Odds and Ends - The Donald Shows How to Profit When Flipping Houses, and How to Save Money On your Real Estate Taxes

If you've been paying attention to the news, you know that the real estate market is tough. Homes are taking longer to sell and selling for much less that they would have just a year or two ago. Many of the Realtors I speak with are still making their adjustments to the new market and trying to find new ways to generate a paycheck. I met with one Realtor last week who offered me the chance to get in on the ground floor of a multi-level marketing program he was considering. But the market isn't bad for everyone. As two news stories from last week show, with a little bit of luck and ingenuity real estate is still a winner.

Flipping houses for a profit is harder to do than it was in the past, but Donald Trump managed to eke out some coin when he sold a Palm Beach property, Maison de l'Amitié, for a reported $95,000,000. Trump had been bragging that the sale was for $100 million, but according to the Palm Beach Post last minute negotiations brought the price down when Trump agreed to pay the closing costs (seller concessions work, even at the top price range). The buyer was a Russian billionaire and the price he paid was the highest sale price for a single family home in the United States (though I'm sure a few families could comfortably live there). Trump bought the home for a little over $41 million in 2004. Not a bad profit. As Trump himself told reporters, "I love breaking records, and this is a record. In an age of so many people getting hurt in real estate, it shows that you can still do well in real estate." I'm not sure what the moral is here, that the rich get richer, or that if you are selling your home you might want to let some Russian billionaires know about it.

The other story was much closer to home, in Lake Bluff, Illinois. This story concerns another real estate developer, George Michael, who was intent on finding ways to lower the costs on his property. One of the biggest costs associated with real estate is real estate taxes. According to the Chicago Tribune, Mr. Michael creatively decided to reduce his expenses by cutting his tax bill to zero. He did this by converting his $3 million dollar lakefront mansion into a church for a tax savings of $80,000 per year. The church, the Armenian Church of Lake Bluff, isn't open to just anyone. There are no trespassing signs posted throughout the property and it is mostly family members in the congregation. His plan might not work long term, though. The village of Lake Bluff is saying the church failed to get proper permits and had no authority to change his home into a church. This one may end up in court.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com 

Illinois Mortgage Rates -Weekly Mortgage Update

Welcome to Illinois Mortgage Rates and News week in review for the week ending July 18th, my take on the week's financial news and how it affected Illinois mortgage rates.

This was a brutal week for mortgage bonds, and mortgage rates. After a false start where rates recovered on Monday, the rest of the week mortgage bonds got demolished and fixed mortgage interest rates rose about 3/8s of a point to the highest they have been all year. Mortgage bonds got hammered even as some of the factors that had been responsible for the recent rise in rates seem to be turning. Oil prices fell sharply this week down to $128 per barrel, the dollar strengthened, the Government announced a plan (sort of) to maintain Fannie Mae and Freddie Mac and insure that they stay solvent. These were all factors that in normal times would have propped up mortgage bonds and lowered mortgage interest rates. The CPI (Consumer Price Index) came in high at a monthly increase of 1.1%, which flashed the red light danger sign of rampant inflation. And several of the Fed governors as well as Chairman Bernanke made statements that inflation was their biggest concern. But much of this was looking in the rear view mirror. The economy is soft, credit is still tight and consumers have no purchasing power. The softness in our economy has spread over seas and China and India, the fast growing economies that have fueled the growing demand for commodities world wide, are now slowing down. Many experts think that this will bring down the inflation level in the coming months. So why did rates get so bad so quickly this week?

There is a psychological term called selective perception which states that how someone expects something to turn out will change the way that they perceive what actually does happen to them. This concept was proved by experiments showing how college students would get drunk when they were given what they were told were potent drinks, even though there was no alcohol in them. It is also why liberals and conservatives react so differently to the same information. I think we are seeing a great example of this in the stock and mortgage bond markets now. Money flows back and forth between stocks and bonds based on investor's view of the economy. When the economy is growing and the view is optimistic the stock market usually benefits. When the economy is tanking and there is fear in the air money rushes into bonds, which means lower interest rates. This week was a great week for the stock market. The Dow Jones average gained 3.6% after a rally that was the biggest in five years. PP Morgan Chase and Wells Fargo came in with earnings better than expected and the market is now thinking that the worst is over for the big banks.

