Standing in the doorway of the terrace outside our Capitol where our next President will take the oath of office, I imagined the scene. Millions of people will watch both in person and on television. Many of them will be full of hope and optimism. The voices of cynics will still be heard. However, it is inevitable that our society will experience a mood swing and in fact we are now slowly, very slowly, initiating that mood change. There is still economic pain and turmoil yet to hit our headlines. There are still companies to hang their "going out of business" signs. Despite this, there is a burgeoning sentiment of hope among our masses.
People are adjusting to their new reality and learning to live within their means. We are saving a little money and paying down debt. Instead of deriving pleasure from buying new plasma TVs, fancy SUVs, McMansions and Starbucks, people are rediscovering the enjoyment of family, parks, painting and redecorating their existing home and some are even able to finally afford the purchase of a modest first home. Trends must change and just as our string of boom years came to and end in 2006, so must our current phase of bust years. Exactly when no one can say, but as we look ahead to a new era in our country's leadership, the overgrowth is being trimmed and seeds are being planted which will reinvigorate our tired society and inspire our collective creativity, productivity and genius.
We had hoped to distribute this month's newsletter across our new email delivery service. However, we are not quite ready. The subscription notice will be arriving in your inbox later this month.
The current newsletter and all prior newsletters are archived at our blog space mortgagebyrandy.spaces.live.com. Bookmark it and share with your friends and family. You can enter your own comments and feedback as well. Time for the news...
Mortgage Market: Government Introduces Consumer Friendly Format of GFE and HUD-1
After more than three years of debate, revisions and feedback, the mortgage industry was issued an edict this week to adopt new versions of two critical documents in the mortgage process. First, The Good Faith Estimate (GFE) provides consumers with reasonable estimates of the costs of the loan early in the process. The revised form is now more conversational and generally easier to read for the consumer.
However, one change creates an uneven playing field between mortgage companies and banks and will create confusion for the consumer.
To explain this in detail requires a little background. The primary way a mortgage company earns a fee for the work on a loan is to mark up the wholesale rate they have access to by a reasonable margin. This is similar to your supermarket buying milk or bread from farms and bakeries at a wholesale price and marking it up to a retail price that is competitive in the market. In the past, the mortgage broker fee was disclosed in different ways to customers, using different formats or sometimes never at all. That was unfair and now the consistent method of disclosing this fee will make it a better experience for consumers and keep mortgage companies honest.
The issue is that banks, which are regulated differently than mortgage companies, do not have the same requirement to disclose the fee they expect to earn when they sell your mortgage. As a result, consumers who compare 2 identical loan programs offered by a mortgage company and a bank may be led to believe that the mortgage company is charging more fees. Why this discrepancy? Compared to the mortgage industry, the banking industry is a very large and powerful lobby in Washington (just look at political campaign donation records).
The second form that was changed is the HUD-1 statement, which is the document you review at the closing table. This form itemizes all the final numbers line by line. What is nice for the consumer is that the line items on the enhanced form can be easily matched to those originally quoted on the GFE. The major drawback is the same as explained above on the GFE relating to the disclosure of the fee the mortgage company earns.
The National Association of Mortgage Brokers will continue to voice its disapproval of this edict and there is the benefit of time since these two new disclosures are not required to be used until January 2010.
Personal Credit: 6 Steps To Remove Inaccurate Collection Accounts From Your Credit Report
Even people with outstanding credit can end up with a collection account on their credit report. Many times these happen as a result of a medical expense that the insurance company did not fully cover. Or, when people relocate, sometimes a final bill from the former utility company gets paid but credited to the wrong account. Here are 6 easy steps to follow if the first phone call fails to resolve the situation:
1.Send a letter requesting validation to the collection agency via registered mail (keep the receipt)
2.File a dispute with all three credit bureaus (via registered mail)
3.Wait 30 days to hear back from the collection agency. In some cases they will not respond or they will respond to confirm receipt of your original letter. A satisfactory response includes:
a. proof that the collection company owns or has been assigned the debt,
b. complete payment history, starting with the original creditor, and
c. copy of the original signed loan agreement or credit application
4.If you are not sent satisfactory proof, send the collection agency a copy of your receipt for your registered mail, a copy of the first letter you sent and a statement that they have not complied with the FDCPA and are now in violation of the Act. Tell them to immediately remove the collection listing from your credit report or you will file a lawsuit because they are in violation of FDCPA, sec 809(b).
