Cash Flow Coach

How Do I Get 4.5%?

Cornerstone Home Loans — Thu, 22 Jan 2009 16:18:49 -0600

The Treasury Secretary, Hank Paulson and the Federal Reserve Chairman, Ben Bernanke have decided that in order to get the housing market up and running again, they need to get (force) rates lower. Unfortunately, there's no switch to flip or magic incantation to speak, you have to somehow manipulate the supply and demand of mortgage backed securities. Well leave it to the brilliant minds on Wall Street to figure out how to do this. Watch the video for more...

Roth IRA: When's the Best Time to Start?

Cornerstone Home Loans — Thu, 21 Feb 2008 22:36:11 -0600

Roth IRA's

The best time to start or fund your Roth IRA is - NOW!

If you haven't started your Roth IRA, you should seriously consider opening an account ASAP! If you have a Roth IRA and haven't funded it yet for 2007, you still have time. Here's a good article on why you should have a Roth IRA.

The timing couldn't be better. For one, you can still fund your Roth for 2007 up until April 17th, your tax return deadline and then turn around and fund your 2008 contribution right afterwards in one lump sum or incrementally throughout the year.

For 2007, your max. contribution is $4,000 ($5,000 over age 50) and for 2008 the max. is $5,000 ($6,000 over age 50). If you're married, your spouse can also fund a Roth at the same amounts, even if that spouse doesn't have earned income, as long as you file a joint return.

If you're wondering where the money to fund your Roth will come from, consider investing your Tax rebate. If you're married and have 2 children, you could receive up to $1,800 depending on your Adjusted Gross Income. What's the value of that $1,800 over 20, 30, 40 years or more? Use this calculator to see (use 0% for the Federal & State taxes).

Not all Roth IRA's are created equal. The primary feature of a Roth IRA is that you can invest after tax dollars to grow tax free and to make withdrawals tax free. Before you set up an account, make sure you understand the internal fees for that Roth IRA. Some mutual funds inside your Roth have a lot of internal costs that will eat away at your rate of return. Warren Buffet recommends index funds for the non professional investor. Check with a qualified fee only advisor for the best account options.

If you have a son or daughter helping you in your business, help them understand the value of starting a Roth IRA as early as possible and the power of compounding. Their contribution can be equal to their annual earned income amount up to the maximum allowed. Try this on for size:

A 17 year old contributes $1,000 of earned income into their Roth IRA each year for 10 years and stops with a total contribution of $10,000. Assume a 10% rate of return. Here are some estimated results:

When they are 27, the value of the Roth would be $17,531
When they are 37, the value of the Roth would be $45,471
When they are 47, the value of the Roth would be $117,941
When they are 57, the value of the Roth would be $305,908
When they are 67, the value of the Roth would be $793,448
When they are 77, the value of the Roth would be $2,057,999

Remember, this is tax free income (as the law now stands) after 59 1/2. Start young and let the power of compounding work for you.

Self Directed IRA's

On another note, did you know you can buy and sell real estate through a Self Directed IRA? Why would you want to do this, you ask? What if you could pick up an REO property at discount, fix it and flip it or lease it and sell it later at a profit. That profit is not taxable.

This is a very simplified example, so you should definitely talk to someone in the know. A good company to get more information from is The Entrust Group.

If you don't have enough money in your Self Directed IRA to purchase a property alone, consider partnering with one or more trusted associates and buy a property. You know there's a lot of good deals out there.

As always, consult with a qualified CPA and Financial Advisor to determine how to set this all up to best meet your short and long term goals, but start now!

The Cashflow Coach

Mortgage Lender & Coach
Providing a full range of mortgage services.
Subscribe to my blog to stay updated on new articles.
Now offering a full range of Investment Planning services

RSS Dashboard

Cornerstone Home Loans — Wed, 20 Feb 2008 21:21:01 -0600

I'm hoping that I'm not the last one to know this and that this post will be valuable to a lot of my readers.

Most of you know what an RSS feed is and how important it is in getting people to subscribe to your blog. Have you ever wished there was an easy way to aggregate all of the different feeds that you subscribe to versus checking your email inbox throughout the day?

I know I did and the answer I found was................NETVIBES.

If you're not familiar with Netvibes, it is one of the coolest web aggregators I have ever found (which is not saying much) without the ads. That's quite a combination - Free and without ads, who would've thought?

It is a free site, you just need to register with a login and password. Once you do that, you can start customizing the page to display any and all of your RSS feeds along with a number of other widgets, including a Bookmark section where you can store all of your favorite websites. The advantage of storing your favorite websites in this bookmark widget versus your PC's web browser is that your bookmarks will be available from any computer with Internet access by logging into your Netvibes account.

Here's a quick blurb on the benefits of Netvibes:

Helps you manage your digital life and share it with your friends
Brings all your favorite MySpace, Digg, YouTube, Gmail, Flickr, eBay, del.icio.us accounts - you name it (no, really, you can rename our entire site) - together on your own personal Netvibes page
Share with your friends or colleague your favorite modules
100% customizable - no ads, no logos, no corporate control

After you have your Netvibes account set up, you can make it your default home page and voila!, whenever you open up your web browser, you'll get a "dashboard" look of all of your favorite feeds on one page. This has been a great time saver because I can look at all of the titles and decide which one I want to read and which ones I'll wait to read until later.

Hope this website is as useful to you as it has been for me, hopefully, I'm not the last one to learn about it.

The Cashflow Coach

What's a Penny Worth?

Cornerstone Home Loans — Tue, 19 Feb 2008 08:29:53 -0600

One Penny = $632,500 or 1 + 1 = $1,265,000

How do you like that math? That's how much a collector won at an auction last Friday in Texas. The total amount gained from the auction? $10.7 million dollars. I think most investors would consider that an infinite rate of return.

Makes you want to look through your loose change to see if there's a penny that's worth more than face value, or maybe not.

To learn more about this story, click here.

The Cashflow Coach

Median Home Prices Decline - The Positive Perspective

Cornerstone Home Loans — Fri, 15 Feb 2008 10:18:04 -0600

"WORST IN NATION: AREA HOME SALE PRICES PLUMMET IN 4^TH QUARTER" (from the Lansing State Journal, 2/15/08)

This was on the front page of our local paper. Why do the news makers report the most outrageous stats? It's probably because "Shock and Awe" sells papers.

