Ken's Mortgage and Market Blog

You CAN buy a house!

Ken Rivera - Turlock (American Pacific Mortgage) — Wed, 10 Dec 2008 15:03:43 -0800

Interest rates have been good all year and lately have become very good! We have been well below 6.0% for the past week! With all the talk about this economic crisis and difficulty in borrowing money, let's look at the facts. First, there are no "stated income" loans available in the traditional lending arena. You have to prove that you have a job! And if you don't, why would you be buying a house anyway? That said, I've put together these two tables to give you an idea of what it takes to buy a home. Because down payment money is usually one of the biggest obstacles for the home buyer, I've used the FHA mortgage as an example which allows for only a 3% down payment. Each table uses three different housing prices and three different interest rates.

Now here's my legal disclaimer (The FHA loan amount is higher than 97% due to the inclusion of mortgage insurance. Rates are not to be construed as the APR and are used only as examples. Interest rates change on a daily basis. Risk based adjustments to interest rates may apply due to credit scores and credit history. Not all applicants will qualify. Additional closing costs may apply.)

Ok, now that the legal stuff is out of the way, one more thing. It is not uncommon today for sellers to pay for buyers closing costs. If that's the case, then all that is needed is the down payment indicated to buy a home! So let's take a look.

This table simply uses the basic monthly housing payment as your only debt for qualification.

FHA Purchase Example

House Price	Down Payment	Base Loan Amount	Loan Amount w/Mortgage Insurance	Interest Rate	Monthly Payment	Payment w/taxes, insurance & Mortgage Insurance	Monthly Income Required to Qualify	Hourly Wage Required to Qualify
$100,000	$3,000.00	$97,000.00	$98,697.50	6.25%	$607.70	$785.49	$1,963.72	$11.33
$100,000	$3,000.00	$97,000.00	$98,697.50	5.75%	$575.97	$753.76	$1,884.41	$10.87
$100,000	$3,000.00	$97,000.00	$98,697.50	5.25%	$545.01	$722.80	$1,807.01	$10.43

$150,000	$4,500.00	$145,500.00	$148,046.25	6.25%	$911.55	$1,178.23	$2,945.58	$16.99
$150,000	$4,500.00	$145,500.00	$148,046.25	5.75%	$863.96	$1,130.65	$2,826.61	$16.31
$150,000	$4,500.00	$145,500.00	$148,046.25	5.25%	$817.52	$1,084.20	$2,710.51	$15.64

$200,000	$6,000.00	$194,000.00	$197,395.00	6.25%	$1,215.39	$1,570.98	$3,927.45	$22.66
$200,000	$6,000.00	$194,000.00	$197,395.00	5.75%	$1,151.94	$1,507.53	$3,768.82	$21.74
$200,000	$6,000.00	$194,000.00	$197,395.00	5.25%	$1,090.02	$1,445.61	$3,614.01	$20.85

However, because most of us are not debt free, here is an example if you have $300.00 in monthly consumer debt.

FHA Purchase Example w/$300.00 in monthly debt

House Price	Down Payment	Base Loan Amount	Loan Amount w/Mortgage Insurance	Interest Rate	Monthly Payment	Pmt w/taxes, insurance & Mortgage Insurance	Monthly Income Required to Qualify	Hourly Wage Required to Qualify
$100,000	$3,000.00	$97,000.00	$98,697.50	6.25%	$607.70	$785.49	$2,713.72	$15.66
$100,000	$3,000.00	$97,000.00	$98,697.50	5.75%	$575.97	$753.76	$2,634.41	$15.20
$100,000	$3,000.00	$97,000.00	$98,697.50	5.25%	$545.01	$722.80	$2,557.01	$14.75

$150,000	$4,500.00	$145,500.00	$148,046.25	6.25%	$911.55	$1,178.23	$3,695.58	$21.32
$150,000	$4,500.00	$145,500.00	$148,046.25	5.75%	$863.96	$1,130.65	$3,576.61	$20.63
$150,000	$4,500.00	$145,500.00	$148,046.25	5.25%	$817.52	$1,084.20	$3,460.51	$19.96

$200,000	$6,000.00	$194,000.00	$197,395.00	6.25%	$1,215.39	$1,570.98	$4,677.45	$26.99
$200,000	$6,000.00	$194,000.00	$197,395.00	5.75%	$1,151.94	$1,507.53	$4,518.82	$26.07
$200,000	$6,000.00	$194,000.00	$197,395.00	5.25%	$1,090.02	$1,445.61	$4,364.01	$25.18

So, what's the point here? Housing prices and interest rates have come together to provide the greatest buying opportunity in decades! Even with some monthly debt, the "regular guy" working for a living at, let's say $14.00/hr, can buy a home today! Or if two people are each earning $9.00/hr that's $18.00/hr so just look at the table to see where they fall.

If you or anyone you know has questions or needs more information on specific situations, feel free to call me anytime. We can put the numbers together and see how much home you can buy!

Mortgage Rates - Going where no man has gone before?

Ken Rivera - Turlock (American Pacific Mortgage) — Wed, 10 Dec 2008 11:22:00 -0800

Last week we saw mortgage interest rates fall to levels not seen since January this year and then again back in 2003. Falling from about 6.25% the week before, a 5.5% 30 year fixed rate mortgage became available once again. This was due to a surprise decision by the U S Treasury to invest billions of dollars in the mortgage bond market. Initially, I thought this was simply a knee-jerk market reaction to the influx of money and these rates would not last too long. I believed that the condition of the economy would continue to weigh heavily on investment decisions and rates would gradually start to rise again over the next several months until we were back to where we started. Then we got some more news from the U S Treasury. A Wall Street Journal article from December 1st discussed Treasury Secretary Paulson’s remarks from the same day and it read: “Also, the Fed said it would purchase up to $100 billion in GSE (government-sponsored enterprise) debt through a series of competitive auctions starting this week. The Fed also plans to purchase up to $500 billion in mortgage-backed securities backed by GSEs such as Fannie Mae and Freddie Mac. Officials aim to have that program running in the next several weeks.” Then came this analysis from CNBC: “The Treasury Department is considering a plan to boost the depressed housing market by easing mortgage rates on new home loans. The plan, which is in the development stages, would bring loan rates down as low as 4.5%, a full percentage point lower than the prevailing rates for 30-year fixed mortgages. The plan, which was first reported by the Wall Street Journal, was confirmed by CNBC. Under the plan, the Treasury would buy securities underpinning loans guaranteed by Fannie and Freddie which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration. Officials have said that this plan is different from the one that had previously been championed by FDIC’s chairman Sheila Bair. Earlier Wednesday, bond guru Bill Gross told CNBC that the 30-year fixed-rate mortgage could fall as low as 4.5 percent as the economy stabilizes. "The mortgage rate will come down another 50 to 100 basis points," Pimco's founder and chief investment officer said. "That's basically what the government needs. They need a 4 1/2 percent to 5 percent 30-year rate in order to support home prices and, yes, to encourage refinancing and the process of reliquification within the economy." 4.5%! Are you kidding me? Unbelievable! We have not seen the 30 year fixed rate under 5.0% in many decades. It’s completely absent from my memory! (Who cared what interest rates were when you’re a kid!) FreddieMac publishes rates back to 1971 and it simply has never been there. But then I read this opinion from Larry Baer of “Market Alert”, a mortgage market analyst. “I certainly don't want to rain on anybody's parade here - but there are a couple of things I think you ought to consider in order to put this story into perspective. The Treasury Department already has authority to buy billions of dollars of mortgage-backed securities - it has yet to use that authority to any large degree. Does additional purchase authority suddenly create a storm of mortgage-backed security purchase activity that didn't exist before? How much additional buying power is necessary to push 30-year fixed-rate mortgage-backed securities down to 4.5%? The Federal Reserve announced plans to buy $500 billion of mortgage-backed securities from Fannie and Freddie on Monday - which did cause rates to spike lower - for a couple of hours - before mortgage interest rates finished flat to slightly higher through this morning. “ and then he said “So in a nutshell, we're talking about a program that doesn't even exist, that has no qualifying parameters, no timeline for implementation if it actually takes form and that will - at best - offer a note rate that is roughly 50 basis-points less than is immediately available in the market today. “ Confused? Me too. But the one thing we now know is that the Federal government will do everything in its power to keep mortgage rates low in order to stimulate the housing market. Low housing prices and low interest rates make this the best real estate buying opportunity ever! It’s a great time to buy or refinance because this is mortgage rate history! I will analyze buying power in a later email so watch for it. As always, if you have any questions about this or any other mortgage subjects, feel free to call me anytime.