5.Wait 20 days to hear back after you send this second letter. They will either honor your request or continue to ignore it.
6.If they ignore it, simply send copies of all your documentation to the credit bureaus with a new cover letter clearly explaining what you have done so far and requesting the removal.
Congratulations! You have now cleaned your credit report with the only expense of the postage and your time. Credit repair companies will charge you hundreds or thousands of dollars to do this same thing on your behalf, but it is within your control to handle the situation.
If you need assistance finding an address for a collection agency, or researching if they are licensed to do business in your state, let us know and we can help. Also, if you ever need templates of letters, we can help there too. Finally, if you feel like you need to file a lawsuit against a collection agency, we can provide tips for that as well. As always, for only $99 we will conduct a credit report analysis using data from all 3 credit bureaus, reduce all the critical information into an easy to read one page format and provide you with a personalized action with steps you can take to improve your credit scores.
Economy & Financial Insights: Feds Toss Another Hail Mary To Assist Delinquent Borrowers
As housing prices have fallen, delinquencies on mortgages have tripled, not just for subprime and Alt-A (the level just below good credit), but also for prime mortgages, according to James Lockhart, Director of the Federal Housing Finance Agency. Past issues of this newsletter have discussed several government mortgage assistance programs (see Mortgage by Randy Newsletter, August 2008). For several reasons these programs have not helped a lot of people (namely, banks have to volunteer to participate).
This week we were introduced to the latest installment of "help is on the way" in the form of a new loan modification program to get struggling homeowners into mortgages they can afford. The catch? Allow me to quote Director Lockhart, "It is an achievable goal if homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac all work together." That is a BIG "if" and recent history has already taught us that many banks and mortgage servicers are not being cooperative in helping the volume of homeowners that our government envisions.
Another fact that puts this program in proper perspective is that Fannie Mae and Freddie Mac control only 20%of all delinquent mortgages. As a result, 4 out of 5 struggling homeowners cannot even get to first base with this program. To narrow the funnel of those who can be helped further, this program is limited to homeowners that are ALREADY at least 3 or more payments behind. What about all those hard working people out there that are busting their tail and making sacrifices to make EVERY payment on time? No help for them....just have to keep scratching and clawing while those that have failed to make their payments get interest rates lowered, terms extended and cash flow freed up to buy Christmas presents. Only in America! I have heard many voice their concern over President-Elect Obama's plans to redistribute wealth, but those same people need to realize that it is already happening under the watch of the current administration.
Question of the Month: The Fed Keeps Cutting Rates So Why Are Mortgage Rates Going Higher?
The short answer to this question is the basic economic law of supply and demand. When an item is in short supply, the price of that item rises; when plentiful, the price falls. In the case of bonds, a lack of supply causes prices to rise. An increase in price means that the ultimate return to the investor is lessened, so their yield is lower. Lower yields mean lower mortgage rates. This is the case with mortgage bonds. An excess of supply at the same time as declining demand means there will be more bonds available than buyers. The prices of the bonds will decline to help attract investors to buy them, which makes the yields higher. Keep your eyes on the yields of Treasury Bonds, which have an influence on fixed mortgage rates. Hundreds of billions of dollars of new bond issuance will be coming to pay for the various government "bailout", "rescue" or "support" programs. This is also the case with mortgage bonds - too many sellers and too few buyers in the market these days - keeping prices low and yields (and mortgage rates) high. Rates probably won't decline very quickly.