This may be wishful thinking. Coming a week after Indy Mac failed, and days after the potential bail out of Fannie and Freddie was announced, the market may be getting ahead of itself. Merrill Lynch announced another $9.7 billion in credit write downs which says that the credit crunch is still not over. With home prices down and less access to the home equity, we are seeing a reverse of the wealth effect. People feel poorer and they are less likely to spend money if they don't have to. The stimulus checks have mostly been spent, and this kept the economy out of an official recession, but the pop is now gone. The stock market had a great week, but my guess is that fear will set in again over the next few weeks, and the pattern will reverse itself with money flowing out of stocks and into bonds. I expect that rates will come back down again in the coming weeks.

If you have a contract on a property or if you are in the market for mortgage financing, you may want to look at the adjustable rate mortgages. ARMs are available with fixed terms of 5, 7 and even 10 years before they become adjustable, and the initial interest rate is much lower than the fixed rates. Some of the banks go in and out of the market with their ARMs, but it is worth comparing the programs, especially if you don't plan to be in the home for a long, long time. If rates come down you can refinance into a fixed rate for little or no upfront cost.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I'll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.625%   6.724% APR

15 year fixed rate    6.00%     6.143% APR

5-1 A.R.M.               5.75%     5.867% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   7.00%    7.147% APR - Requires 20% down payment

7-1 A.R.M.*              6.00%    6.173% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee - 60 day lock

30 year fixed rate    6.50%      7.278% APR

With no origination fee -        60 day lock

30 year fixed rate    6.75%     7.296%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help. The market has been unbelievably volatile and I expect that this volatility will continue.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com

FHA Spot Approvals - Chicago Area Condo Buyers Can Stiil Buy With Low Down Payments

I've received 4 calls this week from home buyers looking to buy condos in Chicago and the Chicago suburbs. With more condos on the market than at any time over the last several years this is a great time to buy. This means there is more of a selection to choose from, and the competition is bringing condo prices down. This is a great time to buy a new condo, but changes in the mortgage market have made financing condominiums harder than it used to be. Mortgage guidelines have gotten much tougher and mortgage insurance companies are even tougher. Fannie Mae and Freddie Mac have junked their declining market policy, but the mortgage insurance companies have kept the policies intact. What this means is that in declining markets the mortgage insurance companies require an extra 5% down payment in order to take on the loan, so if you were going to put down 5%, you would now need to have 10% for a down payment. Chicago and the entire Chicago area are now listed as declining real estate markets. The net result is that if you are going to buy condo anywhere in the Chicago area, and you are going for conventional financing, you may need a 10% down payment.

These new requirements are going to make it harder to finance Chicago area condos, but there is one way you can still buy with a minimal and in some cases no down payment. FHA financing allows a 3% down payment and this money can come from not only your own funds, but a gift from a relative or a grant from a down payment assistance program (at least for now). There's only one catch. When you buy a condo with FHA financing, the condo needs to be approved by FHA. There are a lot of condominium complexes and buildings that are FHA approved, but most of these are older properties. Many of the condo units have been built or converted to condo in the last 5 years, and during this time FHA was looked at as a dusty old program with loan limits too low to even worry about. So the developers never applied for the FHA approval. But things have changed since then. The FHA loan limit in the Chicago metropolitan area has been raised to $410,000, and FHA now is able to approve more buyers than any other program. If you are looking for a condo the first thing you should do is to see if the property you are looking for is already FHA approved. There is a HUD web site where you can search for properties by address and zip code, to see what is already approved. If you have a question or want to see what FHA condos are available in your town, contact me and I'll be glad to run the search. IF you are interested in a property that isn't on the list, there is another option. FHA offers a way to approve condos units one at a time with a spot loan.