Breaking my Silence - My Head is Spinning

Ken Rivera - Turlock (American Pacific Mortgage) — Wed, 22 Oct 2008 11:06:19 -0700

As you may have gathered, I usually have an opinion about everything mortgage related. I usually can't stay quiet about any news concerning my profession. However, lately I've been nothing but dumfounded. I walk around scratching my head or with my mouth open like I'm catching flies. I have a pretty good handle on how the mortgage market works because I have to. I've become pretty good with short term predictions and feel confident in counseling clients concerning their mortgage plans. But not for the past eight weeks or so!

There used to be problems that could actually be identified by people like me. GM had a problem because their sales were down and their employee benefits were too high. Apple's products weren't selling for a while until the Ipod came to life. The price of oil could be tied to a falling dollar and increased worldwide demand. All of these types of things I could wrap my small brain around and make them make sense. It was the same with the mortgage market. Bad market news was actually good for interest rates.

Today, things are different. The economic problems facing the country are way too far reaching for me to even begin to understand. There is simply no one idea that is a fix-all solution. Most will tell you that the problem is bad mortgages, and that is certainly the major contributing factor to the banking problem but it goes much farther and much deeper than that. If that was the only issue, the so called "bailout" would be buying up mortgages and "voila!" no problems. But along with help in that arena, the U.S. Treasury is contributing money to the International Monetary Fund, the FDIC is now insuring loans between banks, we are loaning money to AIG, one of the largest financial companies in the world so it won't go under, the government re-acquired Fannie Mae and Freddie Mac and now the government is buying stock in the nine largest banks in the country! Although mo rtgages may have been where it started this problem is much bigger than I can fathom.

The steps that have been taken go far beyond my economic educational background. So I won't pretend to express an intelligent opinion pro or con on the action so far taken. The solution here is a long term one. In our instant gratification society, we expect things to be fixed immediately. This won't happen here. We have been seeing a flurry of activity to help the situation but, believe me, this is just to stop the bleeding. It's sort of like an EMT at an accident scene. The hospital is where the real recovery takes place. We're still lying in the street at the scene. The healing will be slow but we will heal.

I will continue to express opinions, as you well know, and I see the recovery already underway. Real estate sales are up today and prices will be up in the future as the housing inventory falls.

So then what good can be said? This is an excellent time to consider the purchase of real estate. Money is available, albeit, a little harder to get. Interest rates are still excellent and home prices are low enough for the average renter to be able to afford a home! If you or anyone you know has the ability to purchase real estate today, it's a great time to do it. Real estate is and has always been a long term investment. As such, this period in time is the perfect opportunity to invest for the future whether for your first home or an investment. As always, if you have any questions about this or anything I may write, feel free to give me a call anytime.

Fannie Mae/Freddie Mac Government Take Over - Good News or Bad?

Ken Rivera - Turlock (American Pacific Mortgage) — Mon, 08 Sep 2008 17:21:08 -0700

Ok, this one is a little long but, bear with me, and I think you'll get a good understanding about what's going on.

First a quick review. Fannie Mae was created in 1938 as part of Franklin Roosevelt's New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged lenders from investing in home loans. Fannie Mae was created in order to provide local banks a place to sell their loans. These purchases were funded with federal money in an attempt to raise levels of home ownership and the availability of affordable housing. This provided lenders with a place to sell their loans giving them the opportunity to lend even more money. It established what we commonly call the secondary mortgage market. In 1968, part of Fannie Mae was converted to a private corporation. Congress chartered Freddie Mac as a private corporation to provide competition in the secondary mortgage market to end Fannie Mae's monopoly. Since then, these corporations have become huge. Although banks continue to lend without selling their loans to these entities, the great majority of loans move through this market.

So what's the bad news? Unfortunately, the housing market is taking longer to recover than all had hoped. On Friday, the Mortgage Bankers Association said that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

Because of this, banks continue to absorb mortgage losses due to the foreclosure of homes whose value has dropped below the mortgage balance. Since all banks are required by the government to keep a minimum reserve of cash, some have come precariously close to this minimum and have been unable to borrow enough to keep this reserve. When that happens, banks fail and the government comes in to take over. Should this continue, we shall see even more failures such as Indy Mac Bank, and more recently, Silver State bank in Nevada.

I much the same way, falling home prices are the key to Fannie and Freddie's troubles. As prices fall, the value of mortgages the companies hold on their books drops. That means Fannie and Freddie are recovering far less money through foreclosure sales. Fannie and Freddie together hold about half of U.S. mortgage debt and are the largest source of funding for home mortgages. But they are seeing too many of those mortgages go into default. Losses between April and June for the two companies totaled $3.1 billion, and investors fear the losses will continue to grow.

They raise money mostly through the issuance of company stock and through the sale of mortgage bonds. If investors lose confidence in either, it becomes more difficult to raise capital and harder to keep purchasing mortgages from banks. Without a place to sell their loans, borrowing from banks becomes more difficult.

So what's the good news? The government plans to inject up to $100 billion in each of the government-chartered mortgage companies. This could not only help lower mortgage rates but, some investors are hoping, buoy the overall economy. The plan could help banks feel more open to write new mortgages and to refinance existing mortgages at lower rates, offering a possible lifeline to consumers struggling with increasing payments. Mark Zandi, chief economist at Moody's Economy.com, predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie - and at lower rates - since the federal government is now explicitly standing behind that debt. Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams in New York, said "It saves Armageddon from happening," he said. "If you think about it this helps the financials, this helps the housing market."

"Right now, Fannie and Freddie are the mortgage market, and that has been choked. If this helps to clear the way for the housing market to recover, it will filter through to the rest of the market," said Quincy Krosby, chief investment strategist at The Hartford. "Anything that helps bring a bottom to housing prices, helps put in a floor, is going to be a boon for the overall market."

The move puts the full-faith-and-credit of the United States government behind all the debt instruments of the two companies. As such, we have seen at least a 0.5% decrease in the 30 mortgage rate this morning! What a boost to today's home buyer! Housing has such a huge effect on the economy that this should help in all areas - especially jobs. If there was ever a time to purchase property, now is the time. Low prices and low interest rates! If you or anyone you know has a question about how much home they can afford or what refinancing might do for them, have them give me a call. I'd be happy to help. One school of thought with investing says "always do what the other guy ain't." As I've always said, my glass is half full! How about you?

What Were They Thinking?

Ken Rivera - Turlock (American Pacific Mortgage) — Fri, 01 Aug 2008 13:52:42 -0700

The new law that was signed by the President this week is intended to help with the housing market. Most items in this law are designed to stabilize the financial mortgage market and assist homeowners in trouble. Most of the points in the "Housing and Economic Recovery Act" are a good move in the right direction. However, there are a few things in this law that don't keep with the spirit of the rest of it. What were they thinking?

It's obvious to most of us that we need to reduce the inventory of homes. This is simply done by helping people buy homes. One of the staple mortgage programs to help people buy homes is the FHA program. This requires a small 3.0% down payment with less restrictive qualification guidelines so more buyers can qualify without having a large down payment.

FHA also allows for gift money to be used for a purchase. However, this gift money could not come from the seller (or any party having interest in the purchase) even though the seller was allowed to pay for closing costs. A creative company called Nehemiah began to provide this gift money to buyers by allowing the seller to give the gift amount to them. They then would gift the money back to the buyer to close the escrow. This made it possible for a buyer to purchase a home without the need for the down payment and, if the seller was willing, without up to 6% of the selling price for closing costs. The program helps sellers, including banks, to sell property and buyers to get into a home.

The newly signed law hit the FHA home buying market with a double whammy. First, it has increased the down payment requirement to 3.5% from 3.0%. This may not sound like a lot but it can be huge for young first time homebuyers. Second, it disallows the practice of the Nehemiah program. According to the Nehemiah Company website, their program was used in about 40% of the FHA purchase transactions. According to the Government Accounting Office, FHA mortgages accounted for only 3.5% of all mortgages in 2004, the peak of easy credit loans. Since then, FHA mortgage market share has remained fairly steady but it is estimated that it is rising once again.

So when the housing market is in such need of a boost, why are these rules in place? It has to do with risk. HUD insures FHA mortgages. If the borrower defaults, the insurance pays the lender for losses they may have incurred. The thinking here is that an increase in the down payment amount will result in fewer defaults. Although I can see the logic behind a bigger down payment but what about gifted money? We can no longer use the seller for gift money through Nehemiah. But if the gift comes from somewhere else besides the seller (parents, friend, employer, etc.), isn't the final result the same? The down payment is still not funded by the buyer. This makes no sense to me and the Nehemiah program should remain in place in these tough housing market times.

Just my opinion. But if you feel the same, please email your congress person to encourage them to reinstate this helpful program.

