Joe's Blog

$8000 tax credit for Minnesota first time homebuyers

Mortgages Unlimited, The Joe Metzler Team — Sun, 01 Mar 2009 07:51:50 -0600

Enhanced $8000 Federal Tax Credit Provides Outstanding Opportunity for First Time Home Buyers

$7500 tax credit for First Time Homebuyers, replaced with
$8,000 TAX CREDIT to First Time Home Buyers

Washington has been busy lately. In one of the most rapidly approved bills in memory, the Housing and Economic Recovery Act was passed into law, and could have significant implications on the housing and mortgage industry. When Congress passed the housing rescue bill (The Housing Assistance Act of 2008) this past July, it included a new $7,500 tax credit for first time homebuyers. This has since been replaced with a NEW bill providing for an $8000 first time homebuyer tax credit!

In its efforts to stimulate the economy and revive the housing market, Congress has enacted legislation providing a tax credit of up to $8,000 for first-time home buyers.

$8,000 Home Buyer Tax Credit at a Glance

The tax credit is for first-time home buyers only.

The tax credit does not have to be repaid.

The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

Frequently Asked Questions About the Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.

The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

What is "modified adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.
Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

But time is of the essence for buyers who want to take advantage of this opportunity. Only homes purchased on or after January 1, 2009 and before December 1, 2009 are eligible

Get the Best Interest Rate or Lowest Closing Costs?

Mortgages Unlimited, The Joe Metzler Team — Sat, 07 Feb 2009 19:07:22 -0600

BEST RATE or LOWEST COST A common mistake shoppers make is to ask: "What's your best rate?" or "What are your closing costs?" Both logical questions to ask, but they do not give the response most borrowers need to make a proper decision. Borrowers must understand both rates and fees. Rates are only half the answer to getting the best deal. It is possible end up with the lowest rate but not necessarily the best deal.

Simply put, the lowest rate & the lowest fees do not go hand-in-hand. NO LENDER can offer both together. I can give you rock bottom rates, but it will cost you in fees. I can give you the lowest fees, but it will cost you in interest rate. Most lenders quote their best rate in combination with covering all third party fees (appraisal, credit report, title company, state taxes, county recording fees, etc) with 1% origination. See the example below

Here is an example of Rate vs. Costs on a $150,000 - 30 year fixed loan.
These rates are NOT accurate for today - just samples.

	Lower Rate	Normal Quote	No Lender Cost	Full NO Cost
Rate	6.5%	6.75%	7.00%	7.75%
Origination	1%	1%	None	None
Points	1%	None	None	None
Total Closing Costs	$5347	$4130	$2346	None
Monthly P & I Payment	$948.10	$972.90	$997.95	$1,074.62
10 Years of Interest	$93,963	$96,227	$98,502	$109,853
20 Years of Interest	$164,069	$169,752	$175,489	$197,451
30 Years of Interest	$194,345	$201,768	$209,295	$236,861

WHICH LOAN WOULD YOU LIKE?
I can offer you all four options on all of our loans.

"As your Mortgage Consultant, I will show you your different options. You tell me what you really want, and then I will advise you on what I think is best based on your needs and financial goals. I'm proud to provide solutions to each of my customers, no matter what their financing needs!" - Joe Metzler

Our GOOD FAITH ESTIMATE is GUARANTEED NOT TO CHANGE once you lock your loan!

The combination of rate & fees can be very confusing. One lender is screaming "No Closing Costs." A second lender may quote you 7.00% with $2246 in fees, while another lender is offering 6.75%% with $4130 in fees. So are closing costs and fees bad? Well if you ask everyone's brother who has a real estate license and knows everything about mortgages, then the answer you will most likely hear is yes. I am here to tell you everyone's brother is probably wrong.

Good enough answer? I didn't think so...

Begin by asking yourself "How long am I going to be in this property?" This is the single most important question to determine which option is best for you. Now look at the chart above. It becomes very obvious based on how long you are going to be in the home if 'Best Rate or Lowest Cost' makes the most sense for you and your family.

Congratulations, you are now smarter than everyone's brother, mother and sister with a real estate license.

You are entitled to a second mortgage opinion

Mortgages Unlimited, The Joe Metzler Team — Sat, 07 Feb 2009 19:04:37 -0600

You Are Entitled To A Second Opinion
Even If You Have Already Been Pre-Approved For Your Mortgage!

Imagine you have just found out that you have to have surgery and the procedure will be pretty extensive! Most people just wont take the doctors word any more. They seek out another doctor for a second opinion.

Thats the way it should be with your mortgage too! If you have already been pre-approved or pre-qualified for a mortgage on your next home, are you absolutely sure you are getting the best deal?

I'm not talking about interest rates either! I am talking about the structure of the deal itself! Donald Trump, in his book called The Art of the Deal said, The price that you pay is the least of his worries in a transaction. Its how the deal is structured is what matters most. You could have been quoted a wonderful interest rate, but if your financial house is not in order, the best interest rate could be absolutely the worst loan for you.

Im not saying that interest rates are NOT important, they are! But, here are some of the things you need to consider and why you need a second opinion from me:

Should you decrease your down payment and use your cash to pay off your high credit card debts?
Should you pay points or loan origination fees?
Does a no-cost mortgage make more sense for you?
Are you better off with an adjustable rate or a fixed rate?
and did your lender show you how to save thousands of dollars and take 5 years off the mortgage term?

If they did not talk to you about any of these issues then you definitely need a Second Opinion from us.

It wont hurt to see if your mortgage has been structured correctly. You have everything to gain and nothing to lose. You can simply walk away knowing that your lender has done a good job for you. Or, you will find out that they havent. Either way, you win.

Applying is easy, takes only minutes, and is absolutely FREE of charge!

Wells Fargo possibly in rigged appraisal trouble?

Mortgages Unlimited, The Joe Metzler Team — Sat, 07 Feb 2009 18:47:31 -0600

WELLS FARGO APPRAISALS RIGGED???

Well known firm investigating Wells Fargo appraisal practices

Have you used Wells Fargo and Rels Valuations?

The law firm Hagens Berman Sobol Shapiro is investigating Wells Fargo and its appraisal subsidiary Rels Valuation based on reports the companies engaged in a rigged appraisal process.

The firm is looking into claims that Wells Fargo forces homeowners to use its appraisal firm, Rels Valuation, which then turns around and subcontracts the work to independent appraisers while charging homeowners an inflated fee for the work.

Reports say independent appraisers are forced to work for below market value while Rels Valuation significantly inflates the cost of the work for homeowners, generating profits for itself and its parent, Wells Fargo.

HBSS believes the practice may affect homeowners throughout the country.

HBSS is looking for homeowners who purchased or refinanced their home through Wells Fargo and Rels Valuation.

READ More

You can learn more about this investigation at www.hbsslaw.com/WFCappraisals

To contact attorneys you can join this investigation, e-mail wfc@hbsslaw.com or call (206) 623-7292.

Waiting for a 3% or 4% interest rate?

Mortgages Unlimited, The Joe Metzler Team — Sat, 07 Feb 2009 18:45:04 -0600

Waiting for that 3% or 4% Interest Rate?

You snooze, you may lose. Helping you avoid costly mortgage mistakes

The Fed's been at it again, offering words that sound encouraging at first blush, confirming that their buying program of Mortgage Backed Securities is in full swing and will continue as needed. Of course, the media will pick this up and offer their own interpretation, saying "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the summer..." But is this really what that means? Not so.

Here's the truth.

Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying - http://www.newyorkfed.org/markets/mbs/index.html.

So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.

Stay with me here...

With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates.

Here's the most important part.

Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.

Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.

The clincher is this:

I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake. Let's talk further on this - call or email me and let's discuss what this might mean for you.

Better yet, apply online right now. You'll be closed and safely enjoying these current and REAL low rates next month!

$100 down payment? YES, it is real!

Mortgages Unlimited, The Joe Metzler Team — Sat, 07 Feb 2009 18:35:37 -0600

"Just $100 Down Payment"

YES, it is REAL. You can buy a home in 2009 with $100!

If you're a qualified buyer, you can use an FHA loan to buy one of HUD's specifically designated homes for sale -- with only a $100 down payment !
For a limited time, the $100 down payments program is available to owner-occupied home buyers when purchasing a HUD home for full price and using an FHA-insured new home loan. This is a national program, and there are qualifying homes in every state. We lend on this program for homes ONLY in Minnesota and Wisconsin, so please do NOT contact us about other states.

How Does It Work? Simple Just qualify for a traditional FHA loan, then you MUST select a home to buy from the list of available HUD foreclosed properties, and put just $100 down payment.

Where can I see the list of available houses? Easy. Fill out this short form to receive the list of Minnesota and Wisconsin HUD foreclosures

What about closing costs? Closing costs can be rolled into the transaction, up to 3% of the loan amount.

How do I get started? It all starts with a no obligation online loan application or a call to (651) 552-3681, where one of our specially trained Loan Officers will assist you.

Zero Down Payment still available with a Rural Development Loan!