FHA spot loans are designed to make FHA financing available to home buyers in successfully run condo buildings which have not gone through the approval process. From the FHA guidelines, the following requirements must be met to approve a spot loan:

• The condominium project must be complete, including all common areas and facilities.
• Control of the common areas must have been turned over to the homeowners
• association for at least one year.
• The owners association must provide evidence that the project has the appropriate
• hazard, liability and flood insurance.
• Individual units in the project must be owned fee simple. The project's legal documents must provide for undivided ownership of common areas by unit owners.
• The project's documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is unacceptable. Such restrictions include rights of first refusal and restrictive covenants.
• At least 90% of the units in the project must have been sold.
• At least 51% of the units in the project must be owner occupied.
• No single entity may own more than 10% of the units in a project. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project. The Department recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given  project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.  

It's up to the mortgage lender (that would be me) to gather the correct documentation to show that the condo project meets all the eligibility criteria. Once we have all the documentation this would be submitted to the underwriter along with the rest of the file. Putting together an FHA spot approval takes a little more time and effort, but it allows home buyers to buy a condo they couldn't buy with a conventional loan. In this market it may be one of the best tools available, for condo buyers and sellers alike.

FHA Condo Spot Approvals - You can Still Buy a Chicago Area Condo Without a Big Down Payment

I've received 4 calls this week from home buyers looking to buy condos in Chicago and the Chicago suburbs. With more condos on the market than at any time over the last several years this is a great time to buy. This means there is more of a selection to choose from, and the competition is bringing condo prices down. This is a great time to buy a new condo, but changes in the mortgage market have made financing condominiums harder than it used to be. Mortgage guidelines have gotten much tougher and mortgage insurance companies are even tougher. Fannie Mae and Freddie Mac have junked their declining market policy, but the mortgage insurance companies have kept the policies intact. What this means is that in declining markets the mortgage insurance companies require an extra 5% down payment in order to take on the loan, so if you were going to put down 5%, you would now need to have 10% for a down payment. Chicago and the entire Chicago area are now listed as declining real estate markets. The net result is that if you are going to buy condo anywhere in the Chicago area, and you are going for conventional financing, you may need a 10% down payment.

These new requirements are going to make it harder to finance Chicago area condos, but there is one way you can still buy with a minimal and in some cases no down payment. FHA financing allows a 3% down payment and this money can come from not only your own funds, but a gift from a relative or a grant from a down payment assistance program (at least for now). There's only one catch. When you buy a condo with FHA financing, the condo needs to be approved by FHA. There are a lot of condominium complexes and buildings that are FHA approved, but most of these are older properties. Many of the condo units have been built or converted to condo in the last 5 years, and during this time FHA was looked at as a dusty old program with loan limits too low to even worry about. So the developers never applied for the FHA approval. But things have changed since then. The FHA loan limit in the Chicago metropolitan area has been raised to $410,000, and FHA now is able to approve more buyers than any other program. If you are looking for a condo the first thing you should do is to see if the property you are looking for is already FHA approved. There is a HUD web site where you can search for properties by address and zip code, to see what is already approved. If you have a question or want to see what FHA condos are available in your town, contact me and I'll be glad to run the search. IF you are interested in a property that isn't on the list, there is another option. FHA offers a way to approve condos units one at a time with a spot loan.