Fannie Mae/FreddieMac/IndyMac Bank/Countrywide - The Big Picture

Ken Rivera - Turlock (American Pacific Mortgage) — Fri, 25 Jul 2008 15:47:54 -0700

If you're breathing, you know there's been a lot of news lately concerning the financial markets and especially the mortgage market. Unfortunately, it generates a lot of fear in the average consumer. But let's look at the bigger picture.

First a little background. If you unsure exactly what Fannie Mae and Freddie Mac are all about, I'll summarize. If you already know this, skip the paragraph. Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt's New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged lenders from investing in home loans. Fannie Mae was created in order to provide local banks a place to sell their loans. These purchases were funded with federal money in an attempt to raise levels of home ownership and the availability of affordable housing. This provided lenders with a place to sell their loans giving them the opportunity to lend even more money. This established what we commonly call the secondary mortgage market. In 1968, part of Fannie Mae was converted to a private corporation. To provide competition in the secondary mortgage market to end Fannie Mae's monopoly, Congress chartered Freddie Mac as a private corporation operating as an additional source on the secondary market for lenders. Since then, these corporations have become huge. Although banks continue to lend without selling their loans to these entities, the great majority of loans move through this market.

After the creation of the secondary mortgage market by the government, we saw the inception of the mortgage backed securities market. These worked the same way but were non-government backed. A majority of these loans were for less-than-ideal borrowers and the market worked in much the same way. Banks made loans and investors purchased these loans for a return. As we moved into the last decade, these loans became more and more liberal in their qualification and increasingly risky to the investor. These were the so-called "subprime" loans. But because of this risk, the returns were higher for the investors and these securities became very popular. As these riskier loans started to default (hence the risky nature of the loan) lenders and investment houses with large portfolios of these types of loans began to take huge losses (i.e. IndyMac Bank and Countrywide). Lenders who remained conservative in their lending practices over the last decade are doing fine today.

For the most part, Fannie Mae and Freddie Mac have been more conservative and didn't participate in the very risky loans. Their default rates are not nearly as high as the subprime lenders. But even they had more liberal lending guidelines during this period and their default rate is higher than they are used to.

But here's the big picture. The housing market has a monstrous effect on our economy. What happens when someone buys a home? The first thing they do is hire a moving company or rent trucks in order to move. Then they go to the big box hardware store for paint, carpet or simply home improvement. Or they might go to department stores for new curtains, they hire a lawn service or maybe a pest control service, they might install a monitored security system or they might even need a new barbeque grill. The domino effect of a home purchase is enormous.

If Fannie and Freddie can no longer purchase mortgages on the secondary market, home buying will come to a virtual standstill.

In a June op-ed piece by Henry Paulson for "TheHill.com" he said:

"Together, Fannie and Freddie's market share has grown substantially from 46 percent of all new mortgages in the second quarter of 2007 to nearly 70 percent in the first quarter of 2008. Because of the GSE guarantee, mortgage securities are more attractive to investors around the world, investors who are then more willing to purchase mortgage securities and finance new mortgages. It has never been more critical that markets have confidence in how Fannie Mae and Freddie Mac are overseen and regulated."

And he followed that with:

"In the simplest of terms, the housing market has slowed due to excess inventory and the reduced availability of mortgage finance. These two factors are working in tandem; we cannot reduce the inventory unless homebuyers can secure a mortgage. And the price of that mortgage will affect how many buyers come into the market and when. The secondary mortgage market has played an innovative and vital role in providing affordable mortgages in the past, but reduced investor confidence leads to higher mortgage rates."

In essence, there is no way that we can afford to allow these entities to fail. Lending practices are much more conservative now than they were just four short years ago but people are still able to buy homes. What would happen if Freddie and Fannie, who are now responsible for 70% of the originated loans, went away? If you think the economy is bad now, if they fail this would seem like Shangri-La!

Also let's not forget about the world economy. Regardless what you may think of the emerging economies taking our jobs through outsourcing or lower wages causing companies to leave the country for lower costs, we are still the 800 lb gorilla in the world's living room. When we stop consuming, the entire world suffers with us. We can virtually take down the world economy by ceasing to purchase products; ceasing to consume! Before that happens, foreign investors will be pouring money into the United States just to save their own economies. The better off our economy is the better for them. The more Americans that are working, the more we consume. Believe me, if there is an issue concerning a lack of available money to shore up our mortgage market, they will be the first to jump in to make sure the housing market doesn't collapse! This is why the federal government is stepping in now to make sure Fannie Mae and Freddie Mac continue business as usual. It is way too important to ignore!

So take all of this news with a grain of salt. The housing market will recover; it always has. As the population continues to increase, remember that there is a finite supply of land. Demand will increase and values will rise in the long term. If you have any thoughts, feel free to let me know. This is just one man's opinion.

Be Careful of these Lending Changes!

Ken Rivera - Turlock (American Pacific Mortgage) — Wed, 09 Jul 2008 16:12:54 -0700

As always, I want to keep my clients and working partners up to date with any changes that could affect your personal or business decisions. A few weeks ago, there was a change to mortgage qualifying standards in specific situations. Mortgage lending guidelines continue to tighten.

First a simple quick review. Fannie Mae and Freddie Mac are corporations that supply liquidity in the national mortgage market. They facilitate the ability for lenders to continue to lend by purchasing loans on the secondary market. This keeps a supply of mortgage money available for consumers. Generally, these are the best loans available for the borrower. Lenders who want their loans to be sold (most lenders) must adhere to FNMA or Freddie Mac lending guidelines.

There are now new requirements for moving from your old home and keeping it as a second home or a rental. These requirements are much more stringent and could affect you so keep this in mind as you plan your next purchase or move.

Let's start with a few definitions.

•· PITI - This stands for Principal, Interest, property Taxes, and Insurance (hazard or fire).

•· Reserves - This is the amount of liquid money the borrower has left after the transaction has closed. This can be in checking, savings, time deposits, stock brokerage accounts, 401k or IRA accounts (usually counted at 70% of current value), or even cash value life insurance.

•· Equity - This is the difference between the value of a property and the existing liens (i.e. mortgage). Documented equity must be proven with an appraisal.

Selling your old home and moving to a new one is what most people do when moving. However, if your home doesn't sell or has sold but not yet closed escrow and you intend to complete the purchase of your replacement home immediately, you must qualify with both payments included as debt against your income. This usually forces most buyers to complete the sale of their present property before completing the purchase of the replacement. This is not unusual.

Now for the real changes:

If you intend to keep your home as a rental property the old requirement was to simply produce a signed lease for the old home. Then 75% of the monthly lease income could be used to offset the PITI payment of the rental. But, the new guidelines state the following:

•· 75% of the lease income can still be used to offset the rental property PITI payment but there must be at least 30% documented equity remaining in the property.

•· If there is not 30% equity remaining, rental income may not be used to offset expenses AND:

•§ Both the current and the proposed PITI mortgage payments must be used to qualify the borrower for the new transaction and

•§ 6 months of PITI payments for both properties will be required as reserves.

•· In either case, rental income must be documented with a fully executed lease agreement, proof of a security deposit tenant and proof of its deposit into the borrower's (landlord's) account.

If you intend to keep your property as a second home:

•· Both the current and the proposed new PITI mortgage payments must be included as debt against your income to qualify for the new transaction.

•· 6 months PITI reserves for both properties will be required. 2 months of reserves for both properties might be considered if there is at least 30% documented equity remaining in the property.

What does this all mean? It makes it very difficult for people to abandon their old homes in order to purchase a less expensive one simply because values have fallen and more is owed on the property than it might be worth. This has been happening of late as you may have heard or read about. However, it is also much more difficult for the average Joe to keep the home they purchased as a rental and move on to a different property in which to live. However, for the person who has been relatively stable and has built equity in their home, it should not be too much more difficult to make this sort of move.

As always, please remember, I'm here to offer advice and to be your sounding board for ideas in your financial future. My business depends on doing a good job for you so that you will tell your family, friends and co-workers where to go for mortgage counseling. Should you run into someone trying to make a decision or in need of information, just give me a call with their name and number and I'd be happy to follow up with them for you! And remember, I'm never to busy for any of your referrals!

Whay are mortgage rates rising?

Ken Rivera - Turlock (American Pacific Mortgage) — Wed, 11 Jun 2008 18:06:38 -0700

Mortgage rates have increased more than 0.5% in just the past two weeks! So what's up? Let me throw in my two cents.

We have seen a lot of volatility in the mortgage bond market, much more than we've used to. If you've read previous information from me, you understand that mortgage rates are determined by mortgage bond prices. The more money that pours into the bond market, the higher bond prices get and the lower the yield of these bonds become. These yields determine mortgage interest rates. Generally, if the stock market does poorly, investors turn to the guaranteed returns of the bond market. This could be treasury bonds, municipal bonds, corporate bonds, mortgage bonds, etc. These bonds are purchased at a discount with a fixed return to the investor. So instead of fearing losses in the stock market, they move to the safety of bonds. When there is a good economy and a rising stock market, the reverse happens.

