Mike's Blog

USDA rates drop: A great alternative to FHA in many Californian cities!

Mike Smith (Fair Housing Resource Center) — Sat, 13 Sep 2008 17:06:18 -0500

With the recent and ongoing changes in FHA, USDA loans are among the hotest mortgage products in many cities in the great state of California.

Today's posted rate for a USDA 30 yr fixed mortgage with a 1% origination point is:

5.50%

As compared to Fannie Mae or Freddie Mac who are running at 5.75% today and with a minimum of 5% down, USDA offers a far superior choice for many borrowers who have been recently saddled with changes in FHA guidelines now mandating a 3% down payment as of October 1, 2008 and a 3.5% down payment as of January 1, 2009.

So just what are the benefits of USDA:

First of all, it is not a steak; it is a loan program.

USDA-United States Department of Agriculture has as it's charter a commitment to help families in rural areas, who otherwise could not qualify for a standard Fannie Mae-Freddie Mac loan approval, qualify for outstanding terms and underwriting criteria:

Minimum Fico 600
No cash reserves
100% financing
Max income limits of $81,650 for a family of four (moderate income limts)
No PMI
If appraisal is higher than sales price you may finance closing costs without raising the sales price.
New for 2008: borrower does not have to be a first time homebuyer
No limit on seller contributions
No BK in the past three years
Max of 1 x 30 day late in the past 12 mos.
Purchase or new construction OK
May refinance an existing GRH loan into a new GRH loan

Now the only antiquated guidelines are:

No inground pools
Site value may not exceed 30% of total value

So if you live in towns such as Cameron Park, Diamond Springs, El Dorado Hills, Lincoln, Auburn, Colfax, Grass Valley, Georgetown, Grizzly Flats, Placerville, Pollock Pines, Shingle Springs, Foresthill, Kings Beach, Loomis, Meadow Vista, Tahoe City, Tahoe Vista, Rancho Murieta, Galt, Herald, Isleton, Locke, Walnut Grove, Wilton, Live Oak, Nicolas, E. Nicolas, Esparto, Winters, Knights Landing among many many more cities, you may just qualify!

So contact a preferred USDA lender today and get qualified for a USDA home loan where you live!

FHA changes: Are you ready as a Realtor or consumer?

Mike Smith (Fair Housing Resource Center) — Tue, 02 Sep 2008 22:11:19 -0500

Effective 10-01-2008: No more seller assisted gift funds programs

Effective 01-01-2009: FHA min down will be 3.5%

Question: What other options do we have??

According to HUD letter 00-28 #4155.1:

Parents or family can still gift the entire 3.5%
Parents, believe it or not can literally get the money from any place (pawn shop, credit card, whatever) to gift to their kids.
Cash on hand up to $3000 (mattress money) can still be used as sourced funds
You can get a loan against an asset even from the seller and even on the subject property in the form of a seller second mortgage
You can get a loan against a 401(k)
You can get a loan against a whole life insurance policy (typically at a 3% rate)
You can set up a Monthly savings plan: I.e. new payment will be $1500; current rent is $900. Set aside $600 and in 10 mos or so you have your down payment and a profound sense of pride that you did it!
You can use SWEAT EQUITY: Yes I said it. . . If you are a painter for example and the appraisal calls for repairs, you can do repairs and trade it with seller as your down payment
You can have sweat equity gifted from a family member
You can have a gararge sale and take pictures and document deposits for down payment
Ebay
Pawn Shops
Wedding gifts for down payment

Other options:

Housing Rescue Act of 2008: You can borrow up to 10% of sales price up to a max of $7500 from your 2008 tax refund in the form of a 0% loan from Uncle Sam for your down payment paid back at 0% interest for 15 years at $500 per year.
CalHFA with ECTP, CHDAP or HICAP for 100% financing (even in declining markets)
USDA 100% financing in rural areas such as Lincoln, Colfax, Grass Valley, Auburn, Pollock Pines, Wheatland, etc. Great program 100% financing at 6.375% with no points and no PMI.
CalPERS: 100% financing with 5% down payment collateralized from CalPERS.
CalSTRS: 97% financing as an 80% first with a 17% second lent from the Teachers pension fund
VA: Veteran's Administration: 100% financing with No PMI
+ City, County, State, Federal Down Payment Assistance programs

Gang.... there are many ways to buy a home with no down.

What we need is good ol' fashioned back to basics approach.

Sitting down at the kitchen table and formulating a plan to help the buyer get the loan and the realtor earn the commission.

Such a simple goal: Realize it and go for it!

MORTGAGE UPDATE AUGUST 28, 2008

Mike Smith (Fair Housing Resource Center) — Thu, 28 Aug 2008 10:50:17 -0500

Current mortgage rates:

Priced with 1% point

30 yr fixed: 6.125% Conforming Jumbo: 6.25%

15 yr fixed: 5.625% FHA Jumbo: 6.25%

5/1 ARM: 5.625% FHA: 5.875%

30 yr fixed interest only: 6.375%

30 yr fixed with lender paid mortgage insurance: 6.25%

As a direct lender we charge no junk fees. We are the funding source; we are the bank!

You pay 1% flat fee with no lender charges of any kind.

For a no-cost analysis of your situation, call 916-813-4003

USDA Guaranteed Home Loans - 100% Financing with No MI!

Mike Smith (Fair Housing Resource Center) — Fri, 18 Jul 2008 16:33:55 -0500

Despite the gloom and doom in the marketplace there are still plenty of great financing options.

One such program is especially attractive, if not the most attractive of all 100% financing in the marketplace today. The program I refer to is the USDA Guaranteed Home Loan.

"It is simply hard to compete with the USDA Home Loan." - Tony Jones, USDA client closed 7-02-08

USDA is designed to stimulate rural development. Properties must be located in eligible rural areas. By definition, generally towns with a population of 20,000 or less that are removed from urban centers.

I live in the Roseville area of California so for me towns such as

Lincoln, Cameron Park, Colfax, Dixon, Auburn, Placerville, Pollock Pines, Wilton, Winters, Grass Valley, Orland, Galt and many other cities are all eligible for this program

Here is how the program works:

Income limits to 115% of US median income (for most counties this is $65,000 for a family of 4)
100% financing with no limit on seller paid contribution for rate buy-down, etc
2/1 Buy-downs are available
2% upfront MI fee is financed into loan and as a result, the loan will not have Mortgage Insurance
Loan may include closing costs on a purchase
No cash reserves
Minimum FICO is 600 for a 29/41% max debt ratios; however with a 660-700 FICO ratios may be increased higher to 50%.

I just pulled up this property in Lincoln July 18th which is listed for sale at $219,900 located at:

2525 Saint Andrews Drive Lincoln, CA which is eligible for the program

Realtor contact: Forth Hoyt 916-248-7777

Today's Rate for USDA for this property = 6.50% with no lender points fixed for 30-38 years.

No MI financing!

$219,900 + 2% upfront MI fee = $224,298 total loan

33 year fixed rate mortage = $1,377 fixed loan payment + $30 insurance + $220 Taxes =

$1,627.00Total PITI 100% loan if you wanted to buy this home.

Total closing costs are somewhere in the vicinity of $4,200 and can also be financed or paid by the seller.

Compared to other programs such as FHA which has an upfront MI fee of 1.5% but also has a monthly MI fee of $75 by comparison:

$1,410 (same fixed rate but 30 yr term) + $30 insurance + $220 taxes + $75 monthly MI =

$1,735.00Total PITI for FHA

USDA beats FHA by $108 per month.

USDA is also a conventional loan that requires no pest or FHA requirements.

There is also no cut for declining market policy so this is a pure 100% loan.

For more info, simply email me at: mortgageplanner@247refi.com

Or feel free to call or text me at: 916-813-4003

Mike Smith

USDA Specialist

MORTGAGE UPDATE! 06-02-2008

Mike Smith (Fair Housing Resource Center) — Mon, 02 Jun 2008 23:00:52 -0500

Ok folks this is the patented Fannie Mae 5.50% mortgage bond; the only true benchmark for the mortgage market. I have charted this going back 12 mos. so you get a flavor for what I am about to post.

For those who know me, understand I have 3 passions: my kids, politics, & mortgage planning.