FHA spot loans are designed to make FHA financing available to home buyers in successfully run condo buildings which have not gone through the approval process. From the FHA guidelines, the following requirements must be met to approve a spot loan:

• The condominium project must be complete, including all common areas and facilities.
• Control of the common areas must have been turned over to the homeowners
• association for at least one year.
• The owners association must provide evidence that the project has the appropriate
• hazard, liability and flood insurance.
• Individual units in the project must be owned fee simple. The project's legal documents must provide for undivided ownership of common areas by unit owners.
• The project's documents should not place any legal restrictions on conveyance. Any provisions that seek to limit the free transferability of title is unacceptable. Such restrictions include rights of first refusal and restrictive covenants.
• At least 90% of the units in the project must have been sold.
• At least 51% of the units in the project must be owner occupied.
• No single entity may own more than 10% of the units in a project. The 10% restriction does not apply when the ownership of less than three units would disqualify an otherwise eligible project. The Department recognized that the 10% cap on the number of units that may secure FHA insured mortgages in a given  project can place a small regime at a disadvantage, since only a few units will invoke the limit. Accordingly, a two tiered system was established. For condominium projects having more than 30 units, no more than 10% of the units may have FHA insured loans at any given time. Condominium projects consisting of 30 units or less, can have up to 20% of the units encumbered by FHA insured mortgages under the spot loan rule.

It's up to the mortgage lender (that would be me) to gather the correct documentation to show that the condo project meets all the eligibility criteria. Once we have all the documentation this would be submitted to the underwriter along with the rest of the file. Putting together an FHA spot approval takes a little more time and effort, but it allows home buyers to buy a condo they couldn't buy with a conventional loan. In this market it may be one of the best tools available, for condo buyers and sellers alike.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com 

Fannie Mae and Freddie Mac - Fed to the Rescue

The stock and mortgage bond markets were in turmoil last week as rumors circulated that Fannie Mae and Freddie Mac were on the edge of insolvency. Not just the mortgage market but our entire economy are dependent on the health of these organizations. It's always been assumed that the government would do whatever was necessary to keep them afloat. The question was more a matter of what they would do to support them, whether the stock would remain solvent and who would foot the cost.

Tonight, just before the Asian markets opened, the Fed stepped in and announced a deal had been put together. This was the same way they put together the Bear Stearns buy out in March, and like then it was designed to calm the markets and avoid a sell off that could have gotten out of control. This deal will increase the Treasury credit line for Fannie and Freddie, and  gives the Treasury the authority to buy the companies stocks.

By promising bold action the Fed and the Treasury hope to re-instill confidence, in the hopes that they won't have to do a full scale bail out down the road. Here's a Wall Street Journal Article which gives the specifics.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com 

Illinois Mortgage Rates - Mortgage Rates Week in Review

Welcome to Illinois Mortgage Rates and News week in review for the week ending July 11th, my take on the week's financial news and how it affected Illinois mortgage rates.

Back in March our economy barely dodged a bullet when the Fed engineered a bail out of Wall Street giant Bear Stearns. If left to fail on its own, it was feared that this would set off a panic that could shake our financial system to its core. Since then we've been told that the worst was over, and even though the housing market was still a mess, our economic foundations were strong. This week the bullet we missed with Bear Stearns is looking like a pea from a pea shooter, and we have a nuclear missile headed our way (Where is Superman when we need him?) The stock of Fannie Mae and Freddie Mac, the two pillars of our mortgage finance system, dived this week as the loss of liquidity pushed these giants toward insolvency. Both stocks lost about 45% of their value this week and are down about 90% in the last year. With the stock prices this low there is no way they can raise the cash they need to continue operating in the markets. If the worst comes to pass, this means 2 possibilities: a bailout where the government funds the organizations, or a receivership or complete government takeover.

Fannie and Freddie are unique in the way they operate. They are publicly traded corporations but they are backed with the assurance of the federal government. Their mission is to buy up mortgage loans and insure that there is always money available to fund new mortgages. Combined they guarantee about 5 trillion dollars (that's 5,000 billion) worth of mortgage loans - about half the total mortgages outstanding. To say they are the 800 pound gorillas in the mortgage market is an understatement. The panic started this week with rumors that the government was preparing a plan to step in if needed. Fannie and Freddie have lost a lot of money due to bad loans, but they still have a fair amount of money in reserve, though no where near enough to settle all the possible problems. But this isn't news. Over the last years Fannie and Freddie have branched out beyond their core business and have moved farther along the risk curve as they tried to keep profits high while the real estate market was booming. Commentators have been saying for years that the companies were undercapitalized. So this isn't a new thing.