This all sounds reasonable but, lately we've been seeing another phenomenon...the commodities market. Trading commodities has never been for the faint of heart. It is sometimes referred to as legalized gambling. This is where large gains or losses can occur. You are actually betting that the price of a commodity (wheat, corn, pork bellies, gold, silver, oil, natural gas, etc.) will go up or down and if you're wrong, you lose. Because of the mechanics in commodity trading, this has always been a place of high risk and big gains or big losses. Most conservative investors stayed away from this market because of this. However, since the price of oil has continued to rise, some of the rise caused by speculation, this has affected almost every commodity you can think of. Oil and gasoline are used to get, grow or maintain just about everything. It now costs more to mine gold, to grow crops and to feed cattle. This means the price of everything is rising (as if you didn't know). As these commodities continue to rise, it has recently been a much less risky place to invest.

From the mortgage bond perspective, instead of the flow of money moving from risk (the stock market) to safety (the bond market) more money is now sitting in the commodity markets. There are simply less buyers and less money available for bonds. We are now seeing times when the stock market and the bond markets fall simultaneously because money moves to commodities. We used to wait for the stock market to fall in order to see falling mortgage rates and vice versa. The commodities market has now become the 3^rd place to invest. Will this continue?

Probably not. I believe that when we see oil stabilize, we'll return to the old standards of investing. This will bring about more mortgage stability. Will rates rise or fall? No one knows but I'm guessing that rates will remain low for the coming year.

As we saw in the housing market, prices cannot continue to go up indefinitely. There will be a commodities "crash" and money will flow from the commodities market to stocks or bonds. I believe we'll see more money move into bonds because retail prices are continuing to rise. As that happens, demand will fall, the stock market will not return what investors want, and they will wait it out in the bond market. All that will help mortgage rates to remain at low levels

This is just my two cents. All we can do is watch but while we're waiting, hang on for the ride!

Appraisals 101

Ken Rivera - Turlock (American Pacific Mortgage) — Thu, 08 May 2008 17:06:05 -0700

One of the most common subjects of conversation around the water cooler these days is the price of real estate. Let's talk about that for a minute. What is the "price" of real estate? Simply put, it is the amount of money a ready, willing and able buyer will pay for a property. It is just supply and demand. The price of anything will go up if more people want a particular item and there is not enough to go around. As we have recently seen, the reverse is also true. If there are fewer people who want the item, prices will fall.

Rising and Falling Values

Several years ago home prices rose dramatically. Demand was very high and financing was much easier to obtain. Over the past three years we have seen the reverse. Low housing demand and less available financing cause values to fall. Neither is uncommon but it concerns lenders. Lenders are always concerned with real estate value because a property is the collateral for their loan. They worry what will happen should the borrower default on the loan and they have to foreclose on and sell the property.

Risk

Lender will require appraisals to determine value before they will lend money. They then determine risk by the ratio of the total amount of the loan compared to the value of the property. This percentage is commonly referred to as loan-to-value ratio or LTV. Generally, any loan at 80% of the value or lower is considered a good risk. Loans can be done at a higher LTV but usually for a higher rate or with an added mortgage insurance premium.

So What Is Value?

So how is value determined? Value on appraisals is mostly determined by what has recently sold. I often hear people saying, "The Jones' home is on the market for $300,000.00 and mine is the same size but better so my home must be worth $310,000.00." We have to remember, asking prices have very little to do with value. Only homes that have sold can truly determine value. In addition, only homes of approximately the same size and location can be used to compare with the subject property. It is not uncommon for a lender to reject an appraisal because value was determined by comparing unlike properties or properties too far away from the subject of the appraisal.

What Else Can An Appraisal Tell?

Lenders require appraisals not just for value but for other reasons. Appraisals will show the floor plan and the condition of the home reassuring lenders it would be marketable should they have to resell after foreclosure. They will also present photos of the property and its location. There will be a description by the appraiser of any abnormal conditions or adjustments in value. There will even be comments concerning nearby railroad tracks, commercial or industrial zoning or whether or not the property has been on the market or sold recently. (Many lenders won't refinance a property if it has been recently listed.)

So What About Today's Market?

Lender's today are scrutinizing appraisals more than ever before. Falling real estate prices have made them more wary of a property's true value. The risk involved with the previously mentioned LTV of a loan remains the same and they are being much more careful today than in the past. In fact, several market areas in the country have been designated as "declining value" markets. Designated by county or metropolitan areas, Florida, Nevada, California and several others are included in this list. In these areas, lenders have reduced the LTV's for particular programs. For example, if a lender was previously willing to lend 90% of the appraised value of a home for a particular loan program, to has been reduced to a maximum of 85%.

An experienced lender can tell you if an appraisal might be an issue for your loan, whether purchasing or refinancing. He also probably has established relationships with reputable appraisers where many issues that concerns lenders will not be a problem. Remember, we are here as you mortgage professionals. Please feel free to email or call anytime with questions.

Under 6.0%? But Wait!

Ken Rivera - Turlock (American Pacific Mortgage) — Mon, 24 Mar 2008 15:02:05 -0700

If you've followed my emails and blogs for some time, you know that bad economic news can sometimes push mortgage rates down. That's about all it seems we've been hearing lately! You would also know that the Federal Reserve doesn't necessarily control the mortgage market. Here is a good example.

We spent the entirety of last week with 30 year mortgage rates under 6.0%. Much of that had to do with the bad news concerning Bear Stearns, one of the biggest financial institutions in the country, almost folding. This was due to its previous over exuberant investment in the sub prime mortgage world. This sent a shudder through the financial markets.

Then the Federal Reserve lowered it funds rate once more on Thursday. The market was closed on Friday but, as usual, mortgage rates rose again today after the rate cut. This has happened immediately after the last four rate cuts. Let's look at this a little more logically. Since last summer, 30 year fixed mortgage rates have fluctuated to a high of about 6.875% and a low of 5.625%. In the summer, the fed funds rate was 5.25% and has been steadily lowered to 2.25% today. If there was a direct correlation, wouldn't the 30 year mortgage rate today be less than 4.0%?

The mortgage market is dependent upon mortgage bonds, their purchase or sale. As demand rises from investors for the safety of bond investments, prices for these securities rise and the yield or rate falls. That is why bad economic news sometimes affects mortgage rates in a positive way. A Fed move one way or the other could signal good or bad future news dependent on the interpretation of the rate adjustment. Good and bad economic news has the same effect.

I follow this on a daily basis and am happy to answer all you questions concerning rates and programs available to you in the mortgage market. Feel free to give me a call anytime. I'm always happy to help!

APR and Deceptive Advertising - Be Aware!

Ken Rivera - Turlock (American Pacific Mortgage) — Sat, 16 Feb 2008 10:49:53 -0800

In a previous blog, I discussed what APR actually is and how it's computed. If you don't quite understand it, please read my "What is APR Anyway?" What I'm about to write is actually a little self-serving. I want the consumer to know that when I quote a rate it's difficult for me to compete with a deceptive advertiser. As a mortgage broker, I and others like me can usually beat any offer you may hear or see advertised but only if were on the same playing field. California State Law requires, among other things, that advertised rate quotes be accompanied by its APR. The bigger the difference between the payment rate and the APR, the more expensive the loan will be. This is where the borrower needs to pay attention.

In my business, closing costs will typically be .16%-.19% of the loan amount. So let's use this as a reference. I'm going to cite two specific ads I heard and saw over this past weekend. As I listened, I knew that the 30 year fixed rate mortgage was 5.75% at the time of the ads.

The first was from a regional mortgage company. Their radio advertisement stated they had a 30 year fixed rate loan at 5.5%. At the end of the commercial we were given the APR of 5.97%. That's a difference of 0.47%! So where did the money go? You are actually paying points from the closing costs to get your rate to 5.5% (1.0 point equals 1.0% of the loan amount). But that's not all. If I offered the same 5.5% rate on the same day and charged 1.0 point for the rate reduction my APR would be only 5.756%, a 0.256% difference and still lower than their advertised APR. In fact, order to make my APR equal theirs at 5.97% I would have to charge you 3 extra points over my regular fee! So what happens to the extra money? It goes into their pockets!

The second ad was even better. This was from Ditec.com on television. The camera moves through glass walled cubicles in what seems like a glass walled building and states that there is nothing hidden in their loans and everything is very clear. Well their offer was a fixed rate loan at 5.125% with an APR of 5.420%, a 0.295% difference. That's not as bad as the previous ad but how could they offer a rate so low? Two things come to light here. They never mention the term of the loan (unless it's in that really small print at the bottom of the television screen that you never have time to read) and they don't mention the points they have to charge to get that rate. Unfortunately, most people think of 30 years when they hear a fixed rate loan advertised. This ad said only that it was a fixed rate loan. It was actually a 15 year loan and the borrower pays a point to get the rate so low. The APR here is twice what I might charge making it a very expensive loan. Ditech is very clear aren't they?