A more accurate line would be:

"Lansing, like almost every other city in the nation, sees declines in real estate values and reduction in numbers of sales in the 4th quarter. On the whole, Lansing is not down all that much when you really analyze what's really happening."

My headline is more accurate, I doubt if anyone at the Journal would print it though. Here's the actual report sorted by largest decline from the National Association of REALTORS®. Note the "p" next to the "2007 IV" column heading and you'll see that these are preliminary numbers not the final numbers.

So what is really happening:

1. Median just means the middle. So if 5 homes sold today, one for $300,000, another for $350,000 another for $109,000 another for $105,000 and the last one for $108,000, then the median would be 109,000. Because it's the one in the middle of the others.

2. Don't confuse median with average. The average sale price in the above set of numbers would be $194,400 (add the sale prices together and divide by 5).

a. The average home price in the Lansing area in December of 2007 (from Michigan Association of REALTORS®) was $141,022. Only a -5.79% drop for the year and a -2.18% drop from the 3rd quarter, 2007 average.

b. Lansing is as we have been saying for 15 years a very stable, boring market (think of the tortoise not the hare); just like you want real estate markets to be. We did not see home sale prices double in the last 5 years and we wont see them cut in half either.

3. Don't confuse appraised value with market value. Over the last 5 years or so, home owners were going to their mortgage lenders every two years or so and reducing their interest rates. Every time, their home value seemed to go up. Remember, the value has not increased until you sell it.

4. Year to date, I am still finding that the appraised value of my client's homes are at or around their 2002 - 2004 appraised values and more often than not, still at or around the SEV x 2.

So,

1. If you don't need to sell your home, don't. Rent it or keep it for a while, but if you don't need to sell it - Don't. One less house on the MLS will keep values higher.

2. There are some great deals out there as banks own more and more homes. Consider buying one, fixing it up and renting it to a family in need for a very fair rent. It will get a house off the market, improve a neighborhood, help a family and you will almost certainly do well financially.

3. Join the Cornerstone Home Loans Supply and Demand team. We have set a goal to help our clients and Realtors to sell 300 homes in the Lansing area. These are both REO and non-REO homes. We will track the sales and keep you updated. Read our previous post on why this is important for the Lansing area.

4. Subscribe to our Blog to stay current on the real estate market - take advantage of this. Get the facts before you start getting down or making misinformed decisions. If you want a more fair perspective - keep reading our blog.

The Cashflow Coach

Mortgage Lender & Coach
Providing a full range of mortgage services.
Subscribe to my blog to stay updated on new articles.
Now offering a full range of Investment Planning services

FHA vs. Conventional Loans

Cornerstone Home Loans — Thu, 14 Feb 2008 12:41:00 -0600

The FHA has been in the news a lot lately. More recently because of the pending conforming loan limit changes. Just a word on that, especially those of you in Michigan - don't expect much if any change in our conforming loan limits.

The calculation is based on 1.25% of the median home values. Which means for Michigan homeowners our calculation will be based on a average value of $141,000 x 1.25% = $176,250. This is well under the current conforming limit of $417,000 and on top of that, we are not considered a high cost living area. So if you have a jumbo loan (loan amount greater than $417,000) I would not plan on refinancing for the sake of refinancing.

Why will FHA loans be the most used in 2008 by lenders who are working in the interest of their home buyer clients?

Interest rates are consistently lower than conventional loans by 1/8% to 1/4%
FHA Mortgage Insurance Premium rates are lower than conventional PMI rates with similar down payments and are tax deductible like interest.
PMI is now deductible, if you itemize on your tax return (please consult a tax professional). This makes the effective cost of this loan in a lot of cases less than a comparable conventional loan.
The minimum down payment is 3%. In some cases, subject to appraisal and seller approval) the seller can even gift this amount. Seller are still able to pay all of buyers' closing costs usually around 3 or 4% (can pay up to 6%).
Even though conventional loans can approve borrowers for $0 down based on underwriting, Fannie Mae is tagging many neighborhoods as declining value areas and requiring 5 to 10% down payment minimums for many borrowers. Some lenders are no longer doing $0 down loans at all in Michigan. Within the last week a few of our lenders no longer offering conventional 0% down loans the minimum down payment on purchases will be 10%.
Credit scores are allowed to be less than conventional loans (often a 600 score is all that is needed to be approved).
Loan limits are around $200,000 with no maximum income requirements.
It is a great option for someone who has and ARM loan adjusting and has a stagnant appraised value. FHA is more easily able to combine first and second mortgages with fixed rates and reduce the total mortgage payment.
FHA underwriting still allows for deferred student loans to be ignored in debt to income ratios for approvals.
FHA loans are automated and documentation requirements are streamlined. Many agents who have in the past worked with higher sale priced homes, and have not dealt with FHA for a few years, you will be surprised at how much easier they are now.
Can finance doublewide manufactured homes with little money down.

I have been in the lending business for almost 15 years. In the last 7 years, because conventional loans made lending possible for many more home buyers without the upfront PMI, my clients closed very few FHA loans. Since January 1, 2008, however, I have originated more than 15 FHA loans and will close most of those this quarter. I am excited about how easy, inexpensive to the borrower and flexible they are.

If like me, you have not used them, reconsider them for your home sales. If you have been using them consistently over the last few years, keep using them. They are becoming a first option for competitive lenders in serving their clients.

A couple of additional considerations:

The home still needs to pass inspection - FHA will be more lenient on this in 2008 than before but it should still be considered. You will begin to see more FHA 203k (home improvement) loans offered. These loans do add expense and time to processing. Combining a construction loan program to a government loan program will be more cumbersome.
FHA still charges an UFMIP (up front mortgage insurance premium). This is 1.5% of the loan amount ($2,250 on a $150,000 loan) and is added to the loan amount at closing. Remember, this can be refunded in part within seven years if the loan is paid off during that time. First time homebuyers will usually get some of this money back when they sell their home.