Everyone agrees that Fannie Mae and Freddie Mac are too big to fail. If it gets to that point the government will surely step in and do what is necessary to keep the mortgage market going. But the question then becomes how would they do this? The debt is so huge (even backed by the homes supporting all those mortgages) that it would be equal to almost ½ our current national debt. After the panic first started, Fed officials, Treasury Secretary Paulson and statements from both Fannie and Freddie assured everyone that there was no crisis. But a panic is a panic. The market calmed down a little Friday afternoon, but this will come back as an issue. Maybe this coming week, maybe later. We are still in a severe credit crunch this fear only tightens it another notch. What it means for consumers is that conventional mortgages are likely to continue their trend of becoming harder to qualify for and more expensive for those who can qualify. On the good side, there is almost no chance that the Fed will hike rates any time soon.

The news of the troubles with Fannie and Freddie obscured some other big news. IndyMac, a big California bank which was one of the big players in what was called the Alt A mortgage market, went bust this week. This was the first major bank to fail in years, and the 3^rd largest bank failure in US history. The expectation is that there are other banks teetering on the edge, and more failures will be coming. In other news oil was up again, closing the week at $145 per barrel. Pending home sales came in worse than expected and according to RealtyTrac the number of foreclosed homes nearly tripled June.

Mortgage backed securities, which control the direction of mortgage rates were improving sharply most of the week, but turned around and gave up most of their gains on Friday. Mortgage rates are a little better on some programs, and on others unchanged. FHA is due to change to their risk based pricing model this week, but all in all it is the biggest bargain in the mortgage market. For many borrowers with less than 20% equity, or credit scores under 720, FHA financing is the best option. Here in the Chicago IL. area the maximum loan amount is now $410,000, so it fits what most borrowers need.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I'll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.25%   6.364% APR

15 year fixed rate    5.75%   5.922% APR

5-1 A.R.M.               5.50%   5.678% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.75%    6.877% APR - Requires 20% down payment

7-1 A.R.M.*              5.75%    6.062% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee - 60 day lock

30 year fixed rate    6.125%     7.048% APR

With no origination fee -        60 day lock

30 year fixed rate    6.375%     7.056%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com 

If Mortgage Rates are a Commodity, Does it Matter Who You Get Your Mortgage From?

I had breakfast this morning with a Realtor who was having a difficult time with one of her listings. She had a contract on the house and the buyer was pre-approved for the mortgage before they wrote the offer. Everything looked like it was set for a nice smooth transaction. When the financing date in the contract came due the buyer still didn't have loan approval, so they requested an extension. She was assured that the borrower was great and the appraisal came in right where it needed to be. There were just a few small details to take care of and loan approval would be forthcoming. 10 days later when the extension was up, they still didn't have a loan approval. The loan officer was vague about what the problems were, but promised that it was nothing serious and with a little more time everything would be fine. By this time the Realtor was nervous and the seller was a basket case. But in for a penny, in for a pound, they agreed to a second extension rather than put the property back on the market. You can guess where this story is going. The second financing extension came and went with no loan approval. Now the loan officer isn't answering his phone and all the calls to his company end up in voice mail and no one is returning phone calls. Many home buyers think of mortgage financing as a commodity, but this Realtor knows that isn't true.

On the other hand, mortgage rates can be looked at as a commodity. Mortgage options have narrowed and most loans are now either conventional loans insured by Fannie Mae or Freddie Mac, or FHA government insured loans. The rates on these loans are determined by action in the mortgage backed securities markets, and wholesale lenders react to changes in these markets in unison. On the consumer level, mortgages rates are extremely competitive. What this means is that mortgage rates, no matter what the source, are going to be very similar from one lender to another. There will be differences from day to day. On any day one lender might be an 1/8^th of a point better, maybe even a ¼ point (when you account for costs and fees, anything more than this and they are hiding fees somewhere), just as one gas station might at times sell their gas for a few pennies less. But most lenders will offer mortgage rates in a very tight range. So mortgage rates are a commodity, but the mortgage experience is much more than just who has the best rates and fees on any particular day.