We have to keep in mind that money is a commodity and on the same day, every lender has access to the same money. It's like the price of milk or gasoline. Everyone has to buy from the same wholesale market.

Remember, no company operates as a charity and there's nothing for free. So next time you hear or see a mortgage ad, listen closely for the APR and compute the difference in your head. If it's over 0.2%, be afraid.......be very afraid.

Help Me Spread the Good Real Estate News!

Ken Rivera - Turlock (American Pacific Mortgage) — Mon, 11 Feb 2008 14:17:09 -0800

Aren't you tired of the mainstream media constantly pounding the drum of doom and gloom? I don't think the media realizes how much power it has over the psyche of the average consumer. Imagine a different world. It's a world where the newspaper headlines scream about the best interest rates in years and a world where the TV news encourages first time home buyers to get into their first home now while prices are low. My glass is always half full but so you'll know that I'm not just expressing an opinion, let's look at some facts-some good facts.

The U.S. Census Bureau tells us the household homeownership rate is at record historical levels. There were 77,402,000 households in the U.S. in 2006. The household home ownership rate peaked in 2005 at 69.2%. In the 4^th quarter of 2007 this number had dropped to 67.8% which was exactly the same as in 2002 and that was a historical record at that time! Never before have so many people achieved the American dream of home ownership!

I know there were definitely problems associated with the easy mortgage credit period we just experienced but there is a good side to it, that being home ownership. This means more people going to Home Depot for lawn mowers, more visits to Penny's for drapes, more lawn maintenance work for landscapers, and on and on and on.

How about this one? In the summer of 2003 we saw the 30 year fixed interest rate fall to its lowest level in over 40 years at 5.125%. For most of this year, this same 30 year rate has been in the 5.0% range and looks like it will remain there for the near future. So where's the headline? You can sometimes find this on the 3^rd page because the foreclosure rate is on the front page.

Now I understand there are some very disturbing stories concerning people who have lost their homes to foreclosure. This is never something to take lightly and I empathize with each and every one of them because it is something I personally experienced in the last housing crises from 1990-1995. But I'm a good example of the ability for individuals to recover in an economy such as ours.

That said, here's more good news. The increase in foreclosures has caused housing prices to fall due to the larger inventory of homes available. But even though in December there was a 9.6 month inventory of homes for sale that number was and is decreasing! We are looking at a stabilizing home market. Still no headline.

Many people don't look at low housing prices as good news because of the loss of equity but let's look a little harder. The most obvious benefit is to first time home buyers. Many of these folks couldn't afford a home 2-3 years ago but today they can! The combination of price and interest rates gives them a wonderful opportunity!

Secondly, what about the move up or move down buyer? Why are these folks hesitating to put their homes on the market in order to move? Most feel they can't get the price that may have seen a few years back but what's the difference? Assuming there is equity, the entire market is down. So even though they may sell at a lower price, they will get an excellent price on the home they're about to purchase! In California that means lower property taxes because the property tax rate is based on the transfer value of the home. The lower the purchase price, the lower the property taxes. Had they sold their home three years ago at a higher price and purchased another in the same market, their taxes would be much higher! They realistically could save hundreds of dollars a year if not more! How lucky they waited! I haven't seen this headline either.

So why don't the newspapers like to talk about these things? What if they did? Can you imagine the increase in housing activity if the media put these ideas into the public's psyche instead of constantly beating the same old tired "crises" stories? I continue to spread the good news as I move in my own world and due to the glasses I use to see the world, I will always see the silver lining. How about you?

The "No Closing Cost" Loan Myth

Ken Rivera - Turlock (American Pacific Mortgage) — Sun, 03 Feb 2008 12:03:49 -0800

How many times have you heard of the "no points, no fees, no nothing" loans? Everyday the radio, TV, and junk mail bombard the public with the same message. Isn't it amazing that these companies have become charitable mortgage institutions and are willing to do your loan for free? They almost make you believe it's their calling donating their time and paper to process your loan for free. Fat chance! Don't be fooled!

Let's start by explaining the obvious. In business, nothing is for free. When evaluating an advertisement you must be cynical. If it sounds too good to be true, .......you can finish that one. Personally, I have mouths to feed like everyone else, so there's no way I can donate my expertise to the general public without somehow being paid. I have to make a living too!

So what is a "no cost loan"? How does it work? Simply put, the lender or broker is not charging you for its services and pays the loan costs for you. Isn't that nice of them? In reality, you're paying the costs indirectly.

To understand this better, let me explain how we get paid. Most mortgage people don't want you to know what I'm about to tell you. It's like their little secret. (Hope I don't get them too mad at me!) First, think of money as if it was any sort of regular product you buy at Sears. Let's say a pair of shoes. The price of the shoes is $50. Now we all know that this is not what Sears paid for these shoes. They bought them wholesale, let's say at 35$, and the difference, 15$, is the "mark up" or the profit.

Mortgage money is like those shoes but the price is the interest rate instead of dollars. So let's say you can buy mortgage money at the retail price of 6.25%. The wholesale price might be 6.0%. When this happens, the lender is paid the difference in the interest rate in cash by the wholesale provider of the money. 0.25% might give your lender about 1.0% of the loan amount in cash paid to them by the wholesale source. This is the "mark up"

Now, normally, the consumer is charged an origination fee for the loan officer's expertise and service, usually about 1% of the loan amount. As a professional fee, this is a fair service charge to pay a true professional loan officer in one of the biggest financial transactions of your life. He/she will direct you to the best product to suit you and your family's goals. This fee plus the mark up in price (interest rate) pays a lender approximately 2% of the loan amount for each transaction.

This having been said, let's look at what can happen, especially if you run into an unscrupulous loan officer. If I told you I would pay for all your loan costs, it would decrease my profits dramatically. In fact, I may make nothing at all. But if I charged you a much higher interest rate than the 6.25%, let's say 6.75%, I could pay your costs and still make a more than I described above.. This is the no cost concept. You pay for the costs by paying a higher interest rate for the life of the loan and I pay for all the costs up front.

I heard a radio ad the other day on the way to work where the announcer was asking people to refinance their adjustable rate loan to a fixed rate loan at 5.5% with no closing costs. Now, being in the business, I knew that the 30 yr fixed rate loan that day was 5.75% so this didn't seem logical. As I drove home, I heard the ad again and I listened much closer. I turned out that they never said it was a 30 year loan and with further checking, found out it was a 15 yr loan that could have been had that day at 5.25%!

Sometimes, there's a good reason to accept a higher interest rate in order to keep your closing costs down but this should be carefully explained so that there is no misunderstanding about what costs really are when financing or refinancing a home.

It is important to understand the difference between professional, ethical loan officer and someone acting as a "used mortgage salesman" only there to take you for as much money as possible. At American Pacific Mortgage, we pride ourselves on honesty, integrity and service. We would be happy to review any mortgage offer you may run across for validity and truthfulness with no pressure whatsoever to use our service. If you have any questions about any part of the mortgage process, please feel free to call us for honest, complete answers. We are your mortgage professionals.

What is APR anyway?

Ken Rivera - Turlock (American Pacific Mortgage) — Thu, 31 Jan 2008 15:07:58 -0800

What is APR anyway? How come it's never the same as the interest rate I'm quoted? This is a question often asked

You'll find APR on all sorts of credit purchases (cars, furniture, etc.). But let's concentrate on how it applies to your home mortgage. APR stands for Annual Percentage Rate. It's was created as a tool for consumers to be able to compare costs when obtaining a mortgage. It gives the annual cost of a loan, including expenses, as an interest rate.

But how does this work? There are four basic items we want to know when borrowing money. They are interest rate, monthly payment, how much we're borrowing (amount financed), and how much is it costing me (finance charges). To keep things simple, let's use a $200,000.00 loan at 6.0% over a 30 year period. The payment would be $1199.10 per month. Also, let's say the total finance charges for this loan were $4000.00.

Now, for those of us not so mathematically inclined (thank God for computers) let's think of a seesaw. Pretend the payment, the interest rate and the finance charges are weights on this seesaw. In the middle of the seesaw, the part that doesn't move, put the monthly payment ($1199.10). On the left hand seat, put the interest rate (6.0%) and on the right hand seat, put the loan amount ($200,000.00). At this point, the seesaw is balanced. If there are no expenses for a loan, the seesaw would be in balance and the APR will be the same as the note rate, 6.0%.