The height of the charitable giving season is now upon us. Our telephones will be ringing off the hook from organizations appealing to our hearts during the holiday season in hopes of earning a share of our wallet. Most legitimate fundraising organizations DO NOT conduct telephone calling campaigns to raise money. To make your giving decision more confusing, the organization names often have to do with cancer relief or support of the state troopers. Although these organizations are, by definition, legal, non-profits, it does not mean that they are worthy of your donation. There are some organizations where almost 80 cents of every dollar they receive goes toward "administrative" costs which is accounting code for payroll!
During these tough economic times, it is wonderful that you want to give, but do so wisely. Ensure that your money is put to the best use in organizations that manage their donations so that 80 cents or more of every dollar ends up in the hands of those who deserve or need it most.
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
Your Frantically Trying To Finish Christmas Shopping Advisor,
Randy
Mortgage by Randy newsletter, Copyright 2008 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
EASY UNSUBSCRIBE from Mortgage by Randy newsletter: send email to randy@mortgagebyrandy.com with UNSUBSCRIBE in the subject line.
You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy, accessible at mortgagebyrandy.spaces.live.com. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is founder of Estero, Florida based National Web Leads, LLC (www.nationalwebleads.com), an online lead generation service matching consumer finance lenders with customers. Through their network of partners, National Web Leads, LLC delivers bleeding edge Web 2.0 software solutions such as lead generation platforms and real time desktop widget and mobile reporting tools.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership (www.swfrtp.org) and Strategic Planning Director for The Michelle's Angels Foundation (www.michellesangels.com). He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
This week we come to you from Washington D.C. - what a place to be right now given the historic events both in the past few months as well as the historic election which faces us in about 2 weeks. This is not a forum for political opinion. However, there is no question that America's choice for President will bring a definitive fiscal philosophy to the Oval Office. Remember, no matter whose ideas inspire you the most, it still takes Congress to turn these ideas into bills for debate and vote. When I write the next edition of this newsletter we will know who our new President is and our government will finally be purchasing some of the illiquid paper that is clogging the credit system.
We had hoped to distribute this month's newsletter across our new email delivery service. However, we are not quite ready. The subscription notice will be arriving in your inbox later this month.
The current newsletter and all prior newsletters are archived at our blog space mortgagebyrandy.spaces.live.com. Bookmark it and share with your friends and family. You can enter your own comments and feedback as well. Time for the news...
Mortgage Market: Bank of America Putting Humpty Dumpty Back Together Again
The mortgage industry is undergoing an infrastructure change. Deregulation gave rise to a fragmentation or deconstruction of the market. Every piece of the process was split off into a separate business in order to maximize profit. Origination (i.e., taking the applications), Processing, Servicing and the assumption of the risk and reward have all been running independently. For example, a mortgage broker originates loans as their business. In some cases, brokers outsource processing of the applications to companies that specialize just in processing. Once a loan closes, the lender then turns it over yet another company to service it (e.g., mail you your monthly statement, etc) and finally, the lender sold bundles of these loans out their back door to investors around the world who then became the bearers of the risk and reward of those loans. One of the downsides of that structure is that it is difficult to hold any one entity accountable for issues that arise.
We are beginning to see the reverse engineering of this process. Let's look at Bank of America as an example. Their acquisition of Countrywide made Bank of America the largest originator and processor in the country. Also, when Merrill Lynch was acquired recently, that deal included a Merrill Lynch subsidiary called Wilshire Credit which just happens to be the largest mortgage servicer in the country. Bank of America is becoming the symbol of reconstruction in the mortgage industry.
Personal Credit: Increasing and Protecting Your Credit Score Has NEVER Been More Important
Banks are very conservative with lending money - even to each other - these days. If your credit score is less than 720, it is likely that you will pay higher interest rates on your credit products if you get approved at all. There are a number of strategies that can be employed to raise your score in only a few months. Before you apply for a loan, contact us for a credit analysis and we will build a personalized action plan to help you maximize your score both in the short term and the long run.