The Cashflow Coach

Mortgage Lender & Coach
Providing a full range of mortgage services.
Subscribe to my blog to stay updated on new articles.
Now offering a full range of Investment Planning services

Tax Time Help

Cornerstone Home Loans — Fri, 08 Feb 2008 10:59:38 -0600

2007 Taxes

For those of you who like to get their taxes done right away, make sure you're aware of some delays the IRS is having due to some late changes in the tax code. For the rest of us that wait til the last minute to file or choose to file an extension, we won't have to worry about some of the delays. For a really good article on the changes, read this Marketwatch article by Andrea Coombes...

Here is a summary of some of the main changes to the Tax Laws in 2007:

Alternative Minimum Tax (AMT):

Congress passed a "patch" to keep income limits in line with the non-AMT income thresholds. This should help some of you who may have fallen into the AMT last year. Because the changes to the AMT didn't happen until 12/19/07, the IRS is still updating the necessary forms and therefore must wait until after 2/10/08 to file.

Homeowner Benefits:

Deductibility of private mortgage insurance (PMI)
Mortgage Forgiveness Debt Relief

Form 1040 Changes:

addition of deductions for higher education tuition and teacher's expenses (you'll need the New Form 8917)

Stricter Giving Rules:

you now need a receipt (for your records) for all contributions made by with cash, even if it's under $250.
Clothing & household items need to be in "good" or better condition to qualify as a deduction. Consider taking a picture of the item to have in your file in case the IRS wants verification during an audit.
If you donated a car or anything over $5,000, you need a qualified appraisal.

More Perks for Higher Income Earners:

Allowable itemized deductions were reduced for AGI's above $145,950 by 3%. That 3% has been lowered to 2% for 2006 & 2007. This will be reduced again to 1% in 2008 and zero in 2010.
So if your AGI is above $145,950, you'll be able to claim more of your deductions.

Some good habits to develop to maximize your tax deductions:

Keep a notebook or journal in your car and Track your actual mileage (date, beginning miles, ending miles, who met with)
Keep an envelope handy to store your receipts for office supplies, meals with clients, and other business related expenses.
work with a qualified CPA to maximize your deductions and better yet, so you can plan ahead and are prepared for changes in the tax code.

This post is meant to provide a quick snapshop of some of the tax changes. Please consult with a qualified tax professional and/or CPA to gain a better understanding of how these changes effect you.

the Cashflow Coach

Foreclosure: What To Do If You are Facing It

Cornerstone Home Loans — Tue, 05 Feb 2008 10:20:38 -0600

There is a lot of misinformation and frustration in the foreclosure process. I hope the following information and links will help you better understand what is happening to you and how you can better communicate to your lender.

"Foreclosure is a legal process by which a bank, mortgage company or other creditor takes a homeowner's property in order to satisfy a debt. The foreclosure is the result of non-payment of the mortgage (including second mortgages and home equity loans); however, people also lose their homes due to unpaid property taxes. As a result of the foreclosure (at the end of the redemption period), the homeowner loses the rights he or she had to the property."

Communication with your Lender as early as possible will be helpful. The following information can be found at the Federal Trade Commission...

Contacting Your Loan Servicer

Before you have any conversation with your loan servicer, prepare. Record your income and expenses, and calculate the equity in your home. To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan. Then, write down the answers to the following questions:

What happened to make you miss your mortgage payment(s)? Do you have any documents to back up your explanation for falling behind? How have you tried to resolve the problem?
Is your problem temporary, long-term, or permanent? What changes in your situation do you see in the short term, and in the long term? What other financial issues may be stopping you from getting back on track with your mortgage?
What would you like to see happen? Do you want to keep the home? What type of payment arrangement would be feasible for you?

Throughout the foreclosure prevention process:

Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome.
Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, "return receipt requested," so you can document what the servicer received. Keep copies of your letter and any enclosures.
Meet all deadlines the servicer gives you.
Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional "workout" assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current.

If you reside in Michigan, then here is a simple outline of what to expect. Thanks to Ethan Dozeman for this information from his post.

The 6 Stages of Foreclosure:

Stage 1: 30 to 90 Days delinquent on mortgage payments.

The Lender reports late payments to the Credit Bureaus (TransUnion, Equifax, & Experian.) The Lender notifies the borrower by mail and by phone to encourage them to catch up on past due payments.

Stage 2: 90 to 150 days delinquent on mortgage payments.

The Lender sends the file to foreclosure attorney. Foreclosure proceedings begin. Must bring mortgage completely current to stop foreclosure, no partial payments accepted.

Stage 3: 5 weeks of advertising a Sherriff's sale.

Lender must advertise property sale to pay off the mortgage balance for 5 weeks. The sale must be advertised in prominent newspapers.

Stage 4: Sheriff's Sale

Property sale is held at the county courthouse. The winning bidder is usually the lender who bids the amount of their debt. Lender becomes owner subject to the rights of the borrower to redeem the property.

Stage 5: 6 month to 12 month redemption period

The borrower has 6 or 12 months to redeem the property by paying the lender in full. 6 month redemption period if the property is less than 3 acres. 12 month redemption if the property is more than 3 acres. 1 month redemption for an abandoned property.

Stage 6: Redemption period expires and the Lender controls property

Lender (or highest bidder from Sherriff's sale) now owns the property free and clear of any junior lien. Lender can now consider offers on the property. Borrower is evicted from the dwelling.

Understanding the Short Sale

An alternative to foreclosure is the short sale. This is the process of negotiating with the Lender to accept a lower price on the property than what you owe.

Why would the Lender accept less than what you owe on the property? In some instances, they would accept less than what you owe if they believe that they will take a bigger loss by foreclosing (legal fees and lower bids at auction).

For more information about the Short Sale, go to E Z Home Ownership Realty, LLC

Be Wary Of Scams:

Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far away from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:

The foreclosure prevention specialist: The "specialist" really is a phony counselor who charges outrageous fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.
The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the "rescuer" walks off with most or all of the equity.
The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don't know they've been scammed until they get an eviction notice.

the Cashflow Coach

Lansing (Re) Development - Positive Changes

Cornerstone Home Loans — Thu, 31 Jan 2008 20:39:50 -0600

Have you been to downtown Lansing recently?