Now let's tip the balance. Imagine we lighten the load on the right side by reducing the loan amount by the amount of the finance charges ($4000.00). That leaves $196,000.00 or a "lighter" load. If this happens, the other side of the seesaw must move downward because we have a higher or "heavier" interest rate. Because the payment remained the same (in the middle) for a lower amount borrowed, the interest rate gets higher or "heavier". Doing the math, this APR is 6.189% obviously higher than the note rate of 6.0%.

Now let's change the expenses to $5000.00. Now the right side is even "lighter" at $195,000.00 so the other side of the seesaw adjusts even farther downward. In this case, the APR is 6.238%.

So you can see that the higher the APR is the more expensive loan. Here is where it becomes a tool for the consumer. If you have three lenders quoting the same payment rate of 6.0%, the highest APR will have the highest total cost. It's a simple way for the consumer to evaluate the expenses of a loan from lender to lender.

Not all costs are included in this calculation. Only costs directly associated with the loan are included. Here are a several items which are not included: title insurance, real estate taxes, home insurance, government recording costs appraisal, credit report cost, and several others. Some things that are included: loan points, loan origination fees, processing fees, underwriting fees, document prep fees, flood determination fees, and others.

Even with a thorough understanding of this subject, nothing will ever take the place of honesty, integrity, and service. A good loan officer should explain all of the specifics of your mortgage in simple easy-to-understand language to your satisfaction. This is what you should look for in a mortgage company and is on what American Pacific Mortgage prides itself. For any type of questions or advice on your present mortgage or a future refinance or purchase, please feel free to call us anytime. We are your mortgage professionals and ready to help.

Don't Hold Your Breath for Mortgage Rates on Tomorrow's Fed Meeting

Ken Rivera - Turlock (American Pacific Mortgage) — Tue, 29 Jan 2008 11:27:38 -0800

Ok everybody,

We all know the Fed meeting is tomorrow. But if you've read anything I've had to say in the past, you understand that mortgage rates will not automatically move in either direction tomorrow. The Federal Reserve's discount rate is a long range tool used to try to keep the economy on an even keel. Making this huge economy move is like trying to make a u-turn with a super tanker. You have to move the rudder about 2-4 miles in advance of your turn! The Federal Reserve looks 6-12 months ahead with these rate adjustments.

Today, we are feeling the effects of the moves made just last August and September. The only way for any significant short term move in mortgage rates after tomorrow's meeting is if there is a surprise. The markets have already factored in a 0.25% - 0.5% adjustment. If we get no adjustment or a 0.75% or greater adjustment, hold on to your hat. You'll see some volatility tomorrow.

Consider this. Friday, January 18^th, the 30 year fixed rate mortgage could be had at 5.75%. We then had a 0.75% Fed interest rate cut on Monday. As I'm writing this, the 30 year fixed mortgage rate is still 5.75% and trending to 5.875% as I speak! Rates are historically very good right now and if you or any one you know is thinking about a mortgage, it is a good time to move forward. You don't want to be looking in the rear view mirror at rates you could have had because we are still at three year lows. I like my clients so don't hold your breath for much of a change because I'd like to have you around for a while longer!

Bank or Mortgage Broker?

Ken Rivera - Turlock (American Pacific Mortgage) — Thu, 24 Jan 2008 13:29:25 -0800

First we have to understand how the system works. Mortgage brokers get paid from two sources. The consumer pays in the form of an origination fee or a broker fee for the professional services of the loan officer. The broker is also paid from the lender, the actual source of the money. If the retail price of a 30 year fixed rate loan is 6.25% the wholesale price might be 6.0%. The difference is paid in cash to the loan broker. Banks work under the same profit scenario. Now this can be confusing for the borrower but you have to think of it as you would any retail business. Products are purchased wholesale and sold retail. Brokers and banks do the same thing but the price of the product is the interest rate.

If you compare interest rates between brokers and bankers, you'll find that most brokers can offer you the same or better rate than the banks on any given day. They can also be much more flexible because they have many different sources of money. Banks can't usually deviate from their daily posted rates or lending guidelines. Brokers can research many lenders to find the best fit and rates for the borrower. Different lenders can have different rates on the same day. Not unlike retail stores, lenders also run "specials" or "sales" periodically to drive business from brokers their way. With a single bank, you're stuck with whatever they have to offer that day.

However, the consumer must be aware of unscrupulous brokers. They are in a position to raise interest rates to get paid more from the lender if the consumer is somewhat naive. This is where it pays to know your mortgage broker. Ask around. Get references. Any broker who is unwilling to let you talk with past customers should be suspect.

Putting that aside, your best bet to secure a mortgage is through a good broker. This may seem self-serving but it's true. Brokers have many sources of mortgage money and a good one will find you the best rate and terms on any given day.

But how about costs? Banks and brokers sometimes advertise "no closing cost" loans. If the rate is higher is it really no cost? Don't be fooled. Costs for a mortgage broker or a bank are always present in the processing of a loan. Neither is in the business of losing money. One way or the other, you are paying for the origination of a loan. But, working with a good professional loan broker will save you stress and money in the long run. Typically, in a "no closing cost" loan, you pay a little higher rate so profit is higher and the costs of your loan are offset. Paying closing costs is not a bad thing to do to get the lowest rate possible if that is your goal. There are also circumstances where a little higher rate will save some money. A mortgage broker has the flexibility to produce the mortgage that fits your unique situation and, in fact, that's what you pay for; a professional to make sure you get the biggest transaction of your life done right the first time.

We at American Pacific Mortgage pride ourselves on honesty and integrity. We want your business but not solely because of the profit you may bring. We understand that you are worth much more to us if you get the best mortgage possible. You will then tell everyone you know and that is worth much more. If you have any questions about this or any other mortgage subject, please feel free to call us at 209-668-700. We are your mortgage professionals!

Mortgage Rates Continue to Fall

Ken Rivera - Turlock (American Pacific Mortgage) — Wed, 23 Jan 2008 12:41:05 -0800

Mortgage interest rates, including jumbo loans, continue to fall with the loss of confidence investors have in the equities market. We are now, almost at the historical levels we saw in June 2003! Here's the strange part. Today the fed funds rate is 3.5%. Then, it took a lowering of the fed funds rate of 1.0% to drive the economy in the right direction (albeit we got a little over exuberant). We are about 1/8th of a percent away from historical mortgage lows now. If the fed finds the need to continue to drive interest rates lower, I believe this real estate market will begin to turn around this year.

That's good news but even better news is that we won't find ourselves in the financial market position of the recent 6 years. We have learned that easy credit is not necessarily good for us and that was a lesson well learned. The real estate recovery will be steady and controlled as it should be. So I say "IT'S TIME TO BUY A HOME!"

Comments On This Mornings Fed Move

Ken Rivera - Turlock (American Pacific Mortgage) — Tue, 22 Jan 2008 11:16:37 -0800

This morning we saw a Federal Reserve rate cut of 0.75%. Over the holiday weekend, many foreign stock markets dropped dramatically, mostly due to the fear of recession in our own economy. We are such a huge economic system that the state of our economy can have a dramatic effect overseas.

However, as I've written in previous blogs, don't expect this move to have a one-to-one relationship with mortgage rates. The Federal Reserve does not control mortgage rates. Their job is to try to keep the economy on an even keel and they have two basic tools with which to accomplish this; interest rates and the supply of money. Without getting too detailed, if there is more money available (money supply), it becomes cheaper and easier to get or if the price of money (interest rate) is cheaper, it will also be easier to obtain. This easing of the availability of money then encourages more borrowing, meaning more investment, more jobs, and on and on and on.

Mortgage interest rates are controlled by investment in mortgage back securities (bonds). They are a safe investment with a guaranteed return. When there is a shaky stock market, many investors take their money out of the stock market and run to the bond market to keep their money safe. When this happens, the price of the bond will rise (supply & demand) and interest rates will fall.

With all that said, what happened this morning? The Federal Reserve watched the decline of stocks and growing fear on a global scale over the holiday weekend. They were not supposed to meet until the end of the month to discuss another possible rate cut. Even then, the best predictions were a lowering of rates by 0.5%. All of a sudden, they call an emergency meeting yesterday and lower their fed funds rate by 0.75%! They must see something most of us don't. I know these guys are economic experts and have leap years more knowledge than me in economics but this move tells me that they think we need to get the economy moving much quicker. The driving engine of this economy is us; the consumers. When we spend, everything is better. This move will help with consumer confidence because money will not cost as much to borrow. Many credit cards are variable rates and payments will now fall putting more cash in consumer's wallets. Lines of credit also have rates that will be lower. This morning, a 30 year fixed rate mortgage has already fallen 0.125% to 0.025%.

The stock market is still volatile and money will continue to move in and out of the bond market so let's hold on for the ride! If you or anyone you know is contemplating a home purchase or a refinance, it might be a good time to start the inquiry process. Please feel free to give me a call with any questions you may have anytime! Your comments appreciated!