Mortgages Unlimited, The Joe Metzler Team — Thu, 20 Nov 2008 08:28:07 -0600

USDA Rural Development ZERO DOWN PAYMENT HOME Loans STILL Available
We provide these loans in Minnesota and Wisconsin

Rural Development, formerly known as the Farmers Home Administration (FmHA), administers a mortgage loan guaranty program - also called the Section 502 Program -- designed to provide rural home financing for first-time homeowners or those who don't own structurally sound or adequate housing. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare home sites, including providing water and sewage facilities. Prospective borrowers can apply with participating lenders like us, who process and close the loans. The Rural Development organization, an office of the U.S. Department of Agriculture (USDA), underwrites the loan packages.

'Rural' is defined by the organization as being outside a Standard Metropolitan Statistical Area (SMSA). The property that the borrower wishes to buy must be on a publicly-maintained road, though it can be located in a development with private roads. And, as with the mortgage revenue bond authority loan, it must be a single-family owner-occupied home from which no income can be derived. The loan amount can be up to 100% of the lesser of the property's cost or its appraised value. The seller is allowed to pay all closing costs, making it a true 'no money down' transaction for the buyer. Additionally, if the property appraises for more than the purchase price, the borrower can finance in the closing costs and the guaranty fee (which is 2% of the loan). The guaranty fee can be financed as long as the property appraises for at least the amount of the purchase price plus the fee. Anything above that amount can be used to finance closing costs. The maximum loan term under the 502 program is 30 years. (USDA Property Eligibility Check web site)

The program sets limits on the maximum adjusted gross income that a qualified borrower is allowed to have, as well as maximum loan amounts based on the area's current FHA loan limits. Allowable income adjustments include amounts for minor children, child-care expenses, and elderly family members. For the most part, these limitations are not placed so low as to preclude a large segment of moderate-income borrowers from qualifying for the program. Perhaps the most stringent limit of the program, however, is the requirement that the borrower be unable to obtain the financing necessary to buy a home without Rural Development's assistance. In other words, the borrower must be rejected by or be unable to qualify for any other available loan program, such as conventional, FHA, or VA loans. But although unable to qualify for other funding sources, borrowers must still have an OK credit record that shows a history of meeting their financial obligations.

Rural Development also offers a subsidized payment program for borrowers who don't have sufficient income to qualify for the standard plan. A portion, or all of the loan, may be subsidized. A formula is used to determine the parameters that the borrower fits into. Nevertheless, this loan also requires that the applicant have acceptable credit.

This program is, in my humble opinion, the best mortgage available to help many areas increase sales, over come the negative effects of the mortgage mess, and truly help buyers and sellers.

Now the Rural Development Home Loan highlights:

100% of sales price up to 102% of APPRAISED value, which may include ALL closing costs and pre paid items and even refund escrow deposit in many cases.
NO PMI--- this means lower payments, means more people fit into the debt to income limits
It is NOT just for "rural" areas. The agency's (USDA) definition of rural, and what most of us consider rural, are two different things. If you check the maps for your area you'll be delighted in what qualifies as rural.
All homes, condos and town homes qualify if there are in a "eligible area".
With a 620 score, the buyer needs no explanation for prior derogatory credit nor do they have to pay off collections.
There are NOT nearly as many credit "gray" areas as there are in FHA lending.
There are NOT any loan limits.
Sales concessions are NOT needed in most cases (seller paid closing costs).

We can pre approve buyers in under 15 minutes for this program and close as fast as 10 working days. NOT every bank or broker is able to offer or knows how to do these loans, make sure you deal with an RD Loan expert (like us!).

Everything you ever wanted to know, the facts not the myths can be found at the USDA web site
USDA INCOME Eligibility Check
USDA Property Eligibility Check

Hope this information is helpful. We would be proud to help you make your home buying dreams come true with a ZERO DOWN USDA Rural Development Loan. Apply Today. Have an answer tomorrow!

Details of $7500 tax credit for first time home buyers

Mortgages Unlimited, The Joe Metzler Team — Thu, 20 Nov 2008 08:16:04 -0600

DETAILS OF $7,500 TAX CREDIT Now Available to First-Time Home Buyers: Learn more at www.MetzlerMortgage.com

Not buying a home?

Please PASS THIS INFORMATION ALONG TO EVERYONE YOU KNOW WHO MAY BENEFIT

There is no need to fill out an application to qualify for the tax credit. First-time homebuyers merely claim the credit when filing the tax return for that year.

NO PRE-APPROVAL REQUIRED, but if you are relying on this program to purchase a home you may want to check your eligibility.

HERE ARE SOME BASIC FACTS: The credit is available only to first-time home buyers defined as buyers who have not owned a principal residence for three-years prior to the subject purchase. The ownership test applies to both partners in a marriage; i.e. if a husband has not owned a home in the past three years but the wife has, neither spouse qualifies for the first-time home buyer tax credit. (It appears that this would be the case even if the husband is purchasing the property only in his own name.) A buyer can still be eligible for the credit even if he owns a vacation home or rental property not used as a principal residence.

Single taxpayers with "modified adjusted gross income" up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit. Individuals and couples with incomes above the thresholds may still qualify for a lesser credit, however, taxpayers with adjusted gross income above $95,000/ $170,000 phase out of the program completely.

Your tax advisor may be able to help you with this. The credit is available even to those with little or no federal income tax liability to offset. This usually means that the government will send a check for part or all of the credit. Otherwise the credit is used to offset any unpaid taxes or increase a refund.

The credit is available for homes purchased between April 9, 2008 and July 1, 2009 and applies to both new and existing homes whether attached or detached, condominiums, mobile homes, or houseboats. A homebuyer contracting for a custom built home can qualify for the credit as long as the home is first occupied between the April 2008/June 2009 dates. (For newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.) The $7,500 credit represents 10 percent of the purchase price of a low cost home.

That the tax credit is not a gift or a grant but essentially a 15 year loan to the homebuyer and, while it is interest free, will require filing a tax return and will carry the same IRS penalties for non-payment as accrue to delinquent taxes. Most who use the program will be able to claim this full amount, however, in the event a home is purchased for a lesser amount, the 10 percent cap will apply. That would mean that a $65,000 purchase would result in a $6,500 credit.

There are other refinements to the program. For example, if it is to his benefit, a taxpayer can apply for the credit in a different year than the home is purchased. There is also a possible forgiveness of debt for homeowners who sell the home before the loan is repaid and do not received sufficient gain from the sale to cover the loan balance.

I am ready to help you. Call or apply online to make your home buying dream come true.

HOPE for Homeowners program - A Giant failure???

Mortgages Unlimited, The Joe Metzler Team — Thu, 20 Nov 2008 07:55:07 -0600

HOPE FOR HOMEOWNERS PROGRAM - TO HELP MORE STRUGGLING FAMILIES KEEP THEIR HOMES

The Bush Administration unveiled additional mortgage assistance for homeowners at risk of foreclosure with The HOPE for Homeowners program, designed to help refinance mortgages for borrowers who are having difficulty making their payments, but can afford a new loan insured by HUD's Federal Housing Administration (FHA).

"For families struggling to keep up with their mortgage payments, this program will be another resource to refinance into a loan they can afford," said HUD Secretary Steve Preston. "FHA remains a safe and affordable alternative to the high-priced mortgage loans that threaten homeowners' ability to retain their homes. We strongly encourage borrowers to work with their lenders to determine if HOPE for Homeowners is the right program for them."

Unfortunately, THIS PROGRAM IS NOT WHAT PEOPLE THINK it is. It has been called "HopeLESS for Homeowners" by many in the mortgage industry, as the combination of getting your existing lender to cooperate, and a new lender willing to take on the previous lenders "problem" loan will result in few of these actually being done. Furthermore, while any FHA lender is technically able to do the loan, very few as of today have actually agreed to do it!

Just 111 Hope For Homeowner Applications were received for the ENTIRE Country the first month of the program!

The HOPE for Homeowners program was authorized by the Economic and Housing Recovery Act of 2008. Since the President signed this vital legislation into law on July 30, 2008, the HOPE for Homeowners Board of Directors has worked diligently to develop and implement the program as directed by Congress. The Board was charged with establishing underwriting standards to ensure borrowers, after any write-down in principal, have a reasonable ability to repay their new FHA-insured mortgage.

The HOPE for Homeowners program began Oct. 1, 2008 and ends September 30, 2011. The program will offer 30-year fixed rate mortgages - so the borrower's last payment will be the same as the first payment.

We are an Official HUD Certified (Department of Housing and Urban Development) FHA Provider for Minnesota, Wisconsin, and Florida. But PLEASE DO NOT CALL US with your Hope For Homeowners questions. WE AS A COMPANY ARE NOT CURRENTLY PARTICIPATING IN THIS PROGRAM.

Borrower Eligibility REQUIREMENTS:

YOUR FIRST STEP IS TO CONTACT YOUR EXISTING LENDER. Your EXISTING lender must agree to accept 85% of TODAY'S appraised value as payment in full to use the Hope for Homeowners program.

Once your existing lender agrees, you can contact lenders to APPLY for the actual new loan.

To be eligible, you must also meet these requirements:
- The home is your primary residence, and you have no ownership interest in any other residential property, such as second homes.
- Your existing mortgage was originated on or before January 1, 2008, and you have made at least six payments.
- Prove you are not able to pay their existing mortgage without help.
- As of March 2008, your total monthly mortgage payments due was more than 31 percent of their gross monthly income.
- You must certify you have not been convicted of fraud in the past 10 years, intentionally defaulted on debts, and did not knowingly or willingly provide material false information to obtain their existing mortgage(s).