Having the best rate doesn't matter if you don't close on time or if you don't close at all. Having the best rate quote isn't going to help you if the terms of your loan change and you end up closing with a higher interest rate or higher fees. So what exactly should you be looking for when choosing a mortgage besides comparing the programs, rates and fees charged? There are a few things that will have a direct impact on how good, or bad, your mortgage experience turns out to be:

Communication - Unless you're a mushroom, you probably don't want to be kept in the dark. You don't realize how important communication is until you run up against someone who is not telling you what is going on. Does the loan officer return your phone calls and emails quickly? Does he fully answer your questions? Do you know the status of your loan and is there a system in place to show your loan status?

Knowledge and experience - Does your lender understand what your needs are and help you to meet your goals? Or does he just quote a rate? Does he know how to do the loan that you need? This is a real issue now with FHA loans. FHA used to be a big factor in the housing market, especially for first time home buyers. But that dropped off and over the last 5 years FHA dwindled down to a trickle. The market has changed though, and this year FHA is the best option for many buyers. How experienced is the lender with FHA? Many loan officers have never done an FHA loan. Letting them practice on you is not going to give you a good mortgage experience.

Follow through - About 50% of good service is about doing what you said you were going to do when you said you were going to do it. If they are promising the moon but not coming through, that's going to be a big problem.

Reliability - This is where the rubber meets the road. Is the lender going to be able to meet their obligations? More mortgage lenders, both brokers and national banks, have closed their doors over the last year than at any time in memory. Is your lender going to be around for the long run? Will they be able to meet the deadlines in the contract? Are they going to have the money at the closing when you need it? Surprises can be nice, but surprises that come at the closing usually aren't the kind you want.

Reputation - What do you know about the lender, both the company and the loan officer? Do a little bit of research and see what other people's experience has been. Do a Google search to see what you find, and see if the Better Business Bureau has any complaints filed. Ask your real estate attorney what they know of the company - they, along with title companies, have more experience with lenders and can tell you who is good and who to watch out for.

Everyone wants to get the best deal and mortgage rates might be a commodity, but the mortgage experience isn't. When choosing a mortgage make sure you look at the big picture.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com 

Cook County Mortgages - Anti-predatory Lending Database Now in Place

Mortgage loans in Cook County just got a little more complicated. The new anti-predatory lending bill, SB1167, goes into affect today, July 1st. One of the provisions of the bill was to set up a database to keep track of all loans originated in Cook County. Borrowers who fall into certain risk categories will need to get counseling before they can close on their mortgage.

According to SB1167, all loans recorded in Cook County after 7/1/2008 are going to require either a Certificate of Exemption, or a Certificate of Compliance attached to the mortgage. The certificates will be printed from the Anti Predatory Lending Database web site set up by Cook County. Mortgage brokers and mortgage bankers who handle mortgages in Chicago and throughout Cook County are now required to enter the loan in the data base at the start of the transaction. This only applies to owner-occupied 1-4  unit residential properties.

Not every borrower needs the counseling though. The conditions that will trigger the counseling requirement are:

• Any purchase transaction where all borrowers are first time home buyers OR Any primary residence refinance where the loan has one of the features below.

1. The loan has an interest only feature
2. The loan has a prepayment penalty
3. The loan has a negative amortization feature
4. Total points and fees exceed 5%.
5. The loan is an ARM with an interest rate adjustment within the first 3 years. (We've been informed by the IAMP that 3/1 ARMs WILL require counseling, even though you may think that the rate adjustments are not "within the first 3 years, but occur after 3 years.)

The following loans are exempt from the counseling requirement: Reverse mortgages, Non-owner occupied (investment), Commercial and multi-family over 4 units.