In the midst of growing foreclosures & higher unemployment around the state, Lansing is in the middle of major changes to it's skyline. Last night, Mayor Virg Benero outlined some new tax incentives to homeowners and investors for home improvements. (read the text of his State of the City here)

This proposal will offer a 50% break on the increased taxes resulting from qualified improvements to your primary residence or improvements to an old, abandoned house to an owner-occupied home. More details will follow when the plan is worked out by the mayor.

But, even more exciting is the number of new housing & retail developments that are going on downtown. Here is a brief list of the projects:

Stadium Lofts:

In the heart of the new Stadium District, across the street from Oldsmobile Park
Mixed commercial (1st floor) and residential
Opening Spring of 2008
Designated as a Neighborhood Enterprise Zone (NEZ)
Received designation as one of 23 "Cool Cities" by the State of Michigan

Capitol Club Tower:

Start Construction in Spring 2008
20 story high rise condominiums
Will become the 2nd tallest building in downtown Lansing
Downtown river frontage
Private balconies
Tax-Free Living (no property tax, no city income tax, not state income tax plus 1.5% interest rate reduction)
Fine dining & health facilities

Kalamazoo Street Gateway Center:

LEED Certified
Energy Efficient
Green Roof
Retail & Residential
32 one and two bedroom apartments
10 Condos
Near the River Trail
Near the Stadium District

Ballpark North:

Overlooks left field at the Lugnuts stadium
138,000 sq. ft. of commercial and residential space
Covered and surface parking
6 stories of Condos and apartments

City Market Renovations:

3 acre site along the Grand River facing the new Accident Fund Building World headquarters
140,000 Sq. Ft. of buildings
2 four story residential buildings with a total of 90 to 120 mixed condos and apartments
10,000 sq. ft. riverfront restaurant

Motor Wheel Lofts:

LEED Certified
Still some available units
119 loft style condos
15 different floor plans ranging from 590 to 3,000 sq. ft.
Underground parking
Exercise Room
More info

The Arbaugh:

Corner of Washington & Kalamazoo
Near Cooley Law School
48 residential apartment units
20,000 sq. ft. of commercial space
High ceilings
Underground parking
Washer & Dryer in unit
More Info

View Larger Map

Photos and sources of information from the City Pulse, the Gillespie group.

All of this development and new construction will bring some short term construction jobs but more importantly will attract more companies to look at downtown Lansing for growth and partnership. The Lansing Business Monthly has some really good articles on the developments, click here for more...

the Cashflow Coach

The Federal Reserve Cuts Rates .50% And leaves the door open for more cuts if necessary

Cornerstone Home Loans — Wed, 30 Jan 2008 15:03:40 -0600

The Fed met yesterday and today to discuss inflation and the economy. They decided to cut the Fed Funds rate (FFR) by .50% to stimulate a slowing economy. There's a lot of debate as to whether we're in a recession or not. Some pundits say that if the Fed starts to talk about a potential recession that usually means we are in one.

What does this mean for interest rates?

For short-term interest rates and rates based on the Prime index, your rates will be declining. The Prime rate is simply the fed funds rate plus a margin of 3%, currently at 6%. Most home equity lines and some credit cards are based on the prime rate.

Other short term indexes like the 1 month, 3 month & 6 month LIBOR rates will also likely decrease. The decrease may not necessarily be by the same .50% FFR reduction and not as quickly. The 1 month LIBOR typically follows the FFR over time.

For long-term interest rates like the 15 yr. and the 30 yr. fixed rates, these rates will most likely be increasing. The last four rate cuts resulted in higher fixed rates in the subsequent days and weeks. For more information on why this happens read my previous post on Fed Rate cuts.

If Goldman Sachs' predictions are correct, then we may see a few more cuts from the Fed to stimulate the economy even more.

Interest rates may rise or they may decline, there are so many factors that go into the supply and demand for long term bonds. Make sure you're ready for the next interest rate decline. Stay up to date by subscribing to my blog.

The Cashflow Coach

FED Rate Cuts: How Low Can They Go? part II

Cornerstone Home Loans — Wed, 23 Jan 2008 08:41:59 -0600

After yesterday's emergency .75% rate cut by the Federal Open Market Committee (FOMC), I have received numerous calls and questions as to how low will the FED go and how low will Fixed Rates go? If you read my previous post on the FED Rate Cuts, you know that the two rates don't always move in the same direction, in fact they more often than not, move in opposite directions.

The FED has tried to be as transparent as possible, especially under the leadership of Ben Bernanke. The goal of transparency is to limit "surprises" in what the FED does and says. In some ways the Fed has met this objective by releasing their notes from their scheduled meetings on a timely basis. The challenge arises when the voting members don't agree with each other on policy.

If you want to learn how to guage the direction of interest rates, here are some basic guidelines that I learned from Jim McMahan, a Mortgage Broker in Texas. These are some guidelines that the FED tends to follow:

1. The FED's goal is to keep Core Inflation (C.I.) at 3% or less. (the PCE is currently at 2.16%)

2. Everytime we've had a recession, the FED has taken the Real Interest rate to a negative number in order to stimulate growth:

Real Interest (R.I.) rate = Federal Funds Rate (F.F.R.) - Core Inflation (C.I.)

(1.34% = 3.5% - 2.16%)

3. Real Interest rates have never increased 8 quarters in a row unless inflation (C.I.) was present at 4.5% or greater.

4. Mortgage Rates in the U.S. have been at or below 7.5%, 85% of the time in the last 80 years.

5. Mortgage rates tend to gravitate towards Core Inflation (C.I.) + 3.5% (2.16% + 3.5% = 5.66%)

If the FED continues to follow these guidelines, we could see fixed rates in the 5.6% range.

Cashflow Coach

FED Rate Cuts: How Low Can They Go?

Cornerstone Home Loans — Tue, 15 Jan 2008 13:42:08 -0600

Will Fed Rate Cuts Equal Lower 30 yr. Fixed Rates?

The Federal Reserve will be meeting on Jan. 29^th & 30^th to discuss the state of our economy. Will they cut rates and if yes by how much? Will the rate cuts lead to decreasing or increasing mortgage rates?

There's a lot of confusion about the Fed Funds Rate (FFR) and the typical 30 yr. fixed rate. Do these rates move in the same direction or are they inversely related?