How the HOPE for Homeowners program works

HOPE for Homeowners also includes the following provisions:

The loan amount may not exceed a maximum of $550,440.
The new mortgage will be no more than 90 percent of the new appraised value including any financed Upfront Mortgage Insurance Premium.
The Upfront Mortgage Insurance Premium is 3 percent and the Annual Mortgage Insurance Premium is 1.5 percent.
The holders of existing mortgage liens must waive all prepayment penalties and late payment fees.
The existing first mortgage must accept the proceeds of the HOPE for Homeowners loan as full settlement of all outstanding indebtedness.
Existing subordinate lenders must release their outstanding mortgage liens.
The NEW FHA LOAn will HAVE A HIGHER RATE than NORMAL FHA

Standard FHA policy regarding closing costs applies, and they may be:

Financed into the new loan provided the value of the mortgage (including the Upfront Mortgage Insurance Premium) does not exceed 90 percent of the new appraised value of the home.
Paid from the borrowers' own assets.
Paid by the servicing lender or third party (e.g., federal, state, or local program).
Paid by the originating lender through premium pricing.
The borrower must agree to share with FHA both the equity created at the beginning of this new mortgage and any future appreciation in the value of the home.
The borrower cannot take out a second mortgage for the first five years of the loan, except under certain circumstances for emergency repairs.

The lender will disclose to the homeowner the benefits of the program including home retention, a new affordable mortgage based on the current appraised value, and 10 percent equity. The lender will also explain the prohibition against new junior liens against the property unless directly related to property maintenance, and a minimum of 50 percent equity and appreciation sharing with the Federal government.

The costs to the homeowner include the upfront and annual insurance premiums, as well as a share of the equity created by the write-down associated with the HOPE for Homeowners mortgage and any future appreciation in the value of the home. At settlement, subordinate lien holders will receive a certificate that evidences their interest as an obligation backed by HUD, with payment conditional on the value of HUD's appreciation share.

If the home is sold or refinanced, the homeowner will share the equity with FHA on a sliding scale ranging from a 100 percent FHA share after the first year to a minimum of 50 percent after five years. The lien holder that previously held the highest priority will receive payment up to a proportion of its original interest, not to exceed the amount of available appreciation. This type of delayed payoff will take place until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.

Read more about HOPE for Homeowners at www.hud.gov/hopeforhomeowners.

UpFront Mortgage Brokers - Your BEST lender Choice. What is an Upfront lender?

Mortgages Unlimited, The Joe Metzler Team — Tue, 02 Sep 2008 09:56:03 -0500

What is an upFront Mortgage Broker ^TM?

The Front Mortgage Broker ® (UMB ®) concept was conceived by Jack Guttentag, the nationally syndicated columnist and well-known expert on mortgage loans. Professor Guttentag developed the idea as a result of his experience as a mortgage advisor to consumers.

To be an UMB ®, the mortgage broker must operate under specific guidelines. The upFront Mortgage Broker Commitment® describes these guidelines.

I am one of the original founding members of the upFront Mortgage Brokers organization, and Minnesota's premier home loan lender. You can verify and view my profile and membership on the UMB web site.

Finding the right home starts with a great search tool

Saint Paul / Minneapolis (Twin Cities) MLS Only

How does a upFront (UMB ®) differ vs. a typical Mortgage Broker?

There are major differences between a UMB ® and a conventional mortgage broker:

UMBs ® disclose their fees to customers in advance and in writing, and disclose the wholesale prices (rates and points) passed through from lenders. Customers of UMBs ® pay the broker's fee plus wholesale loan prices. In contrast, conventional mortgage brokers (MBs) add a markup to the wholesale prices, and quote the resulting "retail prices" to customers. Most standard lenders reveal their markup only in required disclosures after an application has been submitted.

The UMB's Interests are fully aligned with their customers. They can thus represent borrowers in shopping for loans. In contrast, brokers shopping the market are often in a conflict situation with customers. For example:

The loan type that best meets the customer's needs may not be the one that allows the largest markup for the broker
Brokers may profit by ignoring customer requests to lock the rate/points, putting the customer at risk.
Brokers often increase their markup on customers who allow the rate/points to float by not giving them the best available rate (the float rate) when the loan is finally locked.

UMBs® credit customers with any rebates they receive from third parties. Mortgage brokers sometimes receive rebates from lenders or concessions from home sellers. UMBs® credit customers for any such payments that would otherwise increase the broker's fee beyond what was agreed upon. In contrast, brokers may or may not credit customers for payments from third parties, depending on the circumstances.

Why should a consumer choose a local, official upFront ® Lender?

Easy, transparency. For most people, a home is the biggest investment they will ever make. However, few people do the research necessary to make a good buying decision. The home-purchase o refinance process is extremely confusing for most people. With a little bit of homework, and some advice from dedicated true professionals, you can make this a little easier on yourself. There is no substitute for taking the time to educate yourself before you buy or refinance a house, which typically costs you 25% to 40% of your gross income!

The basic nature of the mortgage process allows non-UMBs the opportunity to "mark up" the interest rate and/or increase the fees. The net result is many consumers end up paying more than they should for a mortgage loan. One of the reasons that conventional mortgage brokers conceal their fee as long as possible is a concern that consumers don't fully appreciate the value the brokers provide. Because consumers dealing with UMBs agree on a fee in advance, it is important that consumers also understand exactly what they are getting for their money, and what it might be worth.

When dealing with an UMB, you are assured of fair treatment because of pricing transparency, you get access to wholesale interest rates posted by lenders, you get the benefit of the broker's expertise and contacts in shopping multiple lenders for the best deal.

Commitment of an upFront Mortgage Broker

The broker will be the customer's representative or agent, and will endeavor to act in the best interest of the customer.
The broker will establish a price for services upfront, in writing, based on information provided by the customer.

The price may be a fixed dollar amount, a percentage of the loan, an hourly charge for the broker's time, or a combination of these.
The price or prices will cover all the services provided by the broker. This includes loan processing, for which customers always pay a broker or lender.
On third party services, such as an appraisal, ordered by the broker but paid for by the customer, the broker will provide the invoice from the third party service provider at the customer's request. Alternatively, the broker may have the payment made directly by the customer to the third party service provider.

Any payments the broker receives from third parties involved in the transaction will be credited to the customer, unless such payments are included in the broker's fee.

If the broker's fee is 1 point, for example, and the broker collects 1 point from the lender as a "yield spread premium", the broker either charges the customer 1 point and credits the customer with the yield spread premium, or charges the customer nothing and retains the yield spread premium.

The broker will use his best efforts to determine the loan type, features, and lender services that best meet the customer's needs and to find the best wholesale price for that loan.
The wholesale prices from which the broker's selection is made will be disclosed at the customer's request.
When directed by a customer who has met lender lock requirements, the broker will lock the terms (rate, points, and other major features) of the loan, and will provide a copy of the written confirmation of the rate lock as soon as it has been received from the lender. At the same time, the broker will guarantee all fee charged by the lender who locks the rate.
If a customer elects to float the rate/points, the broker will provide the customer the best wholesale float price available to that customer on the day the loan is finally locked
The broker will maintain a web site on which its commitment to its customers is prominently displayed, along with any other information the broker wishes to convey. If the web site displays mortgage prices, the broker will indicate whether the prices are retail or wholesale. If prices are retail, the markup will be shown. If prices are wholesale, a prominent note will indicate that the broker's fee will be an added charge.
A broker who displays mortgage prices on its web site must indicate whether the prices are retail or wholesale. If they are retail, the markup must be shown. If they are wholesale, the broker must indicate that the prices do not include the broker's fee

Learn more about Minnesota's upFront Mortgage Broker / Banker Joe Metzler, of Mortgages Unlimited by going to his web site at www.JoeMetzler.com.

Florida launches probe of Countrywide

Mortgages Unlimited, The Joe Metzler Team — Fri, 01 Feb 2008 07:24:07 -0600

FLORIDA LAUNCHES PROBE OF COUNTRYWIDE

The Florida attorney general is investigating mortgage lender Countrywide for unfair and deceptive business practices related to home loans. A subpena dated January 17 directs Countrywide to provide documents and other information describing procedures used to determine whether borrowers qualify for subprime loans.

The state also wants informaton on how Countrywide credited borrowers' payments any time after January 2005. It also asks for documents that track applications of borrowers payments to bankruptcy debt and a description of fees charged to mortgage holders during the same period. The Florida Attorney General's office started a mortgage fraud hot line last year. It has received over 150 complaints on Countrywide.

Attorneys general in Illinois and California are conducting similar investigations.

The Federal Reserve Board has proposed to amend Regulation Z

Mortgages Unlimited, The Joe Metzler Team — Tue, 22 Jan 2008 10:08:09 -0600

The Federal Reserve Board has proposed to amend Regulation Z, which implements the Truth in Lending Act and Home Ownership and Equity Protection Act.