I take great pride in the fact that I am a mortgage news "geek." So here is where we be:

Our benchmark Fannie Mae bond was up 41 basis points today
Mortgage rates will drop tomorrow as a result
The lowest 30 year fixed in today's market was posted at 5.625% at .125% discount
I charge a 1% origination for that bond price. {meaning 1% origination +.125% discount}
My competition was all at 5.875% even 6% today
At 5.875% today I am charging no points or lender fees

Now moving ahead . . . .

Wednesday we have ADP National Employment Report.

The ADP National Employment Report is a measure of nonfarm private employment, based on a subset of aggregated and anonymous payroll data that represents approximately 392,000 of ADP's 500,000 U.S. business clients and roughly 24 million employees working in all 19 of the major North American Industrial Classification (NAICS) private industrial sectors.

POTENTIAL IMPACT ON INTEREST RATES: HIGH

Other than that I am sleeping until Friday and might open one eye to take a peak at hourly earnings, non-farm payrolls & unemployment which may have an impact on mortgage rates.

Keep in mind that mortgage bonds hate inflation. Just as those on a fixed income hate rising price, so do investors who commit to a 30-yr mortgage at say 6%. Assuming inflation is on the rise, the purchasing power of that 6% dividend every month will diminish in value and investors will demand higher rates.

We hit that sentiment last Friday and today there was a significant "flight to quality" as investors sought bonds and mortgage bonds (FNMA) for safety.

As always be smart with your money and entrust your refinance or purchase decision to a pro who can answer these 4 questions when rate shopping:

What are mortgage rates based on? {hint: mortgage backed securities and not the 10 yr t-bond. If they say the 10 yr t-bond, run don't walk}
What is the next economic report that may affect interest rates? A pro will have at their fingertips.
When the Federal Reserve Board cuts short term rates, what happens to mortgage rates? Yes, in 99% of the cases they ALWAYS rise.
Do you {my entrusted mortgage broker} have an opinion on the market? What you are really looking for is .... is it really appropriate for me to do something now if rates are dropping next month? Again, a pro will always have an opinion to save you money.

That's all for now . . . My new seminar has been published and entitled:

MORTGAGE PLANNING FOR DUMMIES 2008/2009

IF YOU ARE IN THE NORTHERN CALIFORNIA AREA, YOU CAN BOOK ME TO SPEAK AT YOUR OFFICE FOR FREE.

As always . . . be safe with YOUR money!

Mike Smith

916-813-4003

mortgageplanner@247refi.com

FOMC Minutes: What do they mean to the borrower & rates?

Mike Smith (Fair Housing Resource Center) — Wed, 21 May 2008 12:36:49 -0500

FOMC Minutes Each bar = $160,000

The Federal Open Market Committee consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings.

POTENTIAL IMPACT ON INTEREST RATES: HIGH

Compliments of MMG: Mortgage Market Guide

"Traders will have something to react on at 2pm ET, when the Fed releases their Minutes from the April 30 meeting. At that meeting, the Fed cut rates by .25% bringing the Fed Funds Rate to 2%. The vote to cut wasn't unanimous as both Richard "Loose Lips" Fisher and "Three Swing" Charlie Plosser preferred no change to rates. And the policy statement had some verbiage, which led the financial markets at the time, to believe the Fed may be done cutting rates. So the Minutes may provide some color as to the Fed's most recent rate cut and the possibility of future cuts. As of this moment, the Fed Funds Futures are pricing no chance of a Fed rate cut at the next meeting on June 25th.

The Fed has a growing concern on its hands, as energy prices continue to skyrocket. Oil hit another record high of $130.47 per barrel today. Unless these prices pull back, it is hard to imagine it not having a negative effect on the consumer, inflation and the economy overall.

In news across the pond, The Bank of England voted 8-1 to keep the interest rates at 5% this month as the majority of policy makers argued that a reduction risked letting inflation get out of control. "

So it is the sentiment within the FOMC minutes will likely tell the story for the coming mos.

If the underlying sentiment is that the FED will likely tighten rates to deal with inflation (Oil is now hitting $132 a barrel as I write this) this actually bodes well for Mortgage Bonds and Mortgage Backed Securities.

Here is why:

When the FED signals they are now focusing on inflation and by raising short term money, long term inflation worries start to subside, & mortgage bonds will behave in a positive fashion.

To understand, put yourself in the position of a mortgage bondholder... like the mortgage lender.

If you lend the money, you receive interest over time. If that were a mortgage, it could be a full 30 years worth of repayments and interest. Let's say you were going to be receiving $1,000 per month for the entire 30-year term. At first, that $1,000 may be a very fair return, as you calculate what you can do with that money every month. But over time, inflation requires that you spend more money to purchase the very same goods and services that you can purchase today for less. That same $1,000 just doesn't go as far in future years as it does today. This eats away at the value of a long-term fixed instrument like a bond or a mortgage, and explains why inflation is the main enemy of bonds.

Because bond investors are very aware of this, they will require a higher rate of return or interest on their investment to compensate them, if they feel that inflation will be increasing.

In today's improving economic environment, inflation is expected to be on the rise.

Think about it - a move to tighten or hike rates by the Fed is designed to slow inflation, and we can now see why tempering inflation is very good news for bond holders or mortgage lenders. With inflation reduced, the buying power of their future returns will face less erosion from the effects of inflation.

So as that bond retains its value or goes up in value mortgage rates in today's terms getter better or lower.

So believe it or not, this is why a Fed rate hike actually helps reduce mortgage rates.

SHOULD I LOCK IN MY MORTGAGE RATE??

Mike Smith (Fair Housing Resource Center) — Tue, 20 May 2008 20:56:34 -0500

Mortgage rates have dropped down today with certain special lenders to 5.50% on a 30 year fixed. Hybrid 7/1 ARMS are down to 4.875% (all with 1% origination fee).

I am often asked "should we lock" prior to getting the application. I tell my buyers I am a subscriber to: http://www.mortgagemarketguide.com/bondquotes/index.html

I explain how the service works and how it has saved my customers thousands of dollars by locking in a loan ahead of pricey intra day price changes; or save them thousands more by floating ahead of price improvements. Not all brokers do this. I understand; however my thing is if I have already negotiated a price structure of say: 1% origination fee (1% of the loan) and I am getting .5% in additional compensation for delivering this loan to the investor and then I see the price improving by another .375% in fee what do I do?

Let's examine:

$300,000 loan at 5.625% today at .625% rebate to me + 1% origination fee = $300k x 1.625% = $4,875

The customer already says "yes Mike I want this loan." But I say . . . . . ."Just hold on a second"

Today for example, mortgage bonds rallied up 22 basis points. I got a notification from my friends at MMG to "float ahead of a price improvement. . . So I did and I told the client what I was doing.

I got a lender "reprice" for the better of .25% in price about an hour later, so I locked in at 5.625%
I then called my buyer and told them they are locked for 30 days and oh by the way . . .I am lowering my loan origination fee from 1.00% to .75% for no reason other than I am working hard to save you money and provide a valuable service and I have so far.
They are thrilled. . . . let the good times and referrals roll.

Since there is absolutely no change in my income of $4,875, why would I get greedy when instead I can knock the clients socks off and have the opportunity to earn countless referrals?

This is good business: This is fun for both myself and my client.

Moving forward watch oil folks . . . . Mortage bonds hate hate hate inflation.

Core PPI (Producer price index) is in the headlines today having gone up only .02 vs. .04% expected; however the core PPI {taking out food and energy} came in at .04% vs. .02% expected 100% increase.

Mortgage bonds rallied from a sell off in stocks today but as the world (India & China) put more and more demands for energy and oil, analysts believe we may see $150 a barrel oil by year end and $5 - $6 prices for gasoline.

We may seen the last for cheap anything so stock up your costco, sams and walmart and refinance or buy at what will go down as one of the last great buyers' markets.

For more info: mortgageplanner@247refi.com

Mike

100% Financing Options in CA in Declining Markets!

Mike Smith (Fair Housing Resource Center) — Sat, 17 May 2008 13:12:47 -0500

Yesterday I listened to syndicated radio talk show host from Sacramento Tom Sullivan compliments of newstalk 1530. The more I listened the more I took offense to his over simplistic appraisal of the current market situation and what to do to "solve" it.