Predatory lending has been the cause of a lot of foreclosures and a lot of ruined lives. Anything that can put a stop to it is worth doing. But like so many laws this solution isn't going to have the impact that it is hoping for. For one thing, the real estate market has slowed down and mortgage guidelines have tightened. It's not as easy to commit fraud when people are paying attention so a lot of the quick-buck sharks and sleazy operators have moved on. The other factor is that the market is ahead of the curve on a lot of these provisions. The loan features that trigger counseling are all features of sub-prime loans, mortgages for borrowers who couldn't fit into the normal conventional guidelines. Sub-prime loans were the first casualty in the mortgage melt down last year, and no one is making those loans anymore. There will be some sophisticated borrowers who may be forced into counseling because they chose to refinance with an interest only mortgage for the cash-flow benefits, but if first time home buyers are taking on loans with these features they need to know exactly what they are getting into. The law will mean some loans will take a little longer, and it will add an extra step to the process. But who knows, maybe it will even help some people.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com

Illinoi Mortgage Rates - Mortgage Week in Review

Welcome to Illinois Mortgage Rates and News week in review for the week ending June 27th, my take on the week's financial news and how it affected Illinois mortgage rates.

The Fed took the spotlight this week, and as anticipated, they left interest rates the same but talked tough about the threat of inflation. Wall Street wasn't happy with the decision. The Dow hit a low just ticks away from a 20% overall decline, the official mark of a Bear market. Not only did the Fed not raise rates, but their announcement balanced the threat of inflation with the threat of further slow downs in the general economy. This signaled that the Fed plans to stand pat, keeping rates the same until something forces their hand. The stock market dived and mortgage bonds benefited. Mortgage backed securities moved through an area of strong resistance Friday afternoon, ending the week at their best level in the last 3 weeks.

The question this week, as it has been over the last few months is which is worse, inflation or recession? This is much like saying which way would you rather be tortured? Water boarding? Or bamboo shoots under your fingernails? If it's all the same to you, I'd rather do without either. But the Fed doesn't have that choice. The case for raising rates is that the low Fed funds rate has killed the value of the dollar, and oil is denominated in dollars so its rise is a direct result of the weak dollar. The argument here is that raising the rates will add value to the dollar and oil will fall once the Fed acts. This may be true, but the global economy is much more complex than this, and a raise in rates might do more harm than good. The credit crunch is still in force, and hiking rates would mean that credit goes from tight to a stranglehold, smacking the real estate market and the business climate down further. This would surely lower gas prices; with lower demand prices would have to fall. But if the economy falls into a deep recession, it could make matters much worse and killing the patient doesn't make for a successful operation.

The other school of thought is that inflation is a problem, but the oil shock we are experiencing isn't the same as inflationary spirals we've seen in the past. For one thing, there is no wage inflation. Inflation can destroy an economy if everyone thinks that prices on everything are moving higher. But wages are stagnant and with global competition no one expects wages to move up much any time soon. Prices are moving up on food, fuel and anything that uses petroleum, but if you look at the value of your home or the balance on your 401K the values are down. The other thing is that the Fed might not be able to do anything to control the inflation, even if they raised rates sharply. In a global economy there are more moving parts than in a Rube Goldberg machine, and the United States doesn't have the economic power it once did. The cost of oil has been moving up steadily for years now. China, India and much of the developing world have been booming, and their demand for oil has pushed the cost higher. We also aren't finding new oil supplies fast enough to replace the wells that run out. Add in a good dose of fear and speculation and it's no wonder the price runs up higher. As the global economy slows down, speculation should ease and oil prices may come down as a result. At least a little. But the world has changed and most experts don't think we will ever see cheap oil again. So the real question is the run up in oil inflation, or the new fact of life?