A Reverse Mortgage Story

Ken Rivera - Turlock (American Pacific Mortgage) — Sat, 19 Jan 2008 22:42:02 -0800

One of the most heartwarming parts of my business is helping our senior citizens with reverse mortgages. Many are on fixed incomes and have worked hard over their entire lives only to end up struggling when they choose to or are forced to retire. Having been in their homes for many years and having raised their families, they have finally them paid off their property or have very small mortgages. Many also have adequate incomes to survive but not much more than that. Any small financial need then becomes a crisis. Home maintenance needs, auto repairs, medical needs or simply a vacation to see family can seem overwhelming. The reverse mortgage is the solution for many. There are many reasons seniors use this product and here is one of them.

I recently had a client who we'll call Mary that completed a reverse mortgage. Mary was a widow. Her husband had died about 10 years earlier after a long blue collar working life. Together, they paid off their home and a family cabin he had built by himself in the foothills which they also owned free and clear. He had also left a good sum of money in savings for his wife. Unfortunately, he also had always handled the family's finances.

Now alone, Mary was solely in charge of the assets and it took her some time to get things figured out. At one point, she made a large investment on the advice of a relative and they both were defrauded of large sums of money. This devastated her thinking she had failed her husband. Since then, she had very little trust for anyone in the financial world. With a much smaller base of liquid assets, she tried to live on her social security checks while trying to preserve the small amount of money she had left.

I met Mary through a financial planner friend of mine who was handling her remaining liquid assets and he recommended a reverse mortgage for her. I initially met with her in the fall of 2006. She was polite enough but I had to be very patient with her as she kept reiterating the fact that she didn't want to make another big financial mistake because her husband would not be happy with her. She spent many months researching and asking friends and professionals if this was a good idea and if reverse mortgages were legitimate. During this time frame of about 8 months, she also found out she had a progressive disease. She wanted to travel and see her children who had geographically scattered. This became more pressing with the medical news but she didn't have the money for the trips.

Finally, after about a year from our first meeting, she made the application for a reverse mortgage. She was going to go and see her children as often as possible, get herself a new kitchen, bathroom, roof and backyard.

Working with senior citizens takes patience and understanding. This is usually the only asset they have left. There is no selling here. It's simply a presentation of a solution to their situation. It's freedom and a return of their dignity. It's giving them back control of their lives and future. It's one of the real pleasures of my business. I certainly enjoy the experiences of watching home purchases by families but nothing compares to seeing the great weight of financial worry lifted from someone who has worked so long and hard only to find life even tougher.

I have many more stories, each one unique in the reverse mortgage world. I will share more in the future. If you know anyone who is age 62 and over and has equity in their home, please feel free to give me a call. I enjoy counseling and explaining the ins and outs of this product. It's not right for everyone but it can be a Godsend to some.

Why It's Time To Buy A Home, NOW!

Ken Rivera - Turlock (American Pacific Mortgage) — Fri, 18 Jan 2008 11:36:51 -0800

The time to buy a home cannot get much better. This certainly assumes that you are ready to buy. This means you are employed, can qualify for a payment and you have enough cash saved to close a transaction. It also means you've decided it's the best thing for your family. Given that, why am I hearing these different reasons for not buying.

"I'll wait until prices will come down more"

Do you hear this everyday? Everybody wake up, now! It wasn't more than a few years ago that a small home under $300,000.00 could hardly be found. That same home today could probably be had for $200,000.00 or less. That's a huge difference! Generally, people wait too long on prices and play catch up as they start to rise. As the economists like to point out, we never know where the bottom is until it's in the rearview mirror. The selection of homes is tremendous today and it's a perfect time to choose your home.

Please consider the motivation most have for buying property? People are buying a "home", a place to raise their family, a place they can call their own. They're not buying a house like they speculate on stocks! They are in it for the long run. So what is every one waiting for?

Consider this. We live in the most populace state in the Union. Did you ever ask yourself why? It's pretty simple. Everyone wants to live here. We have the best weather and the biggest economy. In a matter of hours you can be in the most beautiful mountain cathedral or drive to a wonderful beach sunset. Whatever you hear about how many people are leaving the state, more are coming here everyday. And how about the birth rate? The one thing you can count on is that the population of this state will continue to increase. As long as this is true, real estate values will rise. Land is a limited commodity. We can't produce anymore. The more people there are the higher the demand for land and the higher the price.

Here's a better way to see it. Let's look at a 70 year time line on a table in front of you, the great depression until now. Now create a ruler 10 years long and move it along this time line. You can stop it at any ten year period you like and you will find property rising in value. There is no moving ten year time period in which you would have lost value in real estate. Could you have lost in two, three, or five years? Yes! And you could have made money in the same period, but, overall, as long as you hold onto real estate in California long enough, your net worth will rise.

"I heard the Fed is going to lower rates again".

This is one of my favorites. It may come as a surprise to you but the Federal Reserve doesn't control mortgage interest rates. They are controlled by the market for mortgage backed securities. Let's look at a little history. The fed funds rate has been adjusted several times since its low of 1.0% in June 2003. It now stands at 4.25%. In other words, we've seen a 3.25% rise in the Federal Reserve's rate in about four and a half years. The lowest 30 year fixed rate mortgage rate we saw in June 2003 was 5.125%. So now, let's add 3.25%. If the fed controlled mortgage rates, the 30 yr fixed rate loan should be at 8.375%, right? As I write this, the 30 year fixed rate mortgage is only 5.625%. The rate hasn't been there since 2005 and is only 0.5% higher than the historic low in 2003! So I ask again, what are you waiting for?

"I don't have a big down payment"

Despite what you may have heard, there are still several mortgage programs designed to help those with little down payment. These programs have been around for many years but were largely ignored during the recent period of easy credit. Also, in today's market, there are many sellers willing to help you buy their homes by paying for closing costs. Now let's not be naïve, you still need some money of your own but probably not as much as you think. So a little more loudly now, WHAT ARE YOU WAITING FOR?

If you ever have any questions concerning any aspect of mortgage lending, please feel free to call us at American Pacific Mortgage (668-7000). You may ask for me directly or talk to anyone of our loan officers. No question is too trivial in this complicated mortgage environment and we're happy to help. We consider ourselves mortgage counselors and your personal mortgage professionals.

So what happened to Countrywide?

Ken Rivera - Turlock (American Pacific Mortgage) — Tue, 15 Jan 2008 17:35:50 -0800

In my last blog, I briefly explained what I thought may have led to the mortgage mess we are in presently. I try to keep things as simple as possible so if it seems I'm talking too basic here, please bear with me.

Countrywide Financial Corp., as large as it is, was not immune to the latest mortgage troubles. Here is one of, if not, the largest independent mortgage lenders in the country and a very large mortgage servicer. A mortgage servicing company simply takes care of loans already originated and being paid upon. They collect payments, administer tax and insurance payments, counsel clients, provide customer service and administer foreclosure processes when necessary. Countrywide serviced not only their own loans, but purchased blocks of other loans to service. They also signed servicing contracts with other mortgage companies to service loans for them for a fee. Countrywide also had its fingers in many other areas. They had a bank, could provide insurance for home, auto, and life, could provide mortgage reinsurance, property appraisals and flood determination reports, etc. Even in lending they had retail storefronts, provided wholesale loans to mortgage brokers (like me), and could provide lines of credit to other lending institutions to allow them to continue to lend. There was hardly any facet of residential mortgage lending for which they did not have a department.

Unfortunately, this may have been its demise. Residential property values have fallen dramatically over the past few years. Countrywide was one of the most liberal lenders during the peak of real estate values. They were one of the leaders in the subprime two and three year fixed, then turn adjustable mortgages. Couple the short term fuse with 100% financing and all of a sudden there is no where for a borrower to go except to bankruptcy court. With falling values and a rising mortgage payment, foreclosure is a foregone conclusion for many. You would think that a corporation with so many smart people would have thought of that some time ago. Why didn't someone ask, "Is it smart to continue to lend 100% of the value of a property with an adjustable rate loan when we know values will eventually fall?" If all of these loans were 30 year fixed rate loans and values fell, most homeowners would continue to make their payments until the values began to rise again.

We have seen real estate values cycle up and down for decades. Never has there been a continuous climb without a correction of some type. Here is where Countrywide failed. They originated very risky loans because, at the time, it was very profitable. They made money at the origination of the loan and servicing the loan. There was never the long term view. I suppose they might have thought they were so large that they could absorb any loss declining values might have caused. But why plan for loss? Why not wait for the next cycle? The "bigness" of the corporation would have certainly pulled them through to the next cycle of rising values had they stopped risky lending somewhere around 2004.