The goals of the amendments are to protect consumers in the mortgage market from unfair, abusive, or deceptive lending and servicing practices while preserving responsible lending and sustainable homeownership; ensure that advertisements for mortgage loans provide accurate and balanced information and do not contain misleading or deceptive representations; and provide consumers transaction-specific disclosures early enough to use while shopping for a mortgage.

The proposed revisions would apply four protections to a newly-defined category of higher-priced mortgage loans secured by a consumer's principal dwelling, including a prohibition on a pattern or practice of lending based on the collateral without regard to consumers' ability to repay their obligations from income, or from other sources besides the collateral.

The proposed revisions would apply three new protections to mortgage loans secured by a consumer's principal dwelling regardless of loan price, including a prohibition on a creditor paying a mortgage broker more than the consumer had agreed the broker would receive.

The Board also proposes to require that advertisements provide accurate and balanced information, in a clear and conspicuous manner, about rates, monthly payments, and other loan features; and to ban several deceptive or misleading advertising practices, including representations that a rate or payment is "fixed" when it can change.

Finally, the proposal would require creditors to provide consumers with transaction-specific mortgage loan disclosures before they pay any fee except a reasonable fee for reviewing credit history.

FED Rate Cuts Do Not Equal Lower Fixed Rates

Mortgages Unlimited, The Joe Metzler Team — Sun, 16 Dec 2007 09:14:07 -0600

FED RATE CUTS DO NOT EQUAL LOWER FIXED RATES

Saint Paul, Minnesota. Dec 2007: So the Federal Reserve cut rates again. Many mortgage applicants are calling their Loan Officer and expecting a lower interest rate, especially those currently in process with a loan. Others who have been waiting to refinance are puzzled as to why FIXED mortgage rates have not really moved lower. In fact, FIXED mortgage rates are now almost exactly where they were before the Fed began cutting rates. This is difficult to explain to many consumers who have watched a 1% reduction by the Fed with no benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.

Another common mistake is in thinking that 30-year Treasury bonds or 10-year Treasury notes are directly pegged to mortgage rates.

Those are government securities that are backed by the full faith and credit of the U.S. government and have no direct effect on mortgage rates.

So what are mortgage rates based on? As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.

We know that inflation will always be a negative for any long-term bond because it eats away at the future returns. Since the bond will pay a set amount over a long period of time, that amount will be less valuable if inflation is high. Over the past several years, one catalyst that seems to be working in the opposite direction of MBS prices is the Nasdaq and broader stock market.

As bond prices rise, interest rates fall. As bond prices fall, interest rates rise. The consistency of this behavior is astounding.

As the Nasdaq moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. Moreover, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates.

The bottom line is that it appears mortgage rates will get better if the Nasdaq sells off and will get worse if the Nasdaq rallies. So it is not necessarily what the Fed does that affects mortgage rates, it's how the Nasdaq and broader stock market interprets the Fed's action that will ultimately influence the direction of mortgage rates. This is because money managers and mutual fund companies typically keep funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

A closer look at the 3 rate cuts by the Fed this year shows that mortgage bond prices deteriorated after each Fed rate cut. This means that mortgage rates rose after the Fed had cut rates while many consumers were expecting their mortgage rates to decline. Worse yet are the consumers who missed the opportunity to obtain a lower rate because they mistakenly waited for the anticipated Fed action to cut short-term rates, thinking that longer-term mortgage rates would decline as a result.

Predicting the future is tough, so nothing is written in stone. Keep an eye on the Nasdaq, and keep in mind that the best rates may be behind us. But, mortgage rates are still low and could have some quick dips so make the most of them while they last.

The bottom line? Make sure you are working with an experienced, professional loan officer. The largest financial transaction of your life is far too important to place into the hands of someone who just quotes rates, but is not capable of advising you properly and troubleshooting the issues that may arise along the way. More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life but we do this every single day. It's your home and your future. It's our profession and our passion. We're ready to work for your best interest.

Learn more: http://joemetzler.com/lendershopping.htm

Lender Liquidity. Important to the Bond Market

Mortgages Unlimited, The Joe Metzler Team — Sun, 16 Dec 2007 08:42:53 -0600

Liquidity and Its Importance in the Bond Market

In years passed a borrower would visit their bank to obtain a mortgage. The Loan Officer at the bank would approve the mortgage and fund it with cash reserves from the vault. This system worked well until the bank ran out of money to lend to the next guy

What the bank needed was a way to sell the loans they made freeing up the capital to lend to new borrowers. This way they could lend the “same” money over and over, earning an income from servicing the loans and assisting the community by offering a near limitless pool of money.

To address this issue, Fannie Mae (FNMA), Ginnie Mae (GNMA), and Freddie Mac (FHLMC) were established. The goal was to provide cheap mortgage money to prospective homeowners and a high quality bond for the investment community. The bond or Mortgage Backed Security (MBS) takes mortgages with similar risk characteristics and pools them together. Investors in the MBS’s know ahead of time the return they are going to receive, much like a Certificate of Deposit. To ensure the performance of the bond, each mortgage is underwritten to specific guidelines. By ensuring the borrower is capable or repaying the loan, willing to repay the debt, has the cash to close, and the value is in the property is OK, the loans and thus the bond will perform as expected.

During the recent real estate boom underwriting guidelines were relaxed giving way to a whole new menu of products such as the 100% financing to those with weak credit, and high risk exotic loans (Option ARM's). In addition, to streamline the influx of applications, income and asset verification took a back seat to a borrower with strong credit. With housing prices rising rapidly, the basis for the mortgage, the property, could be sold to cover the note and foreclosure costs if this occurred. This cycle worked well until the price of houses flattened out and moderated in 2006.

Once the housing market began to cool and prices moderated, foreclosed homes were being sold for less than the note. To add insult to injury, the loans underwritten to the looser guidelines are not performing as hoped. With the value of the collateral in question (falling home prices) and the future performance of the borrowers unknown, investors’ appetites for this risk has waned. To attract investors in this environment, rates had to increase substantially. Bruised credit loans that were in the mid 7% range just a few months ago are now in the 11-12% range.

"Conforming" loans sold to Ginnie, Fannie, and Freddie remain largely untouched in the recent credit rout because the investment qualities of the loans are well known. The foreclosure and delinquency rates are well within acceptable standards lending support to these products as their interest rates have fallen in the recent weeks.

The fact remains that a qualified borrower is a good investment from a bondholder perspective. Sanity will eventually return to the markets and non-conforming pricing will come in line with their risk characteristics. The depth and breadth of the current subprime issue will determine when that change occurs.

We are in for a ride... Stay tuned for more details, or visit www.JoeMetzler.com

Fed issues Statement on Subprime Mortgage Lending

Mortgages Unlimited, The Joe Metzler Team — Sat, 15 Dec 2007 09:08:55 -0600

FED Issues Statement on Subprime Mortgage Lending

On June 29, 2007, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the National Credit Union Administration (the Agencies) issued a final interagency Statement on Subprime Mortgage Lending (the Subprime Statement) to address emerging risks associated with certain subprime mortgage products and lending practices. The Subprime Statement is available at http://www.ots.treas.gov/docs/4/480966.pdf. The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators developed a similar Statement. Numerous states have adopted the Subprime Statement and more states are expected to follow.

The Agencies developed the Subprime Statement to address emerging risks associated with certain subprime mortgage products and lending practices. In particular, the Agencies are concerned with certain adjustable rate mortgage (ARM) products typically offered to subprime borrowers that have one or more of the following characteristics:

Low initial payments based on a fixed introductory rate that expires after a short period and then adjusts to a variable index rate plus a margin for the remaining term of the loan;
Very high or no limits on how much the payment amount or the interest rate may increase (“payment or rate caps”) on reset dates;
Limited or no documentation of borrower's income;
Product features likely to result in frequent refinancing to maintain an affordable monthly payment; and/or
Substantial prepayment penalties and/or prepayment penalties that extend beyond the initial fixed interest rate period.

The term “subprime” is described in the 2001 Expanded Guidance for Subprime Lending Programs available at http://www.federalreserve.gov/boarddocs/press/boardacts/2001/20010131/default.htm.

The Subprime Statement addresses predatory lending considerations, underwriting standards, workout arrangements, consumer protection principles including disclosures in advertising and product descriptions and control systems.

Statement on Subprime Mortgage Lending (the Subprime Statement)

(a) General Compliance

All mortgages subject to the Interagency Statement on Subprime Mortgage Lending (the “Subprime Statement”), issued by the Office of the Comptroller of the Currency, Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, Treasury and the National Credit Union Administration (the "Agencies"), must comply with the Subprime Statement or any substantially similar guidance issued by any state governmental agency.

(b) Consumer Disclosure

All mortgages subject to the Subprime Statement delivered for purchase must include a copy of the disclosures provided to the Borrower in compliance with the Consumer Protection Principles section of the Subprime Statement. The disclosure must clearly explain the risk of payment shock, the ramification of prepayment penalties, balloon payments, the cost of obtaining a reduced documentation loan and the consequences of not establishing an escrow account for taxes and insurance, as applicable.
The Subprime Statement covers four areas:

Risk Management, which includes predatory lending considerations and underwriting standards;
Workout Arrangements;
Consumer Protection Principles; and
Control Systems

The Agencies state that they will continue to carefully review risk management and consumer compliance processes, policies and procedures. The Agencies will take action against institutions that exhibit predatory lending practices, violate consumer protection laws or fair lending laws, engage in unfair or deceptive acts or practices, or otherwise engage in unsafe or unsound lending practices.