In other economic news, consumer confidence this week came in at the third lowest reading ever, and the lowest since 1980. Oil prices surged again, now up to $142 per barrel. Personal spending for last month was the best reading in the last 5 months, but if the stimulus checks are gone this is probably not a trend. New and existing homes both came in a touch better than expected, but still at low levels. Sales of homes in the Chicago area were down 29% from last year, but up from the previous month. Prices here seem to be stabilizing. The core inflation rate showed we are just over the target zone, giving the Fed some cover for their decision not to raise rates. Here in Illinois, Attorney General Lisa Madigan sued Countrywide Mortgage for abusive loan practices. I have mixed feelings on this one. I'm not a fan of Countrywide. As a company they have been arrogant and they were the leaders in some of the bad practices that got us into this whole mortgage mess. I also like Lisa Madigan. She's done a good job as Attorney General, and I expect that she will be our next Governor. But that's the point of this, it's all political. Countrywide is a big target and an easy way to score political points, but unless they can show it was a corporate decision to defraud customers, I don't see this going anywhere.

Mortgage rates are moving in the right direction, but the real improvement in mortgage bonds came at the end of the session on Friday afternoon, and most of the lenders didn't re-price to show the improvement (it's funny how quickly they re-price when rates are heading up, but are slower on the trigger when mortgage rates are moving down). The area of resistance that was keeping rates from improving may now act as resistance and a stopping point when rates are getting worse. It's amazing how often points on a graph that acted as a ceiling become a floor when the market breaks through.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I'll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.375%   6.589% APR

15 year fixed rate    5.875%   6.124% APR

5-1 A.R.M.               5.625%   5.788% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.875%    6.997% APR - Requires 20% down payment

7-1 A.R.M.*              6.125%    6.327% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee - 60 day lock

30 year fixed rate    6.125%     7.048% APR

With no origination fee -        60 day lock

30 year fixed rate    6.375%     7.056%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

 Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com 

FHA Mortgages Adopt Risk Based Pricing

Over the last months conventional mortgage guidelines have tightened, and with risk based pricing mortgage financing has gotten more expensive for most borrowers. Conventional mortgage insurance has pulled back on what they will cover, and the cost of mortgage insurance has gone up (more increases are coming in August). This combination has made it harder to qualify for a conventional loan, and more expensive for those who have lower down payments and good but not great credit scores. The one bright spot in the real estate financing market has been FHA. Earlier this year FHA raised their maximum loan limit (up to $410,000 for a single family home here in the Chicago area, lower in other parts of Illinois) making FHA a great option for many borrowers who would have once been conventional borrowers. But FHA is feeling the pinch of the market, too. Effective July 14^th FHA is changing to risk based mortgage insurance.

FHA is a government backed loan which is designed to help more people buy homes. FHA doesn't loan the money themselves, they set up the guidelines and insure the lenders against loss through their mortgage insurance premiums. The goal of FHA isn't to make a profit, like the private mortgage insurance companies, but to encourage more home ownership which makes a more stable society. This means they are willing to take on borrowers who are considered higher risk due to low down payments, lower credit scores, and those who haven't built up traditional credit. This is still their mission, but now the riskier borrowers will end up paying a little more to make sure the program stays solvent.

FHA breaks their mortgage insurance premium down into 2 parts: an up-front portion that is added to the loan amount and financed over the life of the loan, and a monthly insurance premium which is part of your normal payment. This used to be a one size fits all solution, as long as you qualified for FHA financing you paid the same premium. They are now basing the premium on borrower's down payment and credit scores. This means the borrower's with the lowest risk will get the best pricing, and those who are higher risk will have to pay a little more. The current cost of FHA is a 1.5% up-front mortgage insurance premium and .50% yearly premium which is paid monthly. The new schedule will lower the up-front premium for most borrowers who invest at least 5% for their down payment. The monthly premium is going up for all minimum down payment buyers (3% cash investment) and the up-front portion changes based on their credit score.

FHA is still the best choice for many borrowers and the only choice for home buyers with little or no money for a down payment and closing costs. Here is some more information on some of the advantages of FHA financing.

This is what the premiums will be after July 14^th.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com