For our young readers (18-25), there are many temptations offered by credit card companies, like free gifts. The easy access to credit to pay for pizza gets many into deep debt early in life. Having credit at a young age is great if you use it correctly.
Young professionals and parents (26-39) that grew up using the Internet need to be extra careful about protecting their identity when making online purchases. There are both do-it-yourself as well as subscription based credit monitoring services available to help you stay on top of your credit. Many insurance rates are credit based giving another reason to manage your score.
Middle-age (40-54) folks have a variety of financial matters on their radar. Retirement planning, college tuition for kids and second home purchases are few. A home equity line of credit, if you're lucky enough to have equity, is a great resource to have in your financial toolbox, but this product is reserved for only those with the highest of credit scores.
Early retirees (55+) also want to stay on top of their credit. In the event of medical emergencies, your strong credit score will allow you to qualify for medical specific financing. Medical bills sometimes end up as collections on your credit report because the insurance company doesn't pay the full cost of the service. Monitor your credit regularly to avoid falling victim to this time wasting inconvenience.
No matter what stage in life you're in, by following these tips, you'll always know the score.
Economy & Financial Insights: Create Your Personalized "Fall"- Back Plan
The average U.S. household carries $10,000 to $12,000 in revolving debt and has nine credit card accounts (Jump$start Coalition, 2007). Open your wallet and take an inventory of the accounts you have open - some of which you may not even use often, like department store cards. Americans continue to live beyond their means evidenced by negative personal savings in recent years. This is calculated by measuring your personal income minus your outlays. (Note: The U.S. Department of Commerce releases positive personal savings rates in their reports but the fine print tells you that they DO NOT INCLUDE personal outlays financed through BORROWING on credit cards and other lines of credit). Example: $4000 income in October minus $3600 in expenses leaves $400 for savings (10%). However, let's peel the onion back. Suppose that in October your car needed repairs that cost $500, but cash is tight so you use the credit card. Your REAL personal savings rate is now negative ($4000 - $4100) or - 0.1%. What's worse is next month your picture might grow worse as you have to pay interest on that credit card. But our happy go lucky government goes and reports that 10% savings rate number with a small foot note about their formula's fallacy.
The lesson is not about the government, although that is an interesting side note. The real lesson is to take note of your personal situation. If it was you who had that $500 repair bill how would you pay for it? We all need cushion money in a savings account. Experts will tell us to have 6 months of salary in the bank. Easier said than done, but let's use the old adage, how do you eat an elephant? Answer: one bite at a time. If you had put just $20 per paycheck into savings for the preceding 12 months and assuming you are paid every two weeks, you would have $520 in savings and be able to pay that unexpected repair bill with your cushion money and not your credit card. If $20 per paycheck is NOT possible for you, then you need to look at making some sacrifices in your life (temporarily eliminate extra cable channels, pick-up a weekend shift at a retail store, one less trip to Starbucks per week, etc). But for many of us, $20 per paycheck is doable and if you are fortunate enough to be able to do $25 or $40 or $100, then go for it. The first time your cushion money SAVES you from an unexpected bill you will be proud of yourself for having the willpower to PAY yourself first!
Question of the Month: I Need Money Fast But I Can't Get a Credit Card - Where Else Can I Turn?
Micro-lending is becoming more popular in this credit crunch economy. Private lending is helping fill the vacuum. For example, Prosper is an online marketplace where private borrowers and lenders can meet. The website is operated by a bank based in Utah. Prosper requires a minimum credit score of 520 so it's not for everybody, and there are identity verification processes in place for your security. You can borrow up to $25,000 and interest rates tend to be in the 9-13% range, somewhat better than a typical credit card. It costs nothing to sign-up for a prosper account so even if your just curious, there's no risk to check it out.