Risk Management

Predatory Lending Considerations

In accordance with the Subprime Statement, institutions should ensure that they do not engage in the types of predatory lending practices discussed in the Expanded Subprime Guidance. Typically, predatory lending involves at least one of the following elements:

Making loans based predominantly on the foreclosure or liquidation value of a borrower's collateral rater than on the borrower's ability to repay the mortgage according to its terms;
Inducing a borrower to repeatedly refinance a loan in order to charge high points and fees each time the loan is refinanced (“loan flipping”); or
Engaging in fraud or deception to conceal the true nature of the mortgage loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower.

The Subprime Statement notes that offering mortgage loans such as these face an elevated risk that their conduct will violate Section 5 of the Federal Trade Commission Act (FTC Act), which prohibits unfair or deceptive actions or practices.

Underwriting Standards

The Subprime Statement indicates that institutions should refer to the Real Estate Guidelines, which provide underwriting standards for all real estate loans. The Real Estate Guidelines state that prudently underwritten real estate loans should reflect all relevant credit factors, including the capacity of the borrower to adequately service the debt.

Payment Shock

Prudent qualifying standards recognize the potential effect of payment shock in evaluation a borrower's ability to service debt. An institution's analysis of a borrower's repayment capacity should include an evaluation of the borrower's ability to repay the debt by its final maturity at the fully indexed rate, assuming a fully amortizing repayment scheduled.

The fully indexed rate equals the index rate prevailing at origination plus the margin to be added to it after the expiration of an introductory interest rate. For example, assume that a loan with an initial fixed rate of 7% will reset to the six-month London InterBank Offered Rate (LIBOR) plus a margin of 6%. If the six-month LIBOR rate equals 5.5%, lenders should qualify the borrower at 11.5% (5.5% + 6%), regardless of any interest rate caps that limit how quickly the fully indexed rate may be reached.

Debt-to-Income Ratio

An institution's DTI analysis should include, among other things, an assessment of a borrower's total monthly housing-related payments (e.g., principal, interest, taxes and insurance, or what is commonly known as PITI) as a percentage of gross monthly income.

Risk Layering

Risk-layering features in a subprime mortgage loan may significantly increase the risks to both the institution and the borrower. Therefore, an institution should have clear policies governing the use of risk-layering features, such as reduced documentation loans or simultaneous second lien mortgages. When risk-layering features are combined with a mortgage loan, an institution should demonstrate the existence of effective mitigating factors that support the underwriting decision and the borrower's repayment capacity.

Reduced Documentation

Institutions should verify and document the borrower's income (both source and amount), assets and liabilities. The Agencies note in the introductory comments that for many borrowers, institutions should be able to readily document income using recent W-2 statements, pay stubs and/or tax returns.

Income and reduced documentation loans to subprime borrowers should be accepted only if there are mitigating factors that clearly minimize the need for direct verification of repayment capacity. Reliance on such factors also must be documented. The Subprime Statement provides two examples of mitigating factors:

When a borrower with a favorable payment performance seeks to refinance an existing mortgage with a new loan of a similar size and with similar terms, and the borrower's financial condition has not deteriorated; and
When a borrower has substantial liquid reserves or assets that demonstrate repayment capacity and can be verified and document by the lender.

A higher interest rate is not considered an acceptable mitigating factor.

Workout Arrangements

Use of Prudent Underwriting

Institutions should follow prudent underwriting practices in determining whether to consider a loan modification or a workout arrangement. Such arrangements can vary widely based on the borrower's financial capacity. For example, an institution might consider modifying loan terms, including converting loans with variable rates into fixed-rate products to provide financially stressed borrowers with predictable payment requirements.

Foreclosure

The Agencies note that existing supervisory guidance and applicable accounting standards do not require institutions to immediately foreclose on the collateral underlying a loan when the borrower exhibits repayment difficulties.
Consumer Protection Principles

Advertisements, Oral Statements and Promotional Materials

Communications with consumers, including advertisements, oral statements and promotional materials, should provide clear and balanced information about the relative benefits and risks of loan products.

Mortgage product descriptions and advertisements should provide clear, detailed information about the costs, terms, features and risks of the loan to the borrower. Institutions should not use such communications to steer consumers to these products to the exclusion of other products offered by the institution for which the consumer may qualify. The information should be provided in a timely manner to assist consumers in the product selection process, not just upon submission of an application or at consummation of the loan.

Required Consumer Disclosures

Consumers should be informed of:

Payment Shock - Potential payment increases, including how the new payment will be calculated when the introductory fixed rate expires.
Prepayment Penalties - The existence of any prepayment penalty, how it will be calculated, and when it may be imposed.
Balloon Payments - The existence of any balloon payment.
Cost of Reduced Documentation Loans - Whether there is a pricing premium attached to a reduced documentation or stated income loan program.
Responsibility for Taxes and Insurance - The requirement to make payments for real estate taxes and insurance in addition to their loan payments, if not escrowed, and the fact that taxes and insurance costs can be substantial.

The information should be provided in a timely manner to assist consumers in the product selection process, not just upon submission of an application or at consummation of the loan.

Prepayment Penalties

Prepayment Penalties should not exceed the initial reset period. In general, borrowers should be provided a reasonable period of time (typically at least 60 days prior to the rest date) to refinance without penalty.

Control Systems

Institutions should develop strong control systems to monitor whether actual practices are consistent with their policies and procedures. The control systems should address:

Compliance and consumer information concerns;
Safety and soundness.

Control systems should encompass both institution personnel and applicable third parties, such as mortgage brokers or correspondents.

Policies and Procedures

Institutions should:

Establish appropriate criteria for hiring and training loan personnel;
Establish appropriate criteria for entering into and maintaining relationships with third parties and conducting initial and ongoing due diligence on third parties;
Design compensation programs that avoid providing incentives for originations inconsistent with sound underwriting and consumer protection principles, and that do not result in the steering of consumers to these products to the exclusion of other products for which the consumer may qualify.

Monitoring

Institutions should have procedures and systems to monitor:

Compliance with applicable laws and regulations;
Third party agreements;
Internal policies; and
Complaints (to identify potential compliance problems or other negative trends).

An institution's controls should include appropriate corrective actions in the event of failure to comply with applicable laws, regulations, third-party agreements or internal policies.

Banker, Broker, or Direct lender? All are Loan Officers, who is best?

Mortgages Unlimited, The Joe Metzler Team — Thu, 13 Dec 2007 08:14:56 -0600

Banker, Broker, or Direct Lender? All are "Loan Officers", who is BEST?

Saint Paul, Minnesota: When you're looking to get a mortgage loan, you may work with a loan officer, but where they work makes a difference! People often confuse the lender types even though all will glean the same results: a new home or new loan. However, it is important to understand the difference between the three types of lenders so you know what to expect from them during the mortgage application process.

[OK]: A Bank loan officer is a representative of one lending institution, the bank, who works to sell and process mortgages and other loans originated by their employer. They usually are limited in what they can offer to only their own products, severely limiting your loan rate, cost, and product options. These loan officers represent the borrower to just their lending institution and will guide him or her through the selection, processing and closing of mortgage loan. Loan officers can be paid a commission or salary for their services.

[Better]: A Mortgage Broker is an individual or firm that is the middle man between you and the actual lending institution, which can be a bank, credit union, mortgage corporation, or finance company. They will originate your loan; collect your information, then submit your application to one or more real lenders, and work with the chosen lender until the loan closes. They have no money of their own, and no underwriters. Mortgage brokers CAN NOT issue loan commitment letters (only the actual lender can - although most brokers do anyway). Brokers can receive their fee from the borrower, be paid from the "real lender" if the loan closes, or both.

[Best]: A Direct Lender/Mortgage Banker is an individual or firm that originates, processes, underwrites, issues loan commitments, closes, and funds their own loans with their own money. Most have in-house underwriters, and have direct access to loan products from all the big national players. If a loan product exists, they can usually offer it. Direct Lenders typically bundle and sell the servicing rights of your loan after closing to giant Fannie Mae or Freddie Mac servicing companies. Most are also able to broker loans if needed, giving you the best of both worlds.

It is typically pretty easy to become a mortgage broker, while it is much harder to be a direct lender. There are two primary criteria few brokers can meet. The first is typically a seven-figure net worth requirement. The second is an initial audit process that scrutinizes past transactions. You are typically ineligible if predatory lending practices are found, or questionable transactions are uncovered. Our correspondent direct lender status is hard earned and we believe it affords our loyal following of customers many benefits.

Loan officers with a direct lender will analyze your financial situation to determine which loan is the best fit for your financing needs. Direct lenders can be paid a fee from the borrower, from the lender whom they sell your loan, or both.

Learn more at our website, www.MnBestRates.com

Refinancing - When and Why

Mortgages Unlimited, The Joe Metzler Team — Thu, 13 Dec 2007 08:03:23 -0600

Refinancing - When and Why

Saint Paul, Minnesota: The first rule is that there are no rules. You should refinance if it makes sense for you. A highly trained professional will have all the tools to help you determine if refinancing your existing loan makes sense for you!