Compliments 1530 Newstalk Sacramento

"We should go back to the time when buyers had to put down 20-50% down payment."
"Fannie Mae is under increasing pressure to not tighten lending standards by the National Associate of Realtors and the National Association of Homebuilders."

His show ran and as I tried unsuccessfully to get in. So today, I thought I would post this response for all of you may have listened to yesterday's radio show.

A couple of things about the current situation:

Unlicensed loan officers working under the DOC
A single licensing system via the DRE and not a dual licensing system: one for realtors and a separate one for lenders.
No clear leadership on the part of DRE nor mortgage bankers for more integrity in the lending system.
No clear irrefutable response to mortgage fraud for profit and for property
Lending based on unrealistic income assumptions for stated income
No ratio and no income, no asset loans to 100% financing
Lending based on unrealistic and unsustainable equity growth of 15% to 30% a year in the Sacramento region and Placer county over the period between 1998 and 2005.

So in order to clean up the mess, you would need:

A system exclusively for lenders to get licensed in CA under the DRE that is apart from a normal real estate license. CA is the 8th largest economy in the world and yet when most mortgage sales people take their DRE, they have mastered real estate concepts such as "Riparian rights," but only do say 4 math questions out of 150 questions. Further there is no mention of ethic, integrity, product placement, prudent terms and financial goals for the client. It is clear the DRE licensing is antiquated and puts consumers and homeowners at risk of getting a loan from a shark. The test needs to be written by mortgage brokers, bankers and experienced industry professionals with oversight from the Department of Real Estate.
Mandate anyone originating loans MUST BE LICENSED! No more DOC characters originating under a corporate charter with no experience in my field.
Audit 100% of loan files for fraud or at least announce that they will do this. Offset the cost via tax credits from State of CA.
No ratio and NINA (no income no asset loans) or no longer available & stated income loans are now done at reduced loan-to-value loans and under clear make sense guidelines. Stated income loans are still very acceptable given they have sufficient assets and loan reserves. The market has corrected this problem on their own.
Cap lending in high appreciation areas to historic appreciations or at least do this on a case-by-case basis. Link appraisals to actual wage growth in areas or have a make sense reason for doing the loan. I.e. the property is in an historic stable area of better than average appreciation (such as "FAB 40s", Sun City, Del Webb, etc)

However, lenders should not eliminate 100% financing for qualified buyers.

So what is a qualified buyer?

A buyer who has W-2s, paystubs and assets and better than average credit (680+)
A buyer who has W-2s, paystubs but lacks assets and lacks traditional credit; however has demonstrated an ability to make a payment equal or close to that of the new mortgage payment (via a rental rating) and has non-traditional verified credit {such as pg&e, cell, cable, rent, rent-a-center, etc} and have shown ability to manage debt and credit responsibly. We call these people 620 credit score and they too would be able to get a mortgage.

And that is pretty much it . . .So now let's look at the very programs that are out there that I speak of:

FHA - Federal Housing Administration: Great option for a 97.15% loan with a 3% mandatory down payment from the buyer via own funds, gift funds from family, gift funds from a non-profit down payment assistance program. Great for the buyers in the second category above and fully insured by the US govt.
CalHFA: California Housing Finance Authority: Great option for first time home buyers: 95% mortgage with optional reduced mortgage insurance and a silent 2nd and 3rd at rates of 3% & 6.75% respectively. Conventional loan underwritten by Fannie Mae. Great option for "As-is" purchases.
VA: Veterans Administration: Great loan for veterans with no monthly PMI.
CalPERS: 95% first mortgage with either a 5% personal loan collateralized from CalPERS (but not actually deducted from their retirement account) OR (and this is new) a 95% first with a 5% second secured from the National Home buyer Fund for 100% total financing.
National Home buyer Fund: 95% + 5% financing but with higher rates but also for first time or non first time home buyers.
There is also the ability to do a 95% fannie mae loan with a 5% gift from a family member.

All of these programs are available in declining markets and all enable QUALIFIED HOME BUYERS to purchase a home with no money down and no money out of their pocket.

Sound risky?

Not really! Just follow my instructions above and the rest will take care of itself.

& of course . . . . IF YOUR CURRENT LENDER IS NOT OFFERING THESE PROGRAMS, CALL ME (OR SOMEONE WHO IS OFFERING THESE PROGRAMS).

For more information on any of these ideas or programs simply email me at:

mortgageplanner@247refi.com

Mike

FOMC meeting tomorrow 2:15 EST: What to listen for!! MUST READ!!

Mike Smith (Fair Housing Resource Center) — Tue, 29 Apr 2008 14:36:43 -0500

Below is the benchmark used by us mortgage professionals to monitor mortgage bond movement.

(Provided courtesy of Mortgage Market Guide with their permission)

As you can see the price which started out up 22 basis points (1/100 of a percent) and is only up 3 basis points.

This blog is posted at 12:36 PST and based on this most lenders will probably issue a reprice for the worse of probably .125% to perhaps .25% in fee (or 1/8th to 1/4 of a discount point to the consumer in price). I suspect a reprice will come in 15-20 minutes ahead of this movement. However it will probably bounce back tomorrow so I am still advising a FLOAT position. If I am wrong, I will eat this on behalf of my clients.

Here is the news today for mortgage backed securities ahead of tomorrow's meeting:

Mortgage Bonds are trading slightly higher this morning and are just above important resistance levels at the 50- and 100-Day Moving Averages. Stocks, however, are under some selling pressure on news that Germany's largest Bank, Deutsche Bank, reported its first quarterly loss in five years due to sub-prime related losses.
Today kicks off the two-day Fed Meeting--with the monetary policy decision and statement being announced tomorrow. I agree with economists' expectations that the Fed will lower the Fed Funds Rate by .25%, making it an even 2.00%.
As discussed with a great deal of my clients this week, the "language" in tomorrow's 11:15 PST FOMC meeting will tell the story for mortgage rates. A lot of brokers mistakenly tell their clients that when the FED cuts rates mortgage rates fall. NOT TRUE! When the FED cuts rates they are only controlling short term loans between member banks. The FED funds and the Discount rates controlled by the FED are only short term overnight loans between member banks.
Mortgage rates are bonds and instead of being an overnight loan (obviously), mortgage bonds are typically 30 yr bonds.
So if a mortgage is originated today at say 5.75% and the then tomorrow rates go to 6% due to say inflation talk in the news. The value of the mortgage bond that closed today at 5.75% is sold at a loss as the market is yielding 6%. In other words the bond price drops when mortgage rates rise and vice-versa.

The enclosed candle stick chart shows this relationship as the Fannie Mae 5.50% bond {our current measuring stick for movement in mortgage rates} is dropping in price today. As the price (as shown by the candlestick) drops, mortgage rates rise.
So... when the FED cuts short term rates to stimulate buying by consumers, if the sentiment is that the rate cut will stimulate too much borrowering or buying, thus becoming inflationary, the value of the mortgage bond will drop as rates rise on the market opinion that the rate cuts are going to create inflation down the road.

This is a confusing thing for most consumers to grapple with. The media is also confused to boot. Just keep in mind that a mortgage is a bond and nothing kills the value of a fixed security like rising rates due to inflation.
For now, I recommend floating, but I will be watching the market closely and will let you know if the situation changes.

If the FED suggests it is done cutting rates tomorrow, you will see a mortgage bond rally with lower mortgage rates. Keep in mind that the media will report this event (if it happens this way) that the FED cut rates by .25% and mortgage rates declined. But . . . .You will know the real reason.

I hope this blog is viewed as useful to you and your business.

For more info...simply give me a shout

Mike

Yes I love what I do

mortgageplanner@247refi.com

How to make it in this and any market! MUST READ! "Deal Insurance"

Mike Smith (Fair Housing Resource Center) — Fri, 25 Apr 2008 12:26:23 -0500

Ok now that I have your attention, I wanted to touch on something I have been thinking about, realizing and practicing on a day-to-day basis.

It is that little buzzword: PROFESSIONALISM: I call it "deal insurance."