Giving Back: Supporting our Communities
October is breast cancer awareness month. It is hard to find a family that hasn't been touched directly or indirectly by this disease. This includes our family as well. Many organizations and individuals are wearing extra pink this month as they promote different fundraiser and awareness events. Following up on last month's commentary, please be careful about phone and mail solicitations for donations to toward breast cancer. There are several "legal" fundraising organizations that use the breast cancer flag to get into your wallet. Stick to the American Cancer Society or Susan G. Komen Foundation and if possible, make your donations online at their websites.
In addition, there are some great gift ideas available from Collectibles Today to give a loved one that is battling or has become a survivor of breast cancer. There are dozens of choices and with the holidays coming up, you might find a good gift. A portion of your purchase is contributed to breast cancer research.
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
Randy
Mortgage by Randy newsletter, Copyright 2008 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
EASY UNSUBSCRIBE from Mortgage by Randy newsletter: send email to randy@mortgagebyrandy.com with UNSUBSCRIBE in the subject line.
You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy, accessible at mortgagebyrandy.spaces.live.com. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is founder of Estero, Florida based National Web Leads, LLC (www.nationalwebleads.com), an online lead generation service matching consumer finance lenders with customers. Through their network of partners, National Web Leads, LLC delivers bleeding edge Web 2.0 software solutions such as lead generation platforms and real time desktop widget and mobile reporting tools.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership (www.swfrtp.org) and Strategic Planning Director for The Michelle's Angels Foundation (www.michellesangels.com). He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
The Dominican republic is one of the few places Russians can go without a visa. We have always known that Russia could be a big source for future sales. With the tremendous amount of infrastructure (airports, highways, water/sewer systems, ports, etc) being built, now is the time to investigate residential and commercial property, especially along the Samana Peninsula.
Two of Russia's major airlines will increase from two to five their nonstop weekly flights from Moscow and St. Petersburg, starting in winter and spring 2008-2009. This move should increase flow of Russian tourists to Dominican Republic by more than 100%.
Of these charter flights, four will be to Punta Cana, via the airline Transaero, with 320-passenger planes and one to Puerto Plata, via the carrier Rossya, which will start operations in March using 767-300 jets, with a capacity of 330 seats.
JetBlue's new Boston flight JetBlue announces it will offer service this winter holiday season to Boston from Santo Domingo. This route is subject to government approval. The airline has also said it will add more flights on existing routes from New York to Puerto Plata, Santiago and Santo Domingo, again filling in for AA that is suffering from high fuel costs, older airplanes, and high labor costs.
The once a day Boston "holiday shuttle" will test the market in December and January.
The airline also has plans to bolster its frequent service between New York's John F. Kennedy International Airport and the Dominican Republic by adding a fourth daily departure to Santiago, a third daily departure to Santo Domingo, and a second daily departure to Puerto Plata over the holiday season. "The Dominican Republic is dedicated to supporting all of JetBlue's efforts to provide the Caribbean with additional air service," said Dominican Republic Vice Minister of Tourism Magaly Toribio. "JetBlue's new flights from Boston and San Juan to our capital city, Santo Domingo, will help meet the growing demand of visitors and enhance our collective economies," she said.
A colleaue shared this news with me this week - very exciting investment which will strengthen this relatively unknown part of the Dominican Republic. Positioned within the warm waters of Samana Bay where the whales migrate, this project will become a major tourist attraction.
The new airport at El Catey will place travelers within approx 30 minute drive.
A 100 million dollar investment by the company Valley Forge Corporation is expected to put an end to the almost total inactivity of Samaná's Arroyo Barril port (northeast). This remodeling project includes a 500 slip marina and dockage for several cruise ships simultaneously.
Around 1,000 boats would visit Arroyo Barril with nearly 3 million tourists every year, said the executive Rodrigo Montealegre Saturday.