So what happened to Countrywide? The same as my last blog; greed! Being too greedy for too long. So now Bank of America will absorb Countrywide Financial Corp. But while it is buying Countrywide, BofA is changing its lending practices also. Last month, they stopped wholesale lending (meaning they no longer will lend through brokers like me) and they have said they will not originate sub prime loans with its purchase of Countrywide. But since Countrywide is still a wholesaler, will that continue? They have also said they will not change the Countrywide name so I suppose it will keep the storefronts Countrywide still maintains. All of this will eventually fall out and sometime in the 3^rd quarter of this year we will see the result.

Maybe it's a life lesson. "Too greedy for too long". I suppose that's why we're still hanging on here while most mortgage brokers in town have closed their doors. Everyone likes making money but it should be done the right way. Proper counseling and advice and the right product. In 2004, as I saw the coming decrease in the number of loans, I started initiate the ability for our office to do reverse mortgages and Cal Vet loans. We have been FHA and VA lenders for many years and they are now coming back. These are things many lenders are just now trying to catch up on, sort of like a Countrywide. If I can see the writing on the wall from my small desk, it seems like Countrywide and their experts should have been way ahead of the game.

Who's to blame for the subprime mess?

Ken Rivera - Turlock (American Pacific Mortgage) — Fri, 11 Jan 2008 12:35:49 -0800

There's been a lot of blame going around for the present mortgage mess we are now in. Most of the blame is piled on those of us who arrange mortgage loans for the consumer. We are the mortgage brokers. Part of the blame belongs here but only a small part.

Our job is to find the best mortgage for an individual utilizing many sources of money. As opposed to a bank who can offer only their own menu of products, a broker has the ability to shop the client to many different lenders to find the best deal. This morning, for example, across seven different lenders, the 30 year fixed rate differed by as much as 0.25%. This is approximately a $32.00 saving per month in monthly payment for a $200,000.00 loan. But I digress.

The blame is placed on us because we were deemed the ones who didn't explain to a borrower what kind of loan they were getting nor what could happen in the future and, on top of that, we charged excessive fees for these loans. Now this may have occurred with some unscrupulous brokers but things like this occur in many industries. Car sales, jewelry sales, clothing sales, stock brokers, attorneys, etc. all have their bad apples. But for the most part, your reputable mortgage broker can get you the best possible deal on a mortgage.

However, the one thing we have to remember is that the mortgage broker did not create the "subprime" type of mortgages. Since his job is to look for the best available mortgage for a person's individual circumstances, a subprime mortgage might be the only alternative for that person. If so, the mortgage broker's obligation is to explain to the consumer the terms of the loan (even though it is all in writing). But the availability of this mortgage is not the fault of the broker.

So where did these loans come from? Here we can look to the financial world. Without getting too complicated, we have to remember that money is not unlike any other product. The mortgage broker is the retailer and gets money from wholesale sources to lend to you. This is the same as your local store who buys their goods at a wholesale price and sells it to you at a retail price in order to make a profit. Now, using the same analogy, the wholesaler is usually the distributor of products to retail stores. He, therefore, buys from someone else at an even lower price in order for him to make a profit. This goes all the way back to the manufacturer where you would find the lowest price. Money works the same way and the "price" of money is the interest rate. Today's retail rate for a 30 fixed rate mortgage might be 6.0%. The wholesale rate might then be 5.75% and even lower as we approach the ultimate source of the money.

If you have any experience with your own mortgage, you may have noticed that mortgages can change hands or get sold to another entity. The terms of you mortgage don't change but who you send your payment to does. So now we have the reverse of the retail store example. Once the loan is originated, it has value and is sold back down the line but this time to investors looking for a long term stable return for their investment dollar. Thus, each "sale" of this loan generates a profit for the seller of the loan. Ultimately, loans of the same type were packaged into "securities" like stocks or bonds and investors would buy them for a fixed stable return.

This has existed for many years. The low risk but stable return mortgage bonds were a great investment. But some investors wanted a better return. In any investment, the higher the risk, the better the return. So, as higher risk borrowers were saddled with higher interest rate loans they provided a better but riskier return for investors. Then the mortgage lender got more creative with these higher risk loans and created different, riskier products because there was a market for these in the secondary market meaning there were buyers for these loans. As the investor's appetites for these higher returns grew, the subprime loan became more and more prevalent and easier to get.

Then, in late 2006, investors began to become wary of the real estate market, especially real estate values and the rising foreclosure rate. They began to lose their interest in these mortgages and then almost all at once, stopped purchasing these securities. Once the market for these loans was gone, so were the companies who specialized in these loans.

Now, we as mortgage brokers are still here doing what we've always done but we have less avenues of choice for our borrowers. These risky loans no longer exist. We've actually returned to the year 2000 when many of the exotic mortgages were not a choice. But, a good mortgage broker can still find many alternatives for today's buyer. We have finally stopped the insanity.

In conclusion, I place the blame squarely on greed. Wall Street investors were greedy for higher returns regardless of the risks. Mortgage banks generated loans they could not keep themselves and closed their doors when they ran out of money because they could not sell their loans. Finally, many mortgage brokers are out of business because the easy loans and easy money is now gone. This is actually a good thing for the market as a whole. We will come out of this very soon because of the stable mortgage market that is now being forced upon us. No one likes change but this is for the better. I look forward to a stabilizing and fruitful 2008!

Wow! A look at interest rates today!

Ken Rivera - Turlock (American Pacific Mortgage) — Fri, 04 Jan 2008 15:27:58 -0800

We've seen interest rates today move to a level not seen since 2005! This morning, you could have a 30 year fixed rate loan for 5.75%. But what's going on? If rates are this good, how could the mortgage industry be in turmoil? These are good questions. Let's explore.

First of all, don't get fooled by those who tell you that mortgage rates are tied to the federal resrve's rate control moves. I've even heard this on the radio. "Refinance with us because the "Fed" just lowered rates again!". If there was any direct relaltionship, the following should hold true. In June 2003 you could get a 30yr fixed rate mortgage at the lowest rate in 40 years, 5.125%. At that time, the fed funds rate was 1.0%. Now roll forward to January 4, 2008. The fed funds rate was just lowered to 4.25%, still a 3.25% increase. If the two rates were tied together the 30 year fixed rate should be 8.375% today, correct? This morning, as I already quoted, you could have a 30yr fixed rate at 5.75%, only a 0.625% increase! There is no direct correlation and don't let anyone tell you that there is. Mortgage rates will generally follow the trend of other rates but are solely control by the mortgage backed securities (or mortgage bond market) and economic trends.

Let's do a little bond education. When you purchase a bond, like a savings bond, you purchase it at a discount and are paid full value at some time in the future. For example to keep it simple, if you were to buy a bond whose value will be $100.00 in 12 months and the price was $95.00, you would have a profit of $5.00 at the end of one year or a return of 5%. When the price of purchasing this bond goes up, say to $96.00, the return or the interest rate goes will go down to 4% and vice versa. If the price goes down, the interest rate will rise.

Now, there are all kinds of bonds available (corporate bonds, treasury bonds, savings bonds, municipal bonds, etc.) and each has a different level of risk associated with a purchase. The riskier the bond (or the likelihood that you'll get your money back at the end of the term of the bond) the higher the return can be expected. Mortgage backed bonds are some of the safer bonds because they are ultimately tied to homeowners and thier homes.

Generally speaking, if you want a safe investment you will purchase bonds of some type. If you want to take more risk, you'll invest in the stock market. On a larger scale, when the stock market is scary, investors move their money to bonds and when the stock market is rising they move their money to stocks. If the demand for bonds increases, the price will rise (supply and demand) and the interest rate will fall. If no one is buying bonds, the price will fall to try to entice more buyers and the interest rate will rise. (Many other factors effect both the bond and the stock market in this international economic society but just take this as basic).

So, what's wrong with the mortgage industry if rates are this good? Today we are seeing what was in place and considered normal prior to 2001. You had to have some sort of down payment and you had to fully qualify for the payment on your new mortgage. We then went through a period of easy credit (which I'll discuss in another blog) where many more people were allowed to qualify for loans that were out of their reach before. More demand for housing caused prices to rise (supply and demand) until finally, prices were too high for most paople to reach. In this time of easy credit, many more people became involved in the mortgage industry. We've now scaled back to more normal times. Only two years ago, we could count over 30 mortgage brokerages in Turlock. We are now one of about eight including a few one-man-shows!

In other words, there is nothing wrong with the mortgage industry at this time. We've just returned to some sort of normalcy. It sort of like watching your retirement account mutual funds go way up for a while and then return to normal. The mortgage professionals are still in business and the get rich quick guys are gone. Rates are excellent and housing prices are good.

My glass remains half full and I look foward to a good (not great) 2008.