You should seriously think about refinancing your current mortgage if your interest rate is 1.0% or higher above the going rate.

Refinancing lets homeowners reduce their monthly payment, slash thousands of dollars off the total cost of the loan, and even arrange "cash-out" refinancing if they want to pocket some extra money to be used for any purpose. Buy a car, pay off a car, credit cards, student loans, whatever! It makes sense to refinance if you can recover your costs and make a fair return on your investment before you plan to sell your home or pay off your mortgage. We can help you calculate what your refinance break-even point is.

Many times, the savings may be obvious. For example, the borrowers were going to save over $15,000 over 48 months.

A more typical case is one where there is a closing cost of, say $4,000, and a saving of $150 a month with the new loan. If you can get your cost back within three years, you are going to be in the house at least that long, and have lower payments thereafter, then refinancing definitely makes sense for you.

Here you will find information relating to refinancing an existing home loan. A key to finding the right loan is having the available resources to make informed decisions.

I regularly see these situations that call for refinancing:

If you have a fixed rate loan and can refinance into a similar term loan at a lower rate, you should refinance. From my perspective: if I can wave my hands at your 30 year fixed rate mortgage and lower the interest rate, then you are foolish not to do it. Some people say: "Yes, but I have been paying on my 30 year loan for 5 years and you want to replace it with another 30 year loan. This is going to cost me more in the long run". This is not correct. You can, in this situation, still pay the loan off in the same 25 years and be making a lower payment on your new loan than your old one. We will calculate the payment necessary to pay it off in 25 years. Plus many times, with the lower rate, and lower payment, although you may go back to a 30 year term, your "total" cost over the life of the loan may still save you money.
You took out a large Home Equity loan that just keeps going up and up and up. You can stop the madness by switching to a low fixed rate loan!
You have a 30 year loan, with over 20 years left. Many times we are able to refinance these loans into 10 or 15 year terms while leaving the payment very near your 30 year payment. This is an obvious no-brainer, as the amount of money saved typically is in excess of $80,000, plus shaves YEARS off your loan.
You have an Adjustable Rate Mortgage that is about to increase in rate but you are not pleased with where fixed rate mortgages are. You should look at a 1 year Treasury ARM and see if you can keep that same index and margin and "roll back" the rate for a year. This is a "no risk' proposition which in essence this gives you a break for exactly 1 year. During this time you should stay in touch with your lender to decide what to do during that year. I do this for a large number of my customers. I also regularly update my customers who have ARM's.
You have an Adjustable Rate (ARM) and your nerves can't take it any more. You simply want the certainty of a fixed rate loan. Here the key is to recognize that fixed rates are "bouncy" and you want to lock your rate at appropriate time. This is 50% skill, 50% luck.
You have a "balloon loan" that needs to be refinanced. Here, you need to discuss your situation with us. You may want fixed. You may want adjustable. The correct choice of loan depends on the market and most importantly, on your situation.
You need "cash-out". You may want an equity second or a new first. This depends on the relative size of your first and the cash out. Equity lines issued by direct lenders have low cost but high rate. You again have to discuss your exact situation with us, as we may have some costs, but a better rate.
You currently have a first and second mortgage. Banks love giving people second mortgages. Unfortunately, many of those people would have been much better off getting a new first mortgage instead. Lot's of people THINK a second would be better for them because their first (for example) might only have 18 years left. I regularly refinance people out of a first & second mortgage into a new first mortgage which saves them $100's each month while still paying off their loan in the time frame they want. Call today. I'll analyze your situation to see if a refinance makes sense for you.
You took out a 80/20 loan to purchase your home, and now both loans are adjusting. Switching to one low fixed rate loan to stop the ever increasing payments.

What NOT To Do

There are a lot of things "not to do". I will point out only the 3 most common mistakes I see people make.

Setting an unrealistic goal. I always get inquiries from people who say something like, "I have a 30 year fixed rate Jumbo loan at 6.625% and I will refinance ONLY when rates get to 6.0% at no cost". Sometimes I call people back and say, "Why 6%? why not 5% or 3%? They say, "Well rates are not going to go that low". Right and they are unlikely to go to 6% at "no cost" also ("no cost" loans typically cost anywhere from 1/2% to 1% higher than the going interest rate)
You should first succumb to the fact that once you can lower your rate with no out of pocket expense, you should probably refinance. Don't draw unrealistic interest rate lines in the sand. They get blown away too easily.
The "Once rates start dropping, they are going to continue to drop and I'm smart and I am going to lock when rates hit the bottom of the market" syndrome. It is very hard to guess the interest-rate cycle, and pretty hard to catch the bottom. Remember that rates can rise fairly quickly.
"If the rate goes down just another 1/8th percent, then I'll lock" This one just kills me! I see people lose all the time over this theory. If your current rate is 7.25% and today's rate is 6.25%. LOCK & CLOSE! Most people have what I call "interest rate block". They get a rate stuck in their head, and that is the rate they want, no matter what. Most people fail to realize (and most loan officers fail to show them), that the difference on the average loan over 1/8th a percent is usually less than $15 per month. If you can save $150 per month on your loan at today's rate, why gamble? Why hold out for another $15 when the odds are against you?

Don't get piggy. Work with us. Set a goal and lock when it gets there. Are we going to hit the bottom? Probably not. Are we going to save you money? Yes. If you can save money with no out of pocket costs, than you have nothing to lose. If you want to gamble go to Las Vegas. It's a heck of a lot more fun.

Extra Tricks to Save Money When Refinancing

The purpose of most refinance loans is simply to save money. The goal is to minimize your expense over the life of the loan or to minimize your monthly payment in the near future.

If you can swing it, don't roll every cost of refinancing into your new loan. Most people escrow for taxes and insurance. If you do, your current lender must give you escrow refund within 30 days of paying off their loan. Your new lender, be it us or someone else, must take the equivalent amount of money (or more) at closing to start the new escrow account.

Remember that you always get to skip a month of payments. If you close June 5th, your first new payment is August 1st.

Knowing this, paying some of your closing costs out-of-pocket will save you even more money in the long run. Why roll in $4000 in closing costs, when you really only need to roll in $2000 ($1000 escrow refund + $1000 missed payment = $2000). Paying that $2000 over 30 years doesn't make sense if you don't have too.

On the other hand, some people love the fact that they didn't pay anything out of pocket to refinance, got a nice escrow refund check, then got to miss a mortgage payment. They use the 'extra' money to pay bills, go on vacation, etc.

Picking a Lender & Closing Costs

Shopping is confusing. No matter what we're looking for -- from cars to refrigerators' -- there's a built-in element of confusion. Why? Lack of knowledge. An unfortunate rule of thumb is that the less we know about something we need to buy, the more we can expect to pay for it.

Shopping for a mortgage is complex at best -- even for the savvy previous home owner. Daily rate changes, time-sensitive lock-in periods, points, lender's fees... plus the emotional element of probably the largest financial deal any of us will ever make. Throw in to this already murky stew the ingredients of tricky rate advertising, commissions for every officer, agent and broker who 'helps' in your transaction, and the obscure differences between 'rates' and 'fees.' It's no mystery that many buyers settle for a mortgage that exceeds their monetary means out of sheer exasperation!

Please review our information on closing costs and "BAD Good Faith Estimates ". There is currently a large number of fly-by-night lenders doing some incredibly misleading rate & closing cost advertising. Remember, if it sounds too good, it probably is! Also check out my article "Best Rate or Lowest Cost" for more loan comparison information.

The Bottom Line
Remember, the first rule is that there are no rules. You should refinance if it makes sense for you. Every person & situation is different. What makes sense for one family, may not make sense for you. Call me today to discuss your wants, needs, and goals. Together we'll determine if refinancing makes sense for YOU.

LEARN MORE at our web site, www.MnBestRates.com

What is an FHA Loan and FHASecure?

Mortgages Unlimited, The Joe Metzler Team — Wed, 12 Dec 2007 08:02:37 -0600

What is an FHA Loan?
You've heard the name before, but did you know that FHA financing is one of the most popular ways to become a homeowner or refinance an existing mortgage. FHA's mortgage insurance programs help low- and moderate-income families become homeowners by lowering some of the costs of their mortgage loans. FHA mortgage insurance also encourages mortgage companies to make loans to otherwise creditworthy borrowers and projects that might not be able to meet conventional underwriting requirements, by protecting the mortgage company against loan default on mortgages for properties that meet certain minimum requirements--including manufactured homes, single-family and multifamily properties.

FHA vs. Conventional Financing
Find out why more and more people are turning back to FHA!
Although there are similarities between FHA and Conventional mortgage loans there are also some big differences. While interest rates are similar, credit guidelines are different. FHA allows for borrowers with less than perfect credit to receive the same interest rate as a borrower with unblemished credit.

Most applicants are inundated with a variety of terms describing mortgages that are available on the market. The most popular include, Conforming, FHA, and VA.

FHA was created by the Federal Government to provide affordable housing financing for qualified borrowers. FHA insures 100% of the loan, eliminating the lender's risk. The borrower pays an upfront insurance premium which is approximately 1.5% of the loan amount. This money can be financed directly in the loan amount. The borrower also pays a monthly premium of .5% of the loan amount divided by 12 months. FHA requires down payment of 3%. This money can be a gift. No reserves are required. Closing costs can be financed in the loan amount.