First, let me provide a simplistic definition. The Fed Funds Rate is the rate the Federal Reserve charges other banks for overnight deposits. It is also the rate the Fed uses to control inflation. If inflation starts to rise above the 1% - 2% "neutral" zone, the Fed will usually increase the Fed Funds rate to slow down the economy. If inflation starts to decrease below the 2% level then the Fed will usually start to cut the FFR stimulate the economy.

A Fannie Mae 30 year fixed rate mortgage is actually a bond, also known as a Mortgage Backed Security (MBS). If you are a bond holder (investor), the worst thing for your bond investment is inflation. If inflation is rising, then the value of your bond (30 yr. Fixed rate) is declining, so as an investor you would require a higher rate of return to compensate for the inflation. Here's an example to help you understand.

Bond Holder/Investor: willing to lend $100,000 to a home owner for 30 yrs. expecting a rate of return (interest) of 6% because inflation today is only 3%.

Borrower/homeowner A: willing to finance the home purchase with a loan of $100,000 for 30 yrs. at 6% interest rate.

Let's say a month from now, inflation jumps to 5% from 3%.

The Bond Holder/Investor is still willing to lend $100,000 for 30 yrs. to borrower/homeowner B but because inflation is 2% higher, the investor will charge 7.5% or 8% to compensate for the loss of value of what that note will be worth in 30 yrs.

This is a simplified example, but the point is that normally when the Federal Reserve decreases the FFR, they are trying to stimulate economic growth which means that inflation will eventually start to rise. The 30 yr. fixed rates will start to rise as inflation starts to rise with the economy.

This is not always the case and we are seeing the exception in today's interest rates. The last few FFR cuts led to declining 30yr. rates and part of the reason is that we may be heading into a mild recession. There's an interesting article from Goldman Sachs anticipating that we will have a recession in 2008 and that the Fed Funds Rate will be cut to 2.5% by the third quarter from 4.25% that we are at today.

If this comes to pass and the FFR rate is reduced to 2.5%, we will most likely see 30 yr. fixed rates in the 5% range.

A number of analysts are expecting a .50% rate cut at the Jan. 30^th meeting. This will reduce your Prime based interest rates like your home equity line and some credit cards. The Prime rate is just the FFR plus 3%.

Stay posted, because I believe that 30 yr. rates will continue it's trend down and should help homeowners qualify for an inexpensive mortgage to take advantage of the tremendous real estate bargains. Let's help move inventory off the market and get our home values back on the rise.

Cashflow Coach

Forgiven Mortgage No Longer Taxable

Cornerstone Home Loans — Tue, 08 Jan 2008 15:32:15 -0600

The President signed into law a new measure that would eliminate the tax burden on forgiven mortgage debt (read more). With the rise in short sales and foreclosures across the country, many homeowners were responsible to pay tax on any and all of the mortgage balance that wasn't paid or forgiven. A lot of the time, the homeowner didn't know about this until tax time.

For those of you not familiar with this, let me explain.

If your loan balance is $175,000 and you either negotiate a short sale or end up in foreclosure, the difference between what you owe and what the bank receives is a deficiency. Let's say the bank only receives $150,000 from the sale or auction, your deficiency would be $175,000 - $150,000 = $25,000. The bank could send you a deficiency note where you would be responsible for repaying the $25,000 or they could forgive the deficiency and not make you repay it.

If they forgive the $25,000 they would report to the IRS that they did so and then send you a 1099-C at the end of the year.

Cancellation of debt may not always be taxable. There are some exceptions like bankruptcy, insolvency, certain farm debts and non-recourse loans. PLEASE consult with your CPA or professional tax advisor regarding your situation. For more information, check out this IRS publication.

The Cashflow Coach

The Key to Rising Home Prices

Cornerstone Home Loans — Tue, 08 Jan 2008 15:30:02 -0600

Higher Demand or Lower Supplies = Increased Prices

It's a basic economic principle that when supply increases, prices come down.

And, when supply decreases, demand can rise and prices will rise with demand. (a good resource is Basic Economics, by Thomas Sowell)

As Banks take over more and more properties in Mid-Michigan they will seek to sell them as fast as they can at what ever price they can get. This increased supply with low demand has slowed our current housing market. It will continue to slow down, until we see one of two things happen: Either demand rises (job creation - an inflow of residents) or supply decreases (homes are purchased quickly and taken off the market).

In 2008, one of our Goals at Cornerstone Home Loans is to assist our clients, Real Estate Agents and banks to take 300 REO homes off the market. Our upcoming seminar has 15 minutes devoted to how to get this done with great profit to those who participate. If you are interested in learning about how you can be a part of this effort, join us on the 17th and then schedule time to meet with Evan Vanderwey- he will assist you in determining how you can increase your net worth in this opportunity market.

What is an REO home?

REO stands for "Real Estate Owned". For a bank to have Real Estate Owned means that they took over property, mostly due to the fact that these days they are foreclosing on more properties. Banks never want to hold real estate, they always unload it and because they are generally publicly traded companies, they would like to get most of that done in the calendar year of 2008 so they have a clean 2009. What does this mean for you? There will be more REO's on the market that Banks wand to unload in the next 12 to 18 months than ever before in Michigan.

What kind of impact can 300 homes off the market have in our area?

When ever you decrease supply of anything, the prices rise. So any little bit helps. In Michigan, if we can reduce REO the volume by 10%, then we will increase values.

The best part is that you don't have to do this without profit to you. You can do better by doing good. After all, we live in the best free market in the world. Be a part of it.

Cashflow Coach

Cornerstone Home Loans

If you're interested in attending our Seminar, here is more information:

Dates: 1/17/08, 2/21/08 & 3/25/08

Time: 4:00pm to 6:00pm

Location: Kellogg Hotel & Conference Center (Centennial Room B & C) 55 South Harrison Rd., East Lansing, MI 48824

To Register online click here or call Karen at 888-999-9590

PMI Tax Deductibility Extended to 2010

Cornerstone Home Loans — Fri, 21 Dec 2007 10:21:26 -0600

Earlier this year, congress passed H.R. 6111, the Tax Relief and Health Care Act of 2006 to allow homeowners who purchased or refinanced a home in 2007 to deduct the private mortgage insurance (PMI) premiums that they pay in their loan payments. PMI is required when a borrower puts less than 20% down on a home or has a loan amount greater than 80% of the home value.