You know I was listening to Mr. Brian Buffini, the wise old irishman, the other day discussing dialogues and how to deal with clients. The thing that stood out was this quote:

"Right now you might be frustrated because you are closing 1 home a month or lender say 2 loans a month and you are used to say 3 homes a month and lenders say 4-5 a month. But remember the context....There are many who are not doing any deals a month right now."

It was that little mental shift that settled me down from being so so hard on myself. You know the little mental games that Shad Helmstetter talks about in his book: "What to say when you talk to yourself." I routinely catch myself with the "I am no good at my job or life dialogue." As we all know, we are our worst critics.

This market has been tough but I am doing "ok." I am starting to rebound in a strong way and gain marketshare and mindshare in this business.

I think the #1 factor attributing to being a successful real estate and lending professional is the basics:

Get up early
Stay late
Ask for the business
Return calls
Be accountable
Be Responsible
Be moral and honest to all
Answer the phone or return a text
Be helpful and supportive of your referral sources (they do are going through a lot right now as well)
Provide a unique service and be outragious with your clients - make them laugh a lot! Get to know them! It really is fun!
Look for new ways to prospect and get business (I am now getting leads via Active Rain and Zillow pretty consitently)- I am being interviewed by the PR department for zillow based on my active quoting and participation. pretty cool!!
Be grateful for your health, your kids' health, your family and friend's health.
Be grateful for what you have; not what you don't!
Watch the secret; live it as well!
Go to the client's home to sign paperwork such as disclosures when you can!
Attend the loan signing when you can

I met with clients at their home to sign RESPAS on Wed night at 6 pm and it was great. Two weeks ago I drove from Sacramento to Oakland for a 20 min conversation with a client. That was a 4 hour round trip for 20 minutes of dialogue.

Sure it takes time; sure we are all busy. But boy does it feel good for you and, believe it or not, the client when you meet face-to-face (from a lending standpoint). When I meet with the client and follow this simple list above, I don't ever lose the deal.

This what I refer to as "deal insurance."

Are you in good hands??

Mike

Yes I love what I do!

mortgageplanner@247refi.com

Starting next month, I will be a featured speaker at Borders books on Douglas teaching a course for all entitiled:

Mortgage Planning for Dummies - 2008

more to follow ...It's a great time to be alive!

Mortgage Products for Mom and Dad

Mike Smith (Fair Housing Resource Center) — Mon, 21 Apr 2008 23:11:18 -0500

In writing this blog, my intent was to highlight a couple of things:

#1 I try to think outside of the box both for my clients and for my sanity. Let's face it . . . the 30 year fixed is just plain boring! Come on let's spice up our relationship here active rainers!!!

#2 Sometimes what the client thinks is the most conservative approach or the "best" approach is not necessarily that.

So Todays topic centers on products for Mom & Dad

Scenario #1: You have two income family but one income is going to be MIA for a short time (say 1-3 years):

The 3/1, or 5/1 Interest only ARM would be the ideal choice to help supplement the loss of income from the stay-at-home parent.

I.E. $300,000 mortgage 5.75% 30-yr fixed = $1,750.72 PI per month - 3/1 Interest only 5% = $1,250 per mo.

Do you think the extra $500 would help this couple? I do and I would recommend it.

Scenario #2: Two income family - daughter is 14

& no savings or 529 plan in place for her education. Parents are scrambling.

The 5/1 Interest only ARM would be the ideal choice to lower the monthly mortgage payments and enable the clients to pull out a chunk of money that will grow for 5 years to be used to offset the college costs:

$250,000 mortgage currently at 6.25% = $1,539.29

$400,000 new mortgage pulling out $145,000 in cash-out @ 5.375% 5/1 Interest only ARM = $1,791.67 new payment ($252 increase but controls $145,000 in cash).

Clients set aside in side fund earning 7.6% tax free rate-of-return (yes it is out there) . . .

$145,000 becomes $211,778 in 5 years. They net $66,777 for college tax free. (again, yes my financial advisors can structure products that can produce these results).

The clients will get $67k for college. Using this strategy in conjunction with some other strategies we can also help the family reposition the equity in the home in an investment vehicle that is indivisible to the financial aid formulas. The net result of doing both was that the clients experienced a windfall of $67k that could be applied towards college expenses in the 5 year goal timeframe. Secondly, we were able to structure the repositioning of the equity so that the EFC (expected family contribution) actually dropped from $25,000 per year to $6,000 per year.

This daughter plans on going to a college that cost $42,500 a year (or $170,000 in total costs over 4 years).

With an EFC of $6,000, the college was able to cover 95% of need and this family will be left paying only $7,350 per year.

The family was scambling to pay $42,000 per year. We showed them how to reposition their equity, and select the correct mortgage product and strategy to have them pay only $7,350 per year ($29,400 over 4 years).

Total savings over 4 years = $140,600.

So as not to overwhelm you, I will end with only two examples for this evening.

Keep in mind that the EFC is a government calculation and every 4 year college and university uses EFC. Moreover larger colleges have endowments, grants and aid and if the family qualifies they can receive in most cases 90-95% of their colleges expenses paid for.

**call for details if you have a client. Each work-up takes 2-10 hours FYI.

The point is that any mortgage person can quote a rate. The real art of my vocation is found in determining how the correct type & use of a mortgage product in combination with a financial planning strategy for retirement, tax, estate, or college purposes can impact peoples' lives in such an awesome way.

Equity repositioning and mortgage product placement simply needs to be consistent with the lifestyle goals of the client. Money means nothing until it is transferred into lifestyle.

For more info, simply give me a shout: mortgageplanner@247refi.com

Mike

Yes, I love what I do!

Home Equity Retirement Planning vs. Qualified plans

Mike Smith (Fair Housing Resource Center) — Wed, 09 Apr 2008 17:11:37 -0500

Preface to the discussion: Most of the financial strategies put forth by the financial institutions are actually designed to give us less control of our own money. Strategies such as "prepaying the mortgage" by acelerating payments or "bi-weekly payments" or "15 year mortgages" are all designed by the financial institutions {repeated as gospel by a confused but willing media} to make us believe we are doing a more conservative thing by following this "conventional wisdom." My office teaches a very different story which, if the client is truly disciplined, actually is a much more conservative alternative and can create vastly significant results in quality of lifestyle. Money means nothing until it is transferred into lifestyle! A mortgage is, now more than ever, a financial tool that ought be utilized as the centerpiece of a broader financial plan touching in areas such as estate, tax, financial and of course retirement planning.

Think about this for a second: If the financial thrifts, banks, and insurance companies can convince us to give them our money, let them keep our money for as long as possible and pay us as back as little in return as possible, they stand to make a great deal of money. This is called the Velocity of money principle: The leading capitalist theory governing the flow of money between investors and consumers in our economy.

PUTTING THE PIECES TOGETHER:

MORTGAGE RETIREMENT PLANNING VS.

TRADITIONAL QUALIFIED PLANS {401(K), IRA, ETC.)

Case Study:

John and Mary Smith were placing aside $500 a month between them into their qualified 401(k) plan at work. At a rate of 7.5% their $6,000 a year investment (total life-time contributions of $180,000 over 30 years) would grow tax free {during the accumulation phase} to $609,985 by year 30. However, at the withdrawal phase, assuming they wanted to live on just the interest at 7.5% or $45,748 a year, they would pay taxes on this $45,748 as they withdrew. At a 25% Federal and 8.3% California State income tax, the Smiths would pay $15,248.10 every year leaving them with only $30,499/year to survive on. Their income goal was to earn $38,000 net minimum + social security in order to live, what for them would be, a comfortable retirement.

Current Financial Picture:

The Smiths owned a piece of property worth $510,000 and owed the bank $89,000. Their monthly mortgage payment was $790.08 (not including insurance or taxes).
Between the 401(k) payment and the mortgage, their monthly outflow was $1,290.08.
They had no other revolving debt and good credit.

Recommendations:

We advised a refinance of the existing mortgage into a 30 year fixed {based on the suitability and comfort, this is the product they liked} at a rate of 5.50%.
We further advised taking a $227,197 mortgage leaving them with an extra $133,197 after paying off the existing mortgage and closing costs for the new mortgage.
At a 5.50% mortgage rate, their new monthly payment was $1,290.08.