Borrowers must provide proof of sufficient income to show ability to pay the mortgage. FHA guidelines are more relaxed, such as; a bankruptcy that was discharged at least 2 years ago, the use of alternative credit (utilities, cable TV, auto or medical insurance premiums, child care, school tuition, furniture or appliance store accounts) in lieu of traditional credit, and higher debt to income ratios. FHA interest rates are extremely competitive with conventional rates.

The new FHASecure Inititive was recently added in an attempt to help people facing foreclosure. Under traditional FHA guidelines, recent late payments, especially mortgage late payments disqualified you from an FHA loan. Under FHASecure, you still need to qualify under traditional FHA guidelines, BUT if, and only IF, you you meet these additional requirements, FHA will disregard your late payments:

You are currently on a NON FHA adjustable (ARM) mortgage
Your were making on time payments BEFORE your adjustable loan adjusted
All your late payments are AFTER your adjustable loan adjusted
You can prove the adjustment date

Down payment requirements can be low. In contrast to conventional mortgage products, which frequently require down payments of 10 percent or more of the purchase price of the home, single-family mortgages insured by FHA make it possible to reduce down payments to as little as 2.25% percent.

Many closing costs can be financed. With most conventional loans, the borrower must pay, at the time of purchase, closing costs (the many fees and charges associated with buying a home) equivalent to 2-3 percent of the price of the home. This program allows the borrower to finance many of these charges, thus reducing the up-front cost of buying a home. FHA mortgage insurance is not free: borrowers pay an up-front insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.

Some fees are limited. FHA rules impose limits on some of the fees that mortgage companies may charge in making a loan. For example, the loan origination fee charged by the mortgage company for the administrative cost of processing the loan may not exceed one percent of the amount of the mortgage.

HUD sets limits on the loan amount. To make sure that its programs serve low- and moderate-income people, FHA sets limits on the dollar value of the mortgage loan. It is always changing, and does vary depending on which county the property is located.

Fannie Mae & Freddie Mac loans are conventional loans made at the risk of the lender without benefit of any government guarantee or government insurance. A conventional loan with an LTV (loan to value ratio) of greater than 80% requires primary mortgage insurance, which can be paid monthly. The borrower must (usually) have 5% of his/her own funds for the down payment and 2 months reserves on deposit.

Requirements of a conventional loan applicant include excellent credit, job stability with sufficient income, a sizable down payment, and low debt to income ratios. Borrowers who meet Fannie Mae or Freddie Mac conventional guidelines are rewarded with an interest rate only slightly lower than an FHA interest rate.

FHA Mortgage Insurance. Mortgage insurance is required under all programs where the borrower does not put at least 20% down payment. Under the OLD FHA rules, mortgage insurance was required for the entire loan period. Conventional loans are able to eliminate mortgage insurance when you reach 80% loan-to-value (20% equity). A BIG advantage over FHA. NOT ANYMORE! FHA mortgage insurance is eliminated at 78% loan-to-value (22% equity), just like conventional loans!

The FHA Streamline Refinance
If you currently have an FHA mortgage you are eligible for one of the simplest money saving refinances available today. The FHA "Streamline Refinance" allows existing FHA borrowers to reduce their interest rate without having to jump through hoops. Basically, if you have made on time payments on your current FHA loan for the past 12 months. You get (almost) an automatic approval for the streamline refinance!

FHA - a great friend making a BIG comeback - learn more.

Choosing your loan with "APR" can cost you money

Mortgages Unlimited, The Joe Metzler Team — Wed, 12 Dec 2007 07:23:27 -0600

Choosing your loan with "APR" CAN COST YOU MONEY

A borrower shopping for the best mortgage rate can easily be seduced by low rate offers that are accompanied by low annual percentage rates (APR). Federal law requires that APR be disclosed along side the actual interest rate as a means to help borrowers make a more informed decision on their mortgage.

The truth is that APR is a very poor way to comparison shop for a mortgage and can cause borrowers to make costly decisions. APR was created to provide a way for borrowers to account for costs associated with the mortgage. This sounds good because it may not be very easy to choose between a loan with a lower rate and higher fees or a loan at a higher rate with low fees.

The problem is that the APR calculation is based on bad assumptions. First, APR assumes zero inflation and that the value or buying power of a dollar today will be exactly equal to the value of a dollar 10, 20, or even 30 years from now. Next, the APR calculation assumes that the mortgage will never be pre-paid or paid. That means no refinancing or selling the home, which is highly unlikely since the average life of a home mortgage loan is less than four years. Just think about your own loans: Is it rare to see the same loan in place for even five years-forget 30 years?

The APR calculation does not consider the value of the money used for fees. So if you spent thousands of dollars in points or fees to get a lower rate, the APR calculation does not give any value to the money if it wasn't spent on closing costs. Finally, APR does not take tax consequences into consideration. This can be significant, since higher fees on the mortgage may not be deductible, while the higher interest rate typically is deductible. Moreover, APR can be easily manipulated by bad lenders, making it totally worthless.

How does APR work?
APR basically takes the base interest rates, calculates closing costs, and gives you a number. Technically, the lower the number, the better the deal. If two lender quote you the exact same (base) rate, the lender with the lower APR is supposed to be a better deal. If the lenders are playing fair, this works well in giving you accurate information.

If the two lenders are quoting different (base) rates, then the APR calculation is totally misleading.

Furthermore, the APR calculation only keeps the monthly payment information the same. Instead of the mortgage amount, APR uses "amount financed." This is the "amount financed" information on the Truth in Lending statement. Amount financed takes into consideration the fees that are lender imposed, such as application fees, points, commitment fees, and interim or per diem interest. So, amount financed is the mortgage amount less any lender fees, points, and interim interest. The more fees, the lower the amount financed. The monthly payment is then calculated as a product of the amount financed to give you the annual percentage rate or APR. So, the lower the amount financed, the higher the APR is. Amount financed can be manipulated by assuming a closing on the last day instead of the first day of the month. That would increase the amount financed and decrease the APR.

Here is a real example on a $150,000 fixed rate 30-year mortgage with zero points: Lender A is offering a great low rate of 5.875 percent and Lender B is offering a higher rate of 6.125 percent.

Let's look at the real story. The payment difference between the two is $24 per month. So is it worth paying $3,000 in fees to Lender A in order to save $24 per month? Hardly. It will take over 10 years for a borrower just to get back his investment-a bad choice when you consider that mortgage loans are typically retired within four years. To make the decision to go with Lender A even worse, if that's possible, borrowers rarely take the value of to day's dollars into account.

Rather than giving Lender A your hard-earned $3,000, you should give it to yourself. Reduce the loan balance on your mortgage by the fees you are saving. In the example given, that would reduce the loan from $150,000 to $147,000. This makes the payment difference just $6 per month instead of $24 per month! The true time to break even is really 500 months (more than 40 years). So it is impossible to benefit from the higher fee program from Lender A, because the maximum period on the loan is 30 years or 360 months. One more thing: when you calculate your tax deduction on the payment difference, it makes even more sense to avoid paying higher non-deductible fees. The obvious correct choice is to go with Lender B, even though the APR is lower with Lender A.

The bottom line is that you should forget APR and think twice about those advertised low rates when they are accompanied by higher fees.

Learn More

NO COSTS LOANS - Good or Bad Idea?

Mortgages Unlimited, The Joe Metzler Team — Wed, 12 Dec 2007 07:19:32 -0600

NO COST LOANS - Good or Bad Idea? Read this, then decide...

One of the most confusing areas for consumers in a mortgage loan transaction are closing costs. Here I'll explain the advantages and disadvantages of the highly advertised "zero cost" or "low cost "loans.

First and foremost, there is no such thing as a zero cost loan! Everyone knows there are costs associated with getting a mortgage loan; appraisal, credit reports, state taxes, county recording fees, title companies fees, lender fees, escrows, and more. Someone has to pay these fees, and it is always YOU. How you pay them is what this article tries to explain.

In a no lender fee or zero cost loan, the lender uses "negative" points to offset your costs. In the example below, by having the 8.00% rate (versus the 7.5% rate), you can reduce (or offset through interest rate) $2,000 of closing costs. By choosing this option, it appear as if you saved thousands in closing costs. GREAT! But while lower costs always sounds good, you now have a significantly higher interest rate! OK, now what?

No matter what anyone says, a zero cost, or no lender fee loan is NOT automatically a great deal. Although it may sound so much better than paying thousands in closing fees, you have to analyze each individual loan and client situation to determine the benefits. Many lenders speak highly of the "thousands of dollars" you save in fees. They never discuss the fact that you may spend significantly more in interest over the full life of the loan than you ever saved in up-front closing costs! In the example below, you can pay $64,474 MORE in interest to save $4,000 today on a 30-year loan.

View the following chart, then call us. We'll run your personal numbers. Then you can decide if a zero cost loan is right for you.

