20 points in 60 days (or less, if you use Rapid Re-score) by paying down your credit lines.

3. Had a few late payments in your past?
If you find yourself in a tough financial situation, you can protect your score by making sure your payments don't go 60 days past due; some lenders don't report 30 days past due, but they all report 60 days past due. Another important tip; if you already own a home, do everything you can not to get a 30 day late on your mortgage. It is crucial to keep your mortgage track record clean and better to have lates on other credit lines before you're late on your home loan. I've always said that I'd sell my kidney before I'd be late on my mortgage!! :-) Trust me and follow this advice, even if you take nothing else away from my tips!

Even if you've paid your bills late in the past, there's still hope for you! You can improve your credit score by paying every bill on time from now on. Remember, today is a new day. It's much like a diet, actually; just because you slip up one day and have that hot fudge sundae, it doesn't mean you should just give up on the whole diet! I promise that I've seen clients scores go from 620 to 710 in a matter of months (or, on one memorable occasion, about 15 days!)

From now on, do your best to pay your bills on time (or ahead of time) and keep your balances as low as possible. My mom always told me not to buy something unless I could pay for it in cash and to only use credit cards if I could pay them off in full each month. I guess that's why she has one of the highest scores I've seen!

4. What not to do!
One thing you shouldn't do if you're just trying to boost your score is close unused accounts. If someone tells you to close unused accounts to improve your score, don't listen. It won't help you and it can hurt you.

Closing unused accounts without paying down your debt changes your utilization ratio, which is the amount of your total debt divided by your total available credit. You appear closer to maxing out your accounts. That's why your score can drop. It doesn't mean people shouldn't close them, but don't close them to improve your score.

If you do cut up cards, though, leave the oldest one open! The length of your credit history is another factor in your score. If you close the account of the credit card you got when you were a freshman in college and leave open the ones you just got within the last couple years, it makes you look like a much newer borrower.

5. One last tip!

Another strategy for bringing up your score: Transfer balances from a card that's close to being maxed out to other cards to even out your usage/balances. Or just spread out your charges between a few cards. Try to get the balance to credit limit ratio on all of them at 20 to 30 percent instead of a bunch at zero and one at 80 percent. You're not spending less, you're just shifting it around to different cards.

Transferring the balance to a card with a lower utilization could possibly help, but remember, it's much better to actually pay down the debt if you can.

The bottom line: know that you're not powerless when it comes to your credit score. There are a lot of things you can do to improve your score and you need to understand what your credit is like now and what's influencing your score today. Then you can go out and get that amazing interest rate!

Have a great day!

What the Feds decision means for you

Julia Rogers Segovia (Wells Fargo Home Mortgage) — Thu, 01 Feb 2007 19:46:57 -0600

For the first time this year, the Federal Open Market Committee met and decided to keep the Federal Funds rate at 5.25%. The Prime Rate is fixed at 3% over whatever the Federal Funds rate is, so it remains at 8.25%.

Many borrowers track the movement of the Prime Rate because it is the rate that Home equity lines of credit (HELOCS) are tied to. Borrowers could be "AT PRIME," meaning they qualify for a rate equal with whatever the current Prime Rate is or at a margin above or below the Prime Rate. A borrowers margin will likely stay fixed, but their interest rate and payment will adjust up or down, depending on the movement of the Prime Rate. Therefore, the Federal Funds rate is important to many of us who will see when changes are made to these rates reflected in our monthly statements! So, if you have a HELOC, you are not affected either way by this decision.

If you have an Adjustable-rate mortgage, the decision to keep the rates steady is not a big bonus for you. ARMS, as they are referred to, are tied to indexes of interest rates or bond yields. When the economy grows, as it is right now, it increases the threat of inflation. When inflation fears increase, so do medium and long-term rates and yields. If the Fed decides to keep short-term rates on an even keel, there is a large chance that we will continue to see economic growth. If this happens, your ARM rates may rise. If you are coming up on the adjustable date of your ARM, it's a great time to look at doing a fixed rate loan, such as a 30 year fixed. The rates on the fixed loans are virtually on par with the adjustable rates and you can even get an interest only loan that is fixed for 30 years. It gives you the option of paying only interest when you need to or paying down the principal as much as you want. This is a great option for our area, because it gives you the flexibility of an interest only payment with the steadiness and security of a fixed rate, no matter what happens with the market. The reason I say, "for our area," is because the Bay Area still has reasonable equity building, so making interest only payments is not as financially risky as it would be in other parts of the country, as things are now, at least. Anyhow, I digress!

If you are already in a fixed-rate mortgage, the Fed decision won't have much of an affect on you. However, if you are currently shopping for a mortgage, the economic growth is not your friend! Rates have been rising for a few months now and this increase is right in line with the realization by investors that the Fed was likely planning on keeping rates steady for awhile. However, I would still recommend looking at fixed-rate options over ARM options right now, based on their very similar if not identical pricing.

Whatever loan you are in or looking for, it is always good to know where you stand in the big picture and what our country's economic decisions mean for you and your checkbook!

Have a great night!