Expected Results:

Since the payment was exactly the same as their current outflow, the Smiths experienced no change in lifestyle.
The $227,197 loan amount had a yearly interest expense of $12,495.83 and created an even larger front-end mortgage tax deduction than what they had been receiving investing in their 401(k).
The $133,197 was set aside in a simple tax free, liquid, side fund that earned 5.5% {100% tax free}by investing in "AAA" quality California Municipal Bonds offered through Charles Schwab at the time.
The $133,197 at a tax free rate of return of 5.50% was really a taxable equivalent of 9% based on their tax bracket but without the unnecessary risk associated with a stock mutual fund typically investing in high risk companies and markets.
The $133,197 will grow to $690,944.49 by year 30. The borrowers will be able withdraw at 5.50% for $38,001 tax free income while not depleting the principal. Over time, they could utilize a pay-down of asset strategy and life insurance to further enhance their retirement while still protecting their heirs from disinheritance.
All the while the clients had access to the money in the side fund for emergency or investment opportunity not having the money tied up in a 401(k). Further if they wanted to retire at an earlier age say 55 and not say 59 ½, they could do so without tax penalty.
Further by investing in "investment grade" universal fixed life insurance earning 7.6% this side fund could have grown to $1,292,895 with tax free withdrawals of $98,260 / year.*

*Call for details. Investment Grade Universal Life Insurance is a more complex financial instrument and should structured only by a licensed investment and insurance advisor who has experience in Defra, Tefra, Tamra and IRS code 264(b)(2) & 263(h)(c). My advisors are experts in the legal structuring of these instruments utilizing an insurance security instrument as an investment grade tax free instrument. Call for details and to discuss whether this type of investment alternative is "suitable and prudent" for your situation.

mortgageplanner@247refi.com - For more info

Referrals within the active rain family

Mike Smith (Fair Housing Resource Center) — Tue, 08 Apr 2008 17:50:07 -0500

I recently referred a deal direct to:

jeffmortgageman (327 Associations)
Name:	Jeff Belonger -- The FHA Expert.com -- New Jersey mortgage -- FHA mortgages
Company:	Infinity Home Mortgage Company, Inc

Email:	Contact Jeff Belonger -- The FHA Expert.com -- New Jersey mortgage -- FHA mortgages
Website URL:	http://www.thefhaexpert.com/

Office Phone:	(888) 835-1663
Cell Phone:	(609) 440-5133
Alt. Phone:	(609) 440-5133
Fax Number:	(775) 361-6619

I received a referral for a deal in NJ that I cannot do because I am licensed only in CA. The client needed some help and advice and I gave him my best shot. He came to learn of me from my active rain blogging which I have only been doing for about a month and a half (already have 6k in points).

I love to write and it is my preferred form of communication. Blogging really does work. So a shout out to active rain for making it possible and a shout out to Jeff Belonger, whom I referred this deal to based on his blogs I have read in the past. Jeff is a pro and that is what it is all about.

Great job Jeff on earning the business.

Mike

mortgageplanner@247refi.com

The Best mortgage rates in California!

Mike Smith (Fair Housing Resource Center) — Tue, 08 Apr 2008 02:05:44 -0500

So...... You want the best financing. You hear a couple of radio ads. You get a lot of mail. You even get the pop-ups on your computer at night and even a telemarker to boot. What to do? Who to trust?

I work hard for my clients. Some go with me; some do not. However at the end of the day, I do my best to represent my profession (that I love) and I try to give advice that is unfiltered and quite frankly the best in my vocation. Of course all of this is my humble opine.

Our clients are under attack. They do not start out "shopping us," but it happens due to the influx of ads, pop-ups, telemarkers, direct mail and of course "referrals" from a close friend {aka the mechanic}.

Trust is one of those words: What does it really mean? Does it imply the best rates and fees? Does trust translate into "working for free?" Does the public really know what a loan originator goes through to make a commission? 1% origination and a little rebate does not go along way. Factor in cancellation rates and no equity and lies about credit, income, assets and the loan originator has a lot of uphill battles to face. But I digress! That was a shout out to all in my profession {much love}!

The point of this post is that after 14 years and $346,000,000 in loan fundings, the key to success is to educate the borrower on how you work; how you get paid; and why that 1% origination (+ a little of GOD earned rebate) keeps the lights on, the food in the kids bellies, and GETS THE LOAN DONE!

The best financing in California rests in the distinction between what is a commodity and what is real "value."

People clip coupons for a commodity but they overspend for a "value." Why do you shop the Jaguar dealer to the bone but overspend at Disneyland spending $3.00 for a 12 oz bottle of water that you will toss in the garbage 1/2 full? You complain about gas prices but spend in excess of $16 a gallon for the equivalent of water at Disneyland. Why? Because of the perceived value of the "experience" at Disneyland.

The best financing rests in the simple understanding that most mortgage brokers can offer essentially the same rates and essentially the same fees. Often the service is the same to boot. So again, what to do? Who to trust? Again ......Value, "experience" Disneyland!

I want to stress that value is in the eye of the beholder. If I can increase your net worth by over $2.2MM in five years by simply giving differning advice on the sell vs. refi decision in a divorce; or help you create a legacy for you family by incorporating charitable remainder trusts and pay-down of asset strategies in conjuction with your home mortgage to help you live a better life while you are here, perhaps I can bring value.

Lending is not a finite science. The #s are, but the art is in appropriately matching the needs of my client with the correct mortgage product for their lifestyle goals. Money means nothing until it is transferred into lifestyle!

For more info, simply give me shout at: mortgageplanner@247refi.com or Mike at 916-813-4003

Mike

Today's rates in California

Mike Smith (Fair Housing Resource Center) — Fri, 04 Apr 2008 11:17:59 -0500

Hi all!

Recovering lender here in search of food for family.

Today's mortgage rates:

30 yr fixed: 5.50% - 15 yr fixed: 5.125%

7/1 ARM interest only: 5.50%

100 yr loan with no payments for 50 years: Ok Gotcha (lol)

For FREE pre-quals, email me at mortgageplanner@247refi.com

Mike 916-813-4003

30 yr mortgage vs. 15 yr mortgage: Which is better?

Mike Smith (Fair Housing Resource Center) — Wed, 02 Apr 2008 10:39:52 -0500

Case Study: Which is better?

30 year fixed or 15 year fixed?

Background:

With over 14 years and $340,000,000 in funded mortgage loans & my countless interviews with some of the top financial planners in the US, I am 100% convinced that the 30 year fixed rate mortgage is actually a more conservative approach to paying off your home early if the loan applicant is a disciplined person.

Let's look at the Prima Facie evidence to support this claim that you can take the payment differential on an after tax basis between a 30 yr and a 15 yr fixed rate mortgage and actually pay off the 30 year in only 13.125 years!

Loan amount $250,000

Tax Bracket: 25% Fed/8.3% State

15 year fixed: 5.125% 30 year fixed: 5.50%

$1,993 Principal/interest $1,419 Principal/Interest

$574.30 Payment Savings

$824.12 Ave "net after tax

payment differential" over 13.125 years. {SEE CHART BELOW}

Balance in 13.125 years: $43,577.67

Take the $824.12 and invest in

tax-free muni bonds at 5.50%

= $189,651.30 in 13.125 years

Balance of 30 year fixed rate

mortgage in 13.125 years = $186,738

Year #1 Comparison of Net after tax payment differential between 30 year and 15 year:

Tax Bracket: 25% Federal / 8.3% State

30 year fixed rate example at 5.50%

End yr. Loan Balance Principal payments Interest payments Total Tax savings Net after tax

1 $246,632.27 $3,367.72 $13,665.94 $17,033.36 $5,677.41 $11,355.95*

15 year fixed rate example at 5.125%

End yr. Loan Balance Principal payments Interest payments Total Tax savings Net after tax

1 $238,628.23 $11,371.76 $12,547.84 $23,919.60 $4,182.19 $19,737.41*

*$19,737.41 - $11,355.95 = $8,381.46 / 12 monthly payments = $698.45 first year monthly payment

"Net after tax payment differential"

Every year after Year #1 the "Net after tax payment differential" will go up. The average Net payment differential over the 15 year period is $824.12.