The project, expected to conclude in five years, includes a passenger terminal, offices, a hotel of approximately 100 rooms, an ecological museum and yacht club, according to Carolina Llobregat, an architect of the company. "This proposal's fundamental concept is a sustainable environmental offering, that includes taking advantage of the place's environment, creating spaces of ecological zones."
The port's remodeling is based on a 30-year concession contract signed with the Dominican State.
I participated in a meeting today attended by real estate investors, mortgage brokers, commercial lenders, property appraisers and real estate agents. These folks recognize that amidst the massive credit crunch, one way to help make things better is to form a private lending group.
While our elected and appointed officials spend trillions of dollars trying to unclog the credt markets, it was refreshing to a grass-roots effort come together in an effort to help their community.
It is indisputable that there are buyers in our market that need fast access to financing. It is also indisputable that there are people in our market that have cash and have an interest in earning a better rate of return than what can be earned in bank CDs or in the equity markets.
The question is how can we efficiently create an exchange where both parties can find one another?
A 90 minute kick-off meeting was not going to be the place for solutions. However, everyone agreed to do their share of homework to talk to private investors in other markets and to share this vision with other investors in Southwest Florida.
Within 45 days, this group will likely present an option or two at an upcoming SW Florida Real Estate Investors meeting. Maybe not an end all solution that helps everybody, but at least something to help some people.
If you or someone you know is either.....
1) Looking to earn a better return on their cash
2) Seeking financing for purchase of property
.....then I recommend that you respond to this post and make yourself known so that you can contribute to future discussions that take place and be a part of the solution!
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The new national highway connecting the Santo Domingo region and the north island near Samana Peninsula has eliminated 5-6 hour drive times down to under 3 hours. Not only are more European and Americans flocking here but even Dominicans are weekending in Samana given the ease of the drive.
The Samana Peninsula represents a GROUND FLOOR investment opportunity, unlike other destinations that are already overbuilt and overpriced.
We have three new projects working in the Dominican Republic.
Fractional Project: We still have 150K available in this project where we are buying new villas and reselling as fraction units. The projected cash on cash return over the next 12 months is two to one. The cost to get in is $4,400.00 per point.
Commercial Building: We have just gone under contract to purchase a new beachfront commercial building with tenants with 5 year leases in place. One of the tenants will be our Remax franchise which is relocating to this location. The cost of the building is 500K and we expect to hold for five years and then sell. Rental income after expenses will be distributed quarterly. We expect the building to generate some 400K in gross rental income over the next 5 years. At the current market run up we expect to sell the building in 5 years at around 1.2M. Cost to get in the LLC acquiring the commercial building is $5,000.00 per point.
Restaurant: We have just gone under contract to purchase an existing restaurant on the beach for $130 K. The business has existed for 5 years, has 8 years left on its lease, the seller who has managed the business is moving to France while his daughter, who has extensive restaurant experience in the DR is taking over the business. She will manage and be a partner of the LLC. Based upon current cash flow the business will return cash $480 K over the next 8 years after expenses. Cost to buy in the LLC acquiring the business is $1,500.00 per point.
These LCC's are good for self directed IRA's also.
Stop worrying about the stock market and our financial meltdown. Come have fun and make money on some of the most beautiful beaches in the world.
CNBC: Irresponsible Cult Thinking? Fear Factor: Is Your Retirement Plan Safe?
ALERT! You will soon be receiving an email from me which will ask you to simply click on a provided link in order to continue receiving the Mortgage by Randy newsletter. Our distribution is growing and the next issue will be sent via an improved emailing service. Thank you!
Financial markets continue to dominate national headlines as summer comes to an end. As autumn begins there is a lot of uncertainty and fear playing on minds of people who have 401ks and other retirement plans and investments. It is times like this when emotion, not common sense, drives behaviors of many bewildered people. There are a lot of advice givers on the airwaves and in print and in that light I wanted to share this experience with you:
I saw a television show on CNBC called "Dollar Dilemma". The show takes calls and emails from viewers about personal finance topics and a couple of "experts" provide solutions rapid-fire style. Think of it as Jim Kramer's Lightning Round but instead of stock picks, we're talking personal finance topics. I enjoy these shows because it allows me to a) validate strategies that I recommend to my clients and friends and b) identify conflicting or perilous information provided by the so-called "experts" hired by the show.