Initially this provision would only apply to homes purchased or refinanced in 2007 and was set to expire on 12/31/2007. Congress passed new legislation that will extend this deduction to loans closed in 2007 through 2010.

Here are some of the requirements

Households whose adjusted gross income is $100,000 or less can deduct 100% of their MI premiums. (The deduction is reduced by 10% for each additional $1,000 of adjusted gross income, phasing out after $109,000.)
The deduction applies to "qualified residences," as defined in the Internal Revenue Code. Generally, that includes the borrower's primary residence and a non-rental second home. Investor properties are not eligible.
Read more....

Borrowers should consult with a professional tax advisor for details about MI tax deductibility.

From the Cashflow Coach

The FEDs Cut Rates Again

Cornerstone Home Loans — Tue, 11 Dec 2007 16:00:01 -0600

Will It Help?
The Fed met today to discuss monetary policy and voted to cut it's federal funds rate from 4.5% to 4.25%. The Fed has shifted its focus from fighting inflation to preventing a recession. There's an interesting article in this week's Business Week that questions how much influence the Fed's policy has in this cause. Cutting rates to slow economic growth and tame inflation seems to be an easier objective than stimulating growth. Please keep in mind that this cut will most likely reduce the interest rate on your Home Equity line and prime based credit card(s). Normally a cut like this would cause interest rates to increase in the short term but it appears that fixed interest rates will continue their trend down. If you have not had your annual review with us, please call to schedule it. This has become such a valuable resource to so many clients. You can schedule a phone call or come in and meet in person, either way, it will be tremendously valuable to you.

Cashflow Coach Blog
If you would like to stay updated with current events and financial planning related content, check out our blog. We will be updating this on a regular basis. If you have specific questions or want further clarification about the topic being discussed, please leave us a comment on the blog site. You can even subscribe to our blog by signing up for our RSS feed. Stay tune for more exciting content.

The Cashflow Coach

Michigan: Guilt by Association

Cornerstone Home Loans — Fri, 07 Dec 2007 12:31:53 -0600

As a mortgage broker in the Lansing area for 14 years, I've seen the real estate industry go through various cycles along with the mortgage industry. Yes, I understand that the housing market across the country as a whole does not look very positive but we need to be careful to not generalize the negative aspects of this downturn to every state and county.

A prime example of this is here in the Great Lakes State of Michigan. Lately it seems like we're getting more press than Britney & Paris combined. An issue I'm dealing with on a regular basis is trying to convince the banks that I broker through that Mid-Michigan is not in the same boat as the rest of the state. We are not guilty by association.

Michigan's statewide unemployment rate as of Oct. 07 is 7.7% compared to the national average of 4.7%. But when you look at Michigan's unemployment numbers, you'll find that for the same time period, the Detroit Metro area was at 9.2%, Flint was at 8.1%, Grand Rapids was at 5.8% and the Lansing area was at 5.4%. (source: U.S. BLS) This has been a long term trend in this state.

What we have found to be true around the country is that there is a correlation between jobs and home values. Yes, we have experienced a downturn in home values in the Lansing area but not to the degree or severity that other parts of the state and country have. What do we attribute to that?

Business Expansion and Jobs

Lansing has benefitted from a diverse economy consisting of Government (state and local), Manufacturing (GM and its suppliers), Education (MSU, Cooley, LCC and more), Financial Services (Jackson National & Auto Owners) and Health Care (Sparrow and Ingham Hospitals). (Source: Lansing Chamber of Commerce)

More importantly, small businesses that work directly with or benefit indirectly from these industries continue to grow. Did you know that more than 58% of all the Lansing area businesses have less 5 employees?

An example of businesses that are expanding in the Lansing area is the Grand Traverse Pie Company. This company just recently opened a new location in East Lansing and plans on using this location as their franchise training center. For more information about this company click here.

Here's another article on business expansion in the Lansing suburb of Charlotte.

One of the advantages of not having double digit housing growth prior to this credit bubble bursting is that our declines are not as severe as other parts of the country. There are a lot of homes on the market which means there are a lot of great bargains if you're ready to take advantage of it.

If you would like to take advantage of these bargains but don't know how you'll swing it financially or don't know what you would qualify for. Contact me to schedule a Cashflow Optimization Analysis. You may be surprised by what you could do.

You have a choice in how you approach our current economy and housing situation. You can choose to live in fear with a scarcity mind set or you can choose to live with an abundance mentality.

Either way, you can be assured that you are not guilty by association. Lansing is a great place to grow your business.

The Cashflow Coach

Using Technology to Accelerate Your Business

Cornerstone Home Loans — Fri, 30 Nov 2007 14:49:11 -0600

Technology can cause giddyness in some people, like an 8 year old waiting to open presents on Christmas morning or it can cause paralysis of analysis because you don't know where to start. It can be a tool that helps you maintain some efficiency throughout your day or it can be a time waster. In any case, it's important to remember that technology in and of itself is not good or bad, in fact it's amoral. It is a tool. How we use it determines if it's good technology or not.

One of my favorite business books is Good to Great by Jim Collins. In his book, he has a chapter on Technology and interestingly enough, the research team for the book "ferociously debated whether this topic merited its own chapter." (Good to Great, pg. 159) The point of the chapter is not about technology itself because "no technology... can [make a] good company great...can make you Level 5...can turn the wrong people into the right people...can instill the discipline to confront the brutal facts of reality nor can it instill unwavering faith." (Ibid, pg. 161)

You first need to know your Hedgehog Concept, which is the intersection of 3 circles. The 3 circles are: 1. What are you deeply passionate about? 2. What can you be the best in the world at? and 3. What drives your economic engine? According to Collins, "a Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at." (Ibid, pg. 98)

Once you understand what your Hedgehog Concept is, then you can ask the question, "Does the technology [you're considering to implement] fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology." (emphasis mine, Ibid, pg. 162) "The good-to-great companies used technology as an accelerator of momentum, not a creator of it." (Ibid, pg. 162)

What does all of this mean to you as a sales professional or business owner? It means that you first need to know what is it that you can be the best at and then find the technology to help you do more of "that." Before you go out and spend your commission check on the next greatest mobile phone, the latest and greatest software or spend time on your website or blog, you need to know what are you most passionate about, can you become the best at it and will you be _____ (fairly, highly or overly - you decide) compensated for it?