& all the while, the client, although theoretically making the same payment {just paying themselves & not the bank}, has 100% control of the money in the side fund earning a tax free rate-of-return of 5.50% {which is a taxable equivalent yield of 9% in high risk stock mutual funds}. In case of emergency or opportunity, this client has the money available; creates a superior tax situation, and has flexibility in months where they are financially strapped.

For more info, just give me a shout: mortgageplanner@247refi.com or 916-813-4003

Mike

New Conforming loan limits offer little if no value to our loan clients

Mike Smith (Fair Housing Resource Center) — Fri, 21 Mar 2008 13:27:24 -0500

Well . . . . This week was another wild ride with lots and lots of volatility. Today's blog is about the notion that the Government, albeit altruistic, really is incapable of solving a lot of the problems we face in this current "credit crunch."

For weeks and weeks we were told that conforming limits would be going up and with the new limits, borrowers in jumbo loans would be able to refinance into conforming loans at conforming prices. Bush signs the fiscal stimulas package and the excitement builds with our wholesale lenders telling us to get ready. Many morgage originators run expensive radio ads and purchase farms and postcards announcing the new limits.

We are all "egg-cited" as my lady friend likes to say. But the sad reality is that now we just have plain egg on our face. Today's blog is a reminder to always do your due diligence and always double check your guidelines.

Here is what transpired:

I had a loan client wanting to refinance out of 15 year fixed mortgage with a balance of $300,000 who also wanted to consolidate a $180,000 home equity line of credit and take some cash-out for home improvements. Her current loan is at 5.875% and her equity line is floating at prime. So in great anticipation, I take the application and announce proudly a 5.50% 30 year fixed. The loan is located in Berkely, CA so I can finance up to $729,750. All good so far.

Friday, I went to lock in and I research the new conforming "jumbos" as they are now called and low and behold as conforming rates are at 5.50%, the new conforming jumbos are priced at 6.50%. So without me thinking quick on my feet I would have lost this total loan of $565,000.

Moreover, the new conforming loans do not allow for cash-out. As I reach out to reps, in frustration I proclaim "what is the value of this new program?" The reps dejectedly say "there really is none!" Moreover, although the program was announced over a month ago, many companies feel the paper is simply not worth risk. In other words, they simply don't go along with it. The programs are continuing to be rolled out but with little if none benefit to the consumer.

So in a mad dash, I formulate a plan which actually worked out for the better and gives the client still a lower overall financing package than first quoted.

----------------------------------------------------------------------------------------------------------------------------

So . . .I structured the client's new loan as a $417k conforming first I further add a home equity line of credit at $148,000 to bridge the gap for the client.

I lock the first as quoted at 5.50% and I register the line of credit as a fixed rate option with the first draw being the entire loan amount at $148,000. However, I elect to float the loan for the line of credit. Why you ask?

With the FED cutting the Fed funds rate down to 2.25% and understanding that prime lending rate will drop from the current 6% to 5.25% on the first of April, I will be able to lock the clients second at 5.25% for 30 years fixed.

The clients gets a lower overall cost of borrowing; however, does have to make 2 payments to the same lender.

Although the client does benefit, the reality is that both myself and my wholesale lenders should have done a better job explaining the benefits of the new conforming limits. Unfortunately there really are no benefits to the consumer! Tragically, there are many people out there in jumbos who will be disappointed when they talk rates with their mortgage originators.

For more info on this topic, simply send me a shout: mortgageplanner@247refi.com

Mike

How to solve the Mortgage Crisis!

Mike Smith (Fair Housing Resource Center) — Thu, 13 Mar 2008 13:53:35 -0500

As I look back over the past 13+ years as a mortgage consultant, I have enjoyed my profession but seen many abuses that have led to the current mortgage mess. Foreclosure filings are up 46% in the month of February year-over-year, and so many people are in financial trouble. Why did it have to come to this? Why do so many people sit in fear afraid to look out their door, answer their phone or return calls from the mortgage company? Because FEAR debilitates. FEAR robs you of your dignity and natural ability to handle problems. FEAR is fed by the media, the missed mortgage payments and the sense of loss of control.

This is a bad place for all. Mortgage banks don't want to kick people out of their homes. Homeowners don't want to lose their homes, but the sad sad reality is that the mortgage environment and the excessive refinancing of 2002 - 2006 created home values not supported by labor markets nor sanity.

So . . . How does Fannie and Freddie, Sally and Ginny deal with this mess?

I am merely a mortgage originator but I believe my opinion counts for something:

Put in place a mortgage reserve fund on every loan. You could do this by adding it onto the payments monthly or putting it in place up front. The mortgage reserve fund would simply equate to 6 mos. PITI. This reserve fund would be available only in times of proven hardship and would generate interest at prevailing market rates and would be refunded at time of sale or refinance of the mortgage or payoff of home. Lenders with Fannie and Freddie's help would simply adjust LTVs (loan-to-values) by the amount of the reserve fund or build it into the cash-out; however still view the loan as a rate-term refinance.
Require all loan officers to be licensed by the DRE regardless of corporate licensing. For example a DOC (Department of Corporations) lender isn't currently required to have licensed loan officers. This promotes sales sharks into the business who lack the qualifications.
Separate the DRE licensing process into a dual system for lenders vs. realtors. In my state we have one system and the DRE sales and broker tests are real estate heavy. A lender doesn't need to know nor understand raparian rights, but does need to understand DTI, LTV, FICO, Debt management, proper use and type of mortgage, pre-payment stategies, and the #1 integrity and ethics. Creating two licenses would solve this problem. And have a mortgage professional not a government bureaucrat design the mortgage portion of the DRE test.
Audit for fraud on every single loan file. Fraud exists for 2 reasons: #1 greed or need; #2 The loan officer, and in 1% of the cases, the loan client don't believe they will get caught. So . . .we cannot do anything about the former unless we have better DRE licensing and ethics and background checks; however we can solve the latter immediately by: Announcing to all mortgage brokers that every aspect of every file is audited pre-closing. That means: Alt credit verification; all W-2s and paystubs are monitored for fraud and 4506 filed Prior to funding; all bank statements and VOD and any other assets provided will be reverified prior to closing. If you do this on every file, fraud will go away . . plain and simple. The loan officers and clients will understand going in that if there is fraud they will find it and the loan officer and/or client will go to jail.
Monitor equity growth and incorporate sensible lending parameters for each market: I.e if you are in a market where there is 10-15% growth in equity, understand this is unrealistic and cap the equity growth for Cash-out refinances in line with actual labor growth and pay growth for the reason. For example, if you are in a region like Sacramento and the equity growth {which was 20-30% growth per year over a 5 year period between 2001- 2006} is say at 10%, but the actual wage growth is at 2%, then you give the person credit for a 2% increase in equity not a 10%. Again only for Cash-out refinances. Rate-term refinances would be exempt. Yes this would involve work and yes it would involve formulas, but yes it would keep lending realistic and the housing market safe from wildly swings that have resulted in foreclosure for so many.

Seems like a lot, but in light of the current mess, these prudent measures could be and should be implemented via a coalition of government, the Department of real estate, all lenders in California and the broker community and we can fix this mess and make sure it never happens again.

The reality is that the home is to house families and not be used as a vehilce to support a lifestyle one cannot afford. Homes should be priced in conjunction with realistic market pressures such as employment and wages and not speculation and unnecessary inflation.

Real estate is a great investment; however most people buy a home to live in and raise a family. It is with this in mind that I propose these measures in attempt to keep people living in homes, paying their mortgage, and helping keep our financial sector healthy.

For more info, give me a shout at: mortgageplanner@247refi.com

Mike - 916-813-4003

Home Equity is not a good investment

Mike Smith (Fair Housing Resource Center) — Thu, 06 Mar 2008 15:46:54 -0600

Mortgage Planning *Financial Planning *Estate Planning *Tax Planning

Equity Management Strategies

The key to successful investment analysis is to look at every investment & ask the following 3 questions:

Is the investment safe? Is it insured or guaranteed?
Is the investment liquid? Can I get it when I need it?
What is the rate-of-return on the investment?