One question that was addressed involved whether a homebuyer should put about 80% down payment on their new home purchase or do something else with the money. To my surprise, the "expert" (who happens to work for a Wall St. investment company) said that it is a ""great time to buy the market" (note: this was BEFORE the market lost about 10% of its value the week of 9/15/08). Wait a minute.....rewind that....did he really say that? First of all, without looking at a person's overall financial picture (income, number of years until retirement, amount of retirement savings, risk tolerance, among others) it is simply irresponsible for anyone, no matter what their experience, to outright recommend (especially to millions of television viewers) that they should jump in to the market. How self-serving is that? No one knows if this is a "great time to buy the market". For some it is, and for others it isn't, but without facts, no one can say.
There is definitely some value in the information that a television show like this can offer. However, the viewers must not get caught up in the hype and do some thinking for themselves. The "experts" owe it to their viewers to provide responsible, unemotional advice.
The current newsletter and all prior newsletters are archived at our blog space mortgagebyrandy.spaces.live.com. Bookmark it and share with your friends and family. You can enter your own comments and feedback as well. Time for the news...
Mortgage Market: Cash Buyers Cashing In On Vacation Properties
Real estate sales in some markets, including right here at home in Lee County, are perking up. Although the average sale price is down, the number of units sold is on the rise. Since the mortgage market has not loosened up at all, how are people paying for these properties? One answer is cash. For example, in the coastal South Carolina area, the percentage of people financing with a mortgage has gone down from its peak at 82 percent (or 5,494 buyers) during the first half of 2006 to 73 percent (2,341 buyers) during the first half of 2008 (The Sun News, Jessica Foster, 8/7/08). One advantage of using cash is that people from other countries like Canada are taking advantage of the currency translation against the relatively weaker dollar. Also, cash buyers can negotiate better pricing with sellers since there's no uncertainty about qualifying for a mortgage and the closing can happen much sooner.
Personal Credit: Increasing and Protecting Your Credit Score Has NEVER Been More Important
In these ever changing financial markets, the value of a high credit score is going up, up, up. Lending standards are tougher than ever. People with credit scores above 720 are not experiencing too many issues when they apply for credit. However, tens of millions of Americans have credit scores below that threshold and it is vital that they take steps to improve their score, even by as little as 10 or 20 points.
There are multiple ways to approach this. First is the do-it-yourself method whereby you pull your own credit report, analyze every detail for possible inaccuracies and then mail dispute letters to the credit bureaus and stay on top of that paper pushing process. The other extreme is to hire a credit repair company to do a lot of this work for you. Prices range from the hundreds to the thousands of dollars and there are a number of untrustworthy companies out there that you have to be careful of. There is also a middle of the road approach where you sign-up for credit monitoring services through your bank, a credit bureau or even Costco and you receive emails every time something changes on your credit.
Personally, I promote the do-it-yourself approach and I coach my clients on how to effectively do this. This keeps precious money in their pocket. However, some people just do not want to be bothered and in that case I try to guide them to a reputable and cost-effective service based on what their personal needs are. No matter what your score, the key is to have a process in place to improve it and then protect it once you achieve the ultimate A+ credit rating. To get more information on any of these solutions or to have a personalized credit review and action plan created for you, just send an email to randy@mortgagebyrandy.com .
Economy & Financial Insights: Fear Factor Takes Hold
We are wrapping up a historically significant month in this country. The potential downfall of behemoths like Merrill Lynch, Lehman Brothers, Morgan Stanley, AIG, Goldman Sachs, Washington Mutual, among others is dominating the news (did you notice that the devastation in Texas has been relegated to an "also mention" on newscasts? What do these events and actions taken by our government really mean to you and I at the end of the day?