Deal or No Deal?	Always BEST	Most Common / NORMAL	OK short-term BAD long-term Most Common Low Cost Option	OK short-term Very BAD long-term
Considerations on a $200,000 - 30 year fixed loan	Closing Costs Paid Out of Pocket	Closing Costs Added to Loan	Low Lender Fee Loan	Full No Cost Loan
Loan Amount	$200,000	$204,000	$202,000	$200,000
Interest Rate	7.50%	7.50%	8.00%	8.75%
Principal & Interest Payment	$1,398	$1,426	$1,482	$1,573
Closing Costs On Estimate	$4,000	$4,000	$2,000	$0
Out of Pocket Closing Cost Paid	$4,000	$0	$0	$0
Interest Paid over 5 years	$75,182	$76,685	$81,038	$87,830
Interest Paid over 10 years	$143,443	$146,311	$155,133	$168,901
Interest Paid over 30 years	$305,475	$311,583	$333,663	$368,474

FACT: In a refinance loan, the vast majority of people roll the closing costs into the new loan.

A common misconception is that a zero cost loan is better than adding thousands of dollars in closing costs to the new loan. THIS IS NOT AUTOMATICALLY TRUE! Even if you were to only stay in the property 5 years, why have the higher payment when a few thousand dollars added to the loan principle is usually meaningless in the grand picture.

The general fixed rate loan "no cost" formula is that for every 1/8th percent increase in interest rate, you can usually eliminate 1/2 percent of the loan amount in cost. So on a $100,000 loan, by increasing the interest rate 1/8th, I can reduce $500 in closing costs. By increasing the rate 1/4 percent, I would reduce closing costs by $1,000. This DOES NOT apply to ARM (adjustable rate) loans.

I hope this article has helped you to understand the varied measures used to determine the advantages and disadvantages of zero cost loans. Each borrower is different, and the evaluations must be made on a case-by-case basis. As you can see, there are many factors to consider when looking at the available options. a QUALIFIED Mortgage Consultant will be able to answer all of your questions, outline the costs and benefits, and even give you a few new ones to consider! Of course, if a zero cost loan makes sense for your case, GO AHEAD AND TAKE ONE.

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Think BEFORE you break the lock on that great mortgage rate

Mortgages Unlimited, The Joe Metzler Team — Wed, 12 Dec 2007 07:08:37 -0600

Think BEFORE you break the lock on that great mortgage interest rate

You've locked yourself into a good mortgage interest rate for 30 days and you're happy. You expect to close a month from now on the house you want at a payment you can afford. Suddenly, interest rates start to drop and the rate you've locked in doesn't look quite so good.

Why did you lock in the rate in the first place? Because a rate lock is a form of insurance to keep the interest rate from escalating to the point where monthly payments on your proposed loan become unaffordable. The only time such locks become an issue for cost-conscious consumers is when rates are dropping and each fraction of a percent represents a savings over the locked rate.

For example, take a $125,000 30-year fixed-rate loan. The monthly payment at 7 percent interest works out to $831.63. At 6.9 percent, it goes down $8.38, to $823.25. Over the course of the loan, that represents an extra $3,016.80 in your pocket.

It's a scenario that many mortgage consumers have faced in recent months.

Pause before you break
If you're tempted to break a rate lock and head for another lender, experts warn that you should tread carefully and consider the time and expense that breaking the lock can incur.

Breaking rate locks is easy to do. One simply walks away and does not close the loan. However, there could be expensive repercussions to that action.

The costs involved in chasing a lower interest rate ... could be numerous, from a forfeited application fee to the loss of nonrefundable fees paid up front, to being billed for expenses incurred by the lender, to a variety of expenses to be reimbursed the seller, the real estate company, or both, as well as other vendors involved in the transaction, to being sued by a lender or other party to the transaction. Review your rate lock form. Most spell out exactly what the lender will do if you break the lock.

Generally, lenders don't charge up-front fees to lock in rates for up to 60days.

When you're locking in a rate, lenders have to secure funds today for some future date, so the longer they are securing those funds at that rate, the more it's going to cost the consumer.

For example:
a 15 day lock rate may be 6.875%
a 30, or 45 day lock rate may be 7.000%
a 60 or 75 day lock may be 7.125

To lock in for longer periods a consumer would likely pay a nonrefundable fee that would be forfeited if the consumer broke the lock. This is typically 1/2 to 1% of the anticipated loan amount.

The lack of upfront fees in the short-term locks seems to make walking away from a rate lock a painless exercise, but you should think again.

Be sure you'll benefit
There are other factors to consider, not the least of which is whether you will pay more in the short term than you'll save over the long haul. Few home buyers will own a house for 30 years. If you own a home for seven years, the $8.38 a month reduction in our example above amounts to only $703.92, which could easily be eaten up in time and fees to break the lock.

When purchasing a home, there's also the strong possibility that walking away from a lock can keep you from closing on time and thus may blow the whole deal.

What holds things up is getting verifications again. You have to do verifications to the new lender. You have to redo the appraisal to the new lender. There are a number of administrative things that take time. So you're looking at maybe at least 15 days to redo everything.

Besides the cost in time, you may also have to pay new fees to get things like an appraisal redone.

Is there any chance that a lender you've locked in with will agree to come down to a prevailing lower interest rate before closing?

Normally I do a 30-day lock and if rates go down during that period, I don't have any choice, I would have to go to another investor if my client says, 'I don't want to close at that rate,' "I can't take it back to that lender and say, 'Hey! Guess what? Rates went down, and my client wants the lower rate.' It ain't gonna happen.

If you have good credit, you shouldn't have a problem getting a loan from another lender approved at the lower interest rate, but you take the risk of being turned down by a second lender if you have any special needs.

Refinance rate locks
The least-risk scenario for breaking a rate lock is in a refinancing deal where there is no time constraint on the consumer seeking the loan.

In a refinance, the borrower can just wait to see what happens. If rates go down, he can threaten to walk away from the deal unless his rate is reduced ...

When a lot of borrowers start to do that, you're going to see is a rise in rates on refinance transactions relative to rates on purchase transactions. This already has happened. I have found a consistent tendency for refinance transactions to be priced almost a quarter of a percent higher than purchase transactions.

Float down options
For protection on both ends of the scale, some lenders have "float-down" provisions. In these contracts, the consumer locks in a rate, and if rates come down, the consumer has the opportunity to lock in a new lower rate before closing. But, take note, these loans are usually priced a little higher to begin with because the lender's taking that added risk.

From the Lenders Standpoint
The percentage of locked loans that never fund (fallout) is closely monitored. From the moment we lock a loan, we hedge our interest-rate risk to guarantee you that we will have the money to fund your loan at close. If market prices (our cost of money) improves during the lock period, we lose money on the hedge. If the loan never funds (closes), we are totally out the hedge money. This can (and does) add up to millions of dollars of losses that get passed on to you with higher rates.

The bottom line
In the end, chasing anything but a significant drop in interest rates, something which likely won't happen in the normal 30 to 45 days it takes to close a loan, is futile because of what consumers pay for changing their minds.

I get people calling me saying, 'Well, let's go ahead and start the paperwork. Then, when we reach the low point we'll lock it in.'" I've done this for years and I don't know where the low point is ... so people need to have realistic expectations. Otherwise, they are just filling out paperwork for no good reason.

Remember, it is extremely hard for anyone to catch the rock bottom of interest rate cycles. It is easy to get near the bottom. Be realistic. If you are comfortable with the rate, lock. Then don't look back!

You are ENTITLED to a SECOND Opinion

Mortgages Unlimited, The Joe Metzler Team — Wed, 12 Dec 2007 07:01:02 -0600

You Are Entitled To A Second Opinion
Even If You Have Already Been Pre-Approved For Your Mortgage!

Saint Paul, Minnesota: Imagine you have just found out that you have to have surgery and the procedure will be pretty extensive! Most people just wont take the doctors word any more. They seek out another doctor for a second opinion.

Thats the way it should be with your mortgage too! If you have already been pre-approved or pre-qualified for a mortgage on your next home, are you absolutely sure you are getting the best deal?

Im not saying that interest rates are NOT important, they are! But, here are some of the things you need to consider and why you need a second opinion from me:

Should you decrease your down payment and use your cash to pay off your high credit card debts?
Should you pay points or loan origination fees?
Does a no-cost mortgage make more sense for you?
Are you better off with an adjustable rate or a fixed rate?
and did your lender show you how to save thousands of dollars and take 5 years off the mortgage term?

If they did not talk to you about any of these issues then you definitely need a Second Opinion from a qualified lender.

It wont hurt to see if your mortgage has been structured correctly. You have everything to gain and nothing to lose. You can simply walk away knowing that your lender has done a good job for you. Or, you will find out that they havent. Either way, you win.

Beware of the BAD Good Faith Estimate

Mortgages Unlimited, The Joe Metzler Team — Tue, 11 Dec 2007 08:13:12 -0600

BEWARE of the BAD "Good Faith Estimate"

Smart people know to shop a couple of different Mortgage Companies for the best interest rate and closing cost combination.

Shop the Internet or local paper looking for great rates.
Call a couple of lenders.
Inquire about interest rates and programs.
Select a program.
Get an estimate of closing costs.
Go with the best deal.

For example: You are buying a $150,000 dollar home, with 5% down.
After comparing many lenders, you select the two that appear to be the best and compare notes:

Both of the companies quote the exact