So with respect to home equity, is it safe or guaranteed? If you have a small mortgage, & you run into financial difficulty, your home can still be foreclosed upon. Your home equity investment is also subject to market swings should the home go down in value.
Is home equity liquid? Can you get to it when you need it? If you lost your job or ran into financial difficulties, could you get to it?
What is the rate of return on the home equity investment? Home equity has no rate of return because it is not the home equity causing the home to go up or down in value.

*Now, if I promised to give you $21,000 and all you had to do was give me $14,000; is that a good deal?

*Now, what if I told you that you don't even have to give me the $14,000 upfront; that I would give you $21,000 first and then you give me $14,000. Is that a good deal?

Let's take a look at an example: $500,000 purchase. You are either going to self finance the purchase and pay 100% cash or you are going to put down $150,000 of your own money and bank finance $350,000. Home is estimated to appreciate at 3% per year.

$500,000 down $150,000 down

Value in 5 years = $580,000 Value in 5 years = $580,000

3% compounded return ($80k/$500k) 9% compounded return ($80k/$150k)

+ forego opportunity to invest elsewhere $350,000 mortgage @ 6% = $21,000/yr interest

$21,000 x 33.33% tax bracket = $6,993 tax ded.

$21,000 - $6,993 = $14,007 after tax cost of loan.

+ $350,000 invested at 6% after tax rate of return:

(Tax free municipal bonds @6% = 9% taxable equivalent)

$350,000 @ 6% = $21,000

$21,000 - $14,007 cost of mortgage = $6,993:

You invest the $6,993 in the same side fund

at 6% interest each year for 5 years = $385,000.

So the $350k grew to $385k in 5 years.

What is the difference in net worth after 5 years?

$580,000 net worth $385,000 in investment account + $580,000 -

$350,000 if utilized an interest only mortgage

= $615,000 net worth

All this from simply choosing to have a mortgage vs. not have a mortgage. This client comes out ahead by $35,000 with no risk. That is why we encourage our clients that sometimes the best way to get debt free is actually to utilize more debt.

Fed settles down the bond market with "dove talk" - New higher loan limits

Mike Smith (Fair Housing Resource Center) — Wed, 27 Feb 2008 22:48:17 -0600

Ben Bernanke settled down the bond market today by clearing pointing out the target inflation rate of 1.5-2.0% through year end 2008. He also spoke of his concern for recession over inflation at this point.

Couple that with a weak retail sales and a weak new home sales and we had the recipe for a very nice mortgage bond rally today.

So inevitably the question arises . . . .so what next?

I am advising a float position ahead of some very interesting bond movement.

We are currently bouncing off the 200 day moving average for the benchmark Fannie Mae 5.50% mortgage bond. However we still have a lot of wiggle room to get us to the 100 day moving average.

So for now, I believe we are moving back in the right direction.

Tomorrow we have the "chain deflator:" Experts are looking for 2.6%

The Chain Deflator is a key inflation measure included in the Gross Domestic Product (GDP) Report. In addition to the GDP figures, there are GDP deflators, which measure the change in prices in total GDP and for each of its components. Although the consumer price index is a more closely watched inflation indicator, the Chain Deflator is also a closely watched measure of inflation. Unlike CPI, it has the advantage of not being a fixed basket of goods and services, so changes in consumption patterns or the introduction of new goods and services will be reflected in the Chain Deflator.

If we get further signs of a weak economy vs. stronger inflation, then mortgage rates will continue to drop. Couple that with HR5140 and we have the recipe for a very nice Jumbo refi and purchase market for the remainder of the year.

At this point we are quite confident on where conforming limits will go at March 1 to December 31, 08:

For my neck of the woods:

Sacramento, Roseville, El Dorado County: $477,350

Oakland, Bay Area, Sunnyvale, San Jose, etc: $729,750

Just today I picked up a potential jumbo refi: He owes $1.5MM on a $2.5MM property in San Francisco. He currently has a 5/1 Jumbo Arm at 5.75% adjusting in April.

My recommendation: Once conforming goes to $729,750, we will lock him in at 4.75% on a conforming 5/1 ARM (with or without IO); then we will wait for one more short term rate cut taking the prime lending rate to 5.50%.

I will then do a home equity line of credit where we lock in the first draw at a 30 year fixed at 5.50%.

The net effect for the borrower: $729,750 @4.75% + $770,250 2nd @5.50% fixed.

We lower the borrower's net overall rate by .625% and fix him in for 5 more years in which he plans on selling.

For more info, just give me a shout: mortgageplanner@247refi.com

Mike

Rates went up . . .What the hell do I do?

Mike Smith (Fair Housing Resource Center) — Tue, 26 Feb 2008 00:35:44 -0600

Hi gang,

ok we have had a lot of mortgage volatility in the past 30 days or so. On Jan 23, we had 30 year fixed rates at 4.875% for about 4 hours and today we have 30 year fixed rates at 6.25-6.375%.

When rates go up 2%, typically 30% of loan officer leave the business. But what if the rates go up 2% in 2 mos. What the hell do I do?

Buydowns are very popular right now. You can simulate a lower 1-2 year rate with a lender paid buydown. Here is how it works: You would select a rate of say 6.875% and the first year rate would be 4.875% and the second 5.875% and year 3-30 at 6.875%. Since 30 year fixed rates are at 6.25% today, the buyer takes a higher 3 year+ rate in exchange for a lower 1-2 year rate. The thought is to refinance again hopefully at lower rates in 3 years.
Hybrid ARMS. With short term rates low, I have been selling 7 year fixed interest only loans. If I take a comparision vs. a 30 year fixed, I can usually deliver a $500+ lower monthly payment. I advise my clients to take the difference and invest it. I had a client this week who insisted on a 30 year fixed. I said well lets look at what your loan has done over the past 5 years ( he last refinanced in 2002). He had only paid down his principal by $16,000. Under my plan for the next 5 years he would have over $82,000 by year five that he could write a check to his mortgage company if he wanted to.

The bottom line is to create markets where 2-3 years ago they did not exist.

Hang tough and let me know your thoughts . . . .

For more info: mortgageplanner@247refi.com

Real Estate Pros: How to generate 10 transactions per month!

Mike Smith (Fair Housing Resource Center) — Wed, 20 Feb 2008 20:31:03 -0600

Hi there . . . .

Brian Buffini often talks of database calls, notes & pop-bys. He made a great living doing the fundamentally solid yet mundane and sometimes scary parts of the real estate & lending business.

National speaker and authority on the topic and frequest guest on CNBC Dr. Kerry Johnson says that it is all in the #s.

I have tested this theory and now I live by it. It works plain and simple.

If you want to close 10 transaction a month or 120+ deals a year and make $250k-$500k as a lender or a realtor, you need to . . . .

Call 10 past clients a day
Schedule 2 follow up appointments to discuss real estate or lending (20% ratio is below the norm but a good benchmark)
Close 10 loans or real estate transactions a month

That's it folks!

89% of past clients want the relationship with you!

Let's look at typical in our business:

You do a mortgage loan and deliver a great rate. The client is satisfied.
You send a monthly newsletter but yet never pick up the phone and call the client.
You send the client an email in lieu of a call.
The client sees an ad for a loan at the bank 4 mos after moving into the home after you did their purchase and they take advantage of a home equity loan.

You inquire as to why? The client says . . . .are you kidding me?

The Loan officer fails to give a compelling reason to do business with them.

Only 17% of clients do a second loan with their lender!!!!

So just make the calls>>>>>>But I'mmmm Scared!! Well Boo . . . Hoo!

So . . what do I say? I'm scared! GET OVER IT!!!
Catch up with the client: show you care (that means if you havn't spoken to them in 3 years don't ask for referrals on the first call but do on the second.)
Update: bring them current on their finances. Tell them what their home value is. Tell them where rates are.
Referrals: "You know I really like working with you. Who do you know that I can help?"

11% of past clients will buy from you.

14% will refer = 25% will get you business if you are calling.

How many people in your database? 300 = 75 deals a year. In my market my ave comm is still $4100 to me so 75 x $4100 = $307,500 a year in income.

FEAR OF SUCCESS = AVOIDANCE OF THIS ACTIVITY!

Think about $200 an hour doing this vs. $14 working at Walmart.