For those people who work at some of these companies (including some subscribers to this newsletter), these events are catastrophic as many jobs are lost during tough economic times and families strained.
For those of us watching these events from the sidelines, the impact will be less. First, some investments in our 401ks, 403bs or other retirement plans will take a hit. That hurts, but it is not the end of the world, especially if you have decades to go before retirement. There's plenty of up years ahead of us to make up for it. As taxpayers, the impact remains to be seen. A lot will be determined by who wins the White House. The fact remains though that the money we pay in taxes is being used in an attempt to stabilize the financial system and even sustain the life of certain companies (like AIG) that in theory would do more harm to us if it were allowed to fail.
Question of the Month: How Long Does It Take to Improve My Credit Score?
It only takes a few months to destroy your credit, but it takes much longer to rebuild a credit score. The answer to this month's question is "it depends". In fact, in some situations, I have advised my clients NOT to pay off a debt since it could cause more harm than good. Credit scoring is far from cut and dry. More than 1/3 of your credit score is based on your last 24 month payment history, with heavier statistical weighting given to the most recent 12 months. If your credit score is 600 and you pay off the remaining $7,000 of your auto loan or lease, do not expect an overnight jump in your score. First, some creditors take up to 2-3 months to report payment history to the credit bureaus. Second, if you had one or more 30 day delinquencies within the past 24 months that could hold your score down more than the payoff brings it up. Another 1/3 of your score is tied to your ratio of debt owed to available credit. If the $7,000 payoff on that car loan represented a small percentage of your overall debt load then the impact on your score will be compromised. Projecting the impact on your credit score by an individual action like a payoff can only be done in context of your overall credit profile. Contact me for a thorough analysis of your credit history (including all three of your credit scores) and a personalized action plan on how to maintain or rebuild your score.
Giving Back: Supporting our Communities
Most of us at some time or another receive phone calls from charitable organizations seeking pledges of donations. It is usually easy to pledge ten or twenty dollars just to get the person off the phone, but do you really know where your money is going? When someone calls saying they represent disadvantaged children or families of fallen law enforcement, it is hard to ignore the tugging at your heart strings.
Unfortunately, some of these organizations are not what they appear to be on the surface. For example, here in Lee County, police officers and deputies NEVER solicit for donations over the phone nor does the Sherriff's Office receive any funds from any other organization that that conducts phone solicitations. In fact, some of these non-profit organizations use 80% or more of your donation for administrative expenses like SALARIES! The best organizations are ones that use 10% or less of their funding for administrative purposes. In other words, 90% or more of your donation goes toward the programs to help the people. The next time you receive one these calls and you're not 100% certain about the organization, make no pledge, but ask them to mail you literature so you can research it further. A lot of times you can find valuable information doing a Google search and in some states, there is online information about the organization and how they spend the money they collect.
Supporting our communities through charitable donations is a duty we all have, but at the same time we want to protect ourselves and ensure our donations go to the purpose we intend. As the holidays approach, be careful!
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
As we endure the threats of peak hurricane season, we want to remind those of you in the line of fire to take a few minutes to place copies of your most important documents (insurance policies, deed to house, birth certificates, etc) in a "zip lock" storage bag in the event you need to evacuate. Plan ahead.
Randy
Mortgage by Randy newsletter, Copyright 2008 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
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Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy, accessible at mortgagebyrandy.spaces.live.com. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is founder of Estero, Florida based National Web Leads, LLC (www.nationalwebleads.com), an online lead generation service matching consumer finance lenders with customers. Through their network of partners, National Web Leads, LLC delivers bleeding edge Web 2.0 software solutions such as lead generation platforms and real time desktop widget and mobile reporting tools.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership (www.swfrtp.org) and Strategic Planning Director for The Michelle's Angels Foundation (www.michellesangels.com). He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
Randy Mitchelson
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