When you have an answer to that, then technology can become the accelerator and create momentum to accomplish more.

The Cashflow Coach

What is a Builder Trade?

Cornerstone Home Loans — Thu, 29 Nov 2007 20:25:15 -0600

Stop me if you've heard this one before, the foreclosures continue to rise, home sale prices are declining, home inventories are rising, shall I go on? I know all of this negativity can depress even the most optimistic person if you let it. I would like to suggest a way to take advantage of all of these negatives and profit from it.

I recently did a talk for our local Home Builders Association, GLHBA. The topic was how to be creative in this current market. I talked about Builder trades and how they worked and why a builder should really look at this more seriously. Not only can a builder maintain their sales price in their neighborhood but can actually profit from a trade depending on how long he can hold the trade.

Here's a link to my post...

The Cashflow Coach

Michigan: Top 5 in Foreclosures & One of the Best Real Estate Opportunities

Cornerstone Home Loans — Tue, 20 Nov 2007 20:49:03 -0600

If you spend any time listening to the various news outlets, it is very easy to become less than positive about Michigan; the slowing economy, declining home values, rising unemployment, etc. I want to share with you in Paul Harvey's famous words, "the rest of the story."

One of the keys to having perspective today is by looking back in history. Probably the closest similarity to what we are going through is the Houston, Texas market in the mid to late 1980's, click here to read more. The similarities between Texas & Michigan are strikingly familiar.

1. Texas' primary industry then was its Oil production, here in Michigan it's Auto manufacturing.

2. The Savings & Loan crisis of the 80's is similar to what is happening in the Sub-prime mortgage market although not quite to the same dollar volume, at least not yet.

3. Texas was in a recession then, and Michigan is currently the only state with a negative GDP.

What made the Texas time period worse than Michigan now was the passing of a few tax laws making tax credits available to investors which prompted huge over building and over supply of residential and commercial construction. We have not seen the same over building, especially in Lansing. For Texas, this led to a longer recovery time for housing values and inventories than we will need to prepare for.

Now for the rest of the story-- Michigan for many reasons will remain in the top 10 for foreclosed single family homes in the next 12 to 18 months - maybe a little bit longer than that. This fact will produce two main realities for us.

1. We will have many opportunities to buy homes from banks at very low prices.

2. There will be an increasing number of families and individuals in our market that need a place to live and cannot get an affordable mortgage due to lower credit scores and tightening lending standards.

Add these two things together and you are at the cross roads of opportunity - if you're prepared. It's been said that Luck is where opportunity and preparedness meet. This is a great time to add real estate to your portfolio, whether you buy and hold the property for 2 to 5 years or flip it, now is the perfect time to buy - prices are low.

We are helping clients evaluate whether this strategy makes sense - it's not for everyone. By doing a cashflow analysis, we can help quantify the numbers in your scenario to determine what the best and worst case outcomes could be. Here is just one case study, but we are working with more and more clients to achieve similar results.

This couple purchased land and built a home just outside of town 3 years ago. When they completed their home, they had it appraised for $50,000 more than they paid to build it. Today it appraises for about $5,000 less than they paid to build it. This was not very exciting news.

Then, this summer, a home in their neighborhood came on the market and they soon found out that the home was listed well under what it had sold for a few years before. It had sold then for $100,000, and the bank was asking for $65,000. They offered $60,000 and their offer was accepted. They plan to put $10,000 into it as improvements - in this case, a roof and carpet and a few other minor repairs. They will likely not do any of the work themselves as they are very busy with life right now.

We will do a loan for $70,000 and the value of the home on an appraisal is around $90,000. To make a long story short, in 5 years, the value will likely be around $130,000 while the mortgage balance will be around $65,000. They plan on renting the home for the same amount as their monthly payment.

The will end up with nearly $60,000 in equity in the home - WITH NO INVESTMENT OF THEIR OWN MONEY. They could sell it in five years, or they could hold it for 15 years and then sell it. In 5 years, they will likely turn a $60,000 profit without a dollar of their own money (remember their loan paid them back their initial investment.) Do you know what kind of return that is? It's an infinite rate of return - how does that sound? In 15 years, the home will likely be worth over $150,000 and be close to being paid off. Lemonade from Lemons.

I will be sharing some of these strategies and case studies at our next Wealth Workshop. Recent attendees give their comments below. Don't miss this opportunity to evaluate a strategy that can boost your financial net worth. If you are a builder, come learn how a "Trade" can help you retain the value of your neighborhood and provide a win - win to everyone involved.

I am committed to you, my client. In a market like this, it is less likely that you will make a mistake and lose money. It certainly isn't guaranteed, nothing valuable is, but with the right professionals involved, you have a great chance of doing well. I look forward to seeing you at the Kellogg Center on the 27^th!

Anyone CAN do something positive in THIS market - will YOU?

The Cashflow Coach

Uncertain Times Require Creative Measures

Cornerstone Home Loans — Tue, 06 Nov 2007 14:26:08 -0600

Michigan has been in the news a lot recently when it comes to depreciating real estate, record foreclosures, unemployment, declining new home starts, etc., etc. You can choose to listen to all of the pessimism and sink back into your scarcity mode or you can choose to look for solutions and have an attitude of abundance.

I spoke to our local home builders association (www.glhba.org) last night and talked about creative solutions that builders can employ to move homes without dropping the sales price and still make a profit. These strategies are not new, i.e. Trades, Lease Options, Land Contracts, etc, but putting numbers to it and quantifying the end results does make a difference. When you have real numbers to work with, you can make better decisions.

In times like these, especially in Michigan, everyone needs to be open to new ideas or at least open to new solutions. One company that is capitalizing on the increasing foreclosure market and helping the seller, the Realtors, and the bank is EZ Home Ownership Realty, LLC (www.ezhomeownershiprealtyllc.com) They have become experts in negotiating short sales with mortgage banks.