For more info: www.kerryjohnson.cpm

& as always . . . I am never to busy for an active rain referral: mortgageplanner@247refi.com

Mike

Home Equity Retirment Planning 101- Must Read Post!

Mike Smith (Fair Housing Resource Center) — Mon, 18 Feb 2008 16:57:06 -0600

Turn the equity here into Safe, Liquid Cash here!

In my practice, mortgage planning is quickly cathching on and clients are beginning to get it. My greatest joy in preparing a comprehensive mortgage plan is when the client truly gets and understands it.

Here is an example of a most recent plan:

HERP: Home Equity Retirment Planning

This client was paying $500 a month into a qualified retirment plan. Under their plan (as well as many Americans), they were paying $500 a month into a tax advantaged 401(k) in hopes os seeing this money grow to an amount that could sustain them in retirment.

At a rate of 7.50%, this money would grow to $1,015,381 in 35 years. Assuming the 7.5% continues, they were to be able to retire and pull out $75,000 roughly per year. That puts them in the 25% Fed and 8.3% tax bracket in California, so they would pay $25,000 in taxes to withdraw this money. In other words they would pay Uncle Sam $25,000 in taxes on the $75,000 they would withdraw.

In only 3 short years, this couple will pay back more than 100% of the tax savings they received from Uncle Sam in 35 years of 401(k) investing.

We in turn advised them to stop contributing to the qualified plan and instead look at a more prudent and tax favorable approach:

The client owed $80,000 on a home worth $200,000. Utilizing a conduit in a mortgage we helped them immediately reposition $80,000 into "investment grade life insurance." I won't go into all the details, but the contracts are based on the S&P 500 and are fixed universal (never variable) life contracts that meet guidelines for Tefra, Defra, and Tamra.

Their loan was locked at 5.625% x 33.33% = 3.75% on an after tax basis. The mortgage also mirrors the benefits of the 401(k) it is just filled out in a different location on the tax form.

At 7.5% interest, the client will see this fund grow from $80,000 to $1,005,510 in 35 years due to the cost of the insurance costs be substracted from the investment account.

However, unlike the 401(k), the funds being withdrawn of $75,413 are 100% tax free because the Financial Planner structured the contract in such a way that although it looks and behaves like an investment, it is treated as an insurance contract and therefore 100% tax free.

These clients will be able to successfully withdraw $75,413 and keep 100% of it. The additional $25,000 that otherwise would have been paid to the govt represents a 50% increase over where the client would have been.

More over . . .

$75,000 in non taxable income is equivalent to $113,120 taxable.
They could tap into this fund at anytime prior to 59 1/2 unlike their former qualified plan
They have a untaxed death benefit which can be passed to their heirs.
They are also not subjected to forced withdrawals at age 70 1/2 unlike the 401(k).

Their after tax cost of the mortgage = $250.01 per month since they utilized a 10 years interest only loan for their product.

So in other words, the client freed up an additional $250 a month, accomplished their retirement goals in one fell swoop and will experience Tax FREE (as opposed to tax deferred) withdrawals at retirement.

BTW, with the additional $250, the clients purchased a 529 for each of thir 2 kids at $100 a month and set aside the remaining $50 to go out to dinner one time per month to further plan and review and enjoy a couple night out.

For more info: mortgageplanner@247refi.com

Inflation, Inflation, Inflation

Mike Smith (Fair Housing Resource Center) — Sun, 17 Feb 2008 13:15:29 -0600

In today's blog, I thought I would focus some attention on something that affects us all: inflation.

Now let's say you go to the grocery store and purchase that 32 oz jar of Mayonaise for say $4.00 last month.

Now this month, the maynaise has the same look and feel, but look closely . . . . there is only 28 oz. This is called stealth inflation. The 5 oz bag of potato chips . . .same price but now it is 4.5 oz. That represents a 10% inflation rate on the chips. As a mortgage geek, this is the stuff that I pay attention to because well . . . it affects my livlihood and the rates I get to offer my clients.

In my world, I often hear that mortgage rates are tied to the Fed. I hear clients all the time say "rates are going down next week." Or my favorite . . . "I heard they will be going down next week." The client hears this from the news of course, but how does it get there? Where does this all really stem from?

Let's think about it for just a second. If I fly over your home and drop a bunch of money out of a plane, you would have more money to spend. You in turn go to the store and buy more goods & services. As there is more money out there, the value of the actual dollar drops. More supply = lower price.

As the dollar drops in value it no longer has the purchasing power it once did. In other words, as we print up more money and ciruculate it via FOMC operations at the Fed, it has the same affect as flying over in a plane. As more money is put into circulation the value of the dollar drops. In other words, the price of goods and services are more expensive by osmosis because the dollar has dropped in value by the simple act of supply and demand for the dollar. As there is more dollars, there is more inflation.

So when the FED cuts rates, it puts more money out there and this promotes inflation fears. & this in turn drives long term rates up.

We are at a dangerous crossroad at the Fed. The Fed is on record as suggesting further rate cuts. This coupled with the Bush economic stimulas package indicate that inflation is going to be a real problem for the foreseeable future.

So . . . next time you go to fill up your car and you see that gas as gone up anther 15 cent, thank Big Ben at the Fed. Low Fed rates = more money = higher prices for goods and services = higher mortgage rates.

For more info, simply give me a shout: mortgageplanner@247refi.com

Why do we work?

Mike Smith (Fair Housing Resource Center) — Fri, 15 Feb 2008 16:23:01 -0600

My lil' guy was certainly curious about this. Here he is sending out a mortgage update to a few of my clients.

So we got to talking and we came up with a few things:

First of all my lil' guy was curious as to what money really is and why we need it. Second, he had some insights on how inflation eats away at not only money but also our hourly wages.

Money is simly an "exchange of labor."
Paper money is a merely a ticket entitling the holder to a certain amount of someone else's labor.
Credit is a method of exchange in lieu of money.

We work so that we can support our families, and enjoy the fruits of our labor. My lil' guy then pointed out that money is an efficient means of exchange unlike what he and his sisters have to do. He pointed out that in his world, the football is still the crown jewel and easily traded for 1 yo-yo, 1 bag of yogos, one box of unused crayolas, and 2 barbies from his sisters. He was quick to point out that the barbie is merely a hedge against inflation & although he certainly would never play with it, it is traded for when the market makes him nervous.

Doesn't sound too far fetched from our thinking however as adults. Gold, like the barbie, is an excellent hedge against inflation. Perhaps a bag of yogos and crayolas represents a bond or stock to us as adults. Traders seem to certainly act a lot like children when it comes to their trading behavior especially as of late.

So what does all of this really mean?

To me & the lil' guy, it's really quite simple:

We work hard for our money. We should do everything we can to protect it.

Money doesn't mean anything until it is transferred into lifestyle. $1,000,000 in the bank doesn't necessarily mean anything to me, but a beach front condo with the kids certainly does.

So here are the questions my lil' guy would be curious to ask you:

Do you have a will in place?
Do you have a trust?
Do you carry adequate insurance?
Do you have a college savings plan for your kids?
Do you have hundreds of thousands of dollars tied up in home equity? If so, why?
Do you have an estate attorney, CPA, financial planner, and of course the point guard in all of this, a qualified professional full-time mortgage planner on your team?

In the very near future, our Country will be faced with large obligations such as funding retirement & healthcare for our aging population. Tax rates are currently being discussed at going to 72% for the highest marginal tax rate in as early as 2020.

Taxes and inflation are killers to our quality of life. For example, let's say you have $1,000,000 in your qualifed 401(k) plan at retirement and begin drawing out $100,000 (10% interest). Can you imagine paying $72,000 on the $100,000 because you are in the highest marginal tax bracket??

Moreover, imagine inflation simply going from 2% to 4%. The rule of 72 = divide 2% into 72 = costs of goods double in price every 36 years. However at 4%, the costs of goods double every 9 years. So you buy a $30,000 300c today; however, in 9 years a brand new model is $60,000.

The time to start planning is today. As a mortgage planner, I help my clients view the type and use of their mortgage from the vantage point of a financial planner doing mortgages.

For more information about these topics or to book me to come speak at one of your events, simply give me a shout: mortgageplanner@247refi.com

The lil' guy appreciates it!