The short sale benefits: 1. the seller because it prevents a foreclosure, 2. the bank because they may end up getting more money prior to foreclosure than at the sheriff's sale, 3. Buyer's Agent, if they bring a qualified buyer to the seller, they will receive a commission, 4. Listing Agent, they will receive a commission for finding a buyer. 5. the neighborhood because the value of the home doesn't drop as drastically as it would in a foreclosure sale. There are many more tangible and intangible benefits of a short sale but needless to say, this is a strategy that is being used and becoming more accepted by mortgage banks' loss mitigation departments.

These solutions may require a little more work to close and in some cases we may not realize the benefit immediately but some business is better than no business. If you structure these strategies correctly, you'll be in a better position when the market turns and you'll have established yourself as a trustworthy professional and that will go a long way.

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FED Cuts Federal Funds Rate by .25%

Cornerstone Home Loans — Wed, 31 Oct 2007 16:12:27 -0500

Contrary to what you'll be hearing in some of the media outlets, this .25% cut in the funds rates does not equal a .25% cut in long term interest rates. Yes, it will affect short term rates like the Prime rate (this is the rate a lot of the Home Equity Lines of Credit - HELOC and credit cards are based on) and the LIBOR.

In fact, since the announcement was made, the Mortgage Bonds are actually showing signs that fixed rates will be rising tomorrow. Additionally, the expected non-farm jobs report to be released on Friday, 11/2/07 at 8:30 am EST is expected to be stronger than estimates and could trigger long term rates to rise even more.

Here's a good article explaining what the FED talked about during their 2 day meeting and what their projections are for the economoy and inflation.

Home Mortgage Accelerator Programs - Do They Work?

Cornerstone Home Loans — Wed, 31 Oct 2007 15:23:29 -0500

I've been getting a lot of inquiries into these Mortgage Accelerator programs where you open up a Home Equity Line of Credit (HELOC) and use this as your day to day checking account. Your payroll deposits becomes your mortgage payment and then you pay all of your monthly expenses as you incur them from the same HELOC. Some programs would have you payoff your current first mortgage so that your HELOC is the only mortgage against your home. There are other programs that allow you to keep your first mortgage intact and then add a HELOC. The concept is similar to a bi-weekly payment program in that the way you come out ahead is by making additional principal payments to your loan balance over time.

The idea is by direct depositing your paycheck into this home equity account you start saving on your daily interest cost because most mortgages collect interest payments at the end of the month (i.e. your Nov. 1 payment is for the interest accumulated in October.) By paying at the beginning and/or the middle of the month, you are able to start reducing your daily interest calculations which compounded over time can add up to some savings but the significant savings comes from the prepayment of principal.

There are some significant assumptions with these programs. First, that you spend less than you make. Second, that all "extra discretionary" money will be used to help reduce the principle balance and third, that you are disciplined in your budget or finances. There's one program that you'll be hearing more about called the "Money Merge Account." This is offered through a "registered sales rep." from First United Financial. This program costs $3,500 and it's primarily a software program that you use in conjunction with a HELOC or a "Money Merge Account." Be sure to understand how much discretionary income the software is assuming that you'll be using toward your early payoff date.

Please ask for a second opinion before paying someone $3,500 for a software program plus whatever closing costs are incurred in opening up the HELOC. I know they will tell you that you can pay your 30 year mortgage off in 7 or 8 years and all of the numbers they show in their presentation and their flash videos will tell you that you it'll work but let's look at the numbers and discover how realistic the assumptions are.

One downside to these programs is that you will lose your tax deduction on your mortgage interest at a time when you may need it most. Also, if you have other higher interest rate debt like a credit card, department store card, and other loans, it may not make sense to payoff your lower tax deductible mortgage interest first.

As in all cases, you need to evaluate your own situation and evaluate whether this makes sense or not. Before you sign up for any program, take a day or two to look at the numbers, get a second opinion and don't succumb to the high pressure sales tactics for a product "whose time has come."

The Cashflow Coach

Mid-Michigan is Growing Despite the Rest of the State

Cornerstone Home Loans — Fri, 26 Oct 2007 21:20:26 -0500

We have been saying for months, that the mortgage market meltdown happening across the country right now is not Michigan's biggest problem. Our biggest problem is the loss of about 5,000 Michigan residents last year and thousands of jobs.

Now for the rest of the story....

1. The Accident Fund Company announced yesterday that they are planning on converting the old Board of Water & Light Ottawa Station into their national corporate headquarters. The plan is part of a redevelopment agreement reached with the city and state.

This move will create over 500 jobs and revitalize a much needed downtown business district. With the help of the Michigan Economic Development Corp. and the 21st Century Jobs fund this will be one of many more moves to continue to grow the Lansing area.

2. Michigan State University received a $50 million grant for alternative fuel research which is estimated to create 100 or more jobs between Wisconsin and Mid-Michigan.

3. General Motors is at full speed at their new Delta Township Plant with three shifts running full time and the demand for the crossover vehicles is rising.

4. GM suppliers like Android Industries, Bridgewater Interiors and Magna Powertrain combined want to hire more than 300 people, according to Capital Area Michigan Works, which is helping some suppliers find workers. (Source: Lansing State Journal)

5. Despite all of the doom & gloom in the media, did you know that the unemployment rate in the Lansing area is only 5.7% as of August. Compare that to Grand Rapid's rate of 5.9% and the rest of the state at 7.4% (source: BLS).

6. Home values in mid-Michigan are faring better than the rest of the state. From Aug. '06 to Aug. '07 the home values in Detroit declined 31.8%, Flint declined 10.1%, Lansing declined 3.6% and Grand Rapids declined 4.2% (source: Michigan Assoc. of Realtors) compared to a statewide average of -6.4% and a nationwide average of -4.2%.

What does all of this have to do with Real Estate? We believe that this is the best time to consider moving up. Yes, you may need to lower the price of your current home or look at selling later but let's quantify the loss AND the gain and see if it makes sense. A lot of our recent clients have gained a lot more than they've lost.

I have been helping my clients evaluate land contracts and lease to purchase options along with traditional methods to sell their home in order to take advantage of a discounted purchase. I can help you take all of the complexity of this type of situation and simplify it. Contact me to discuss your situation, it could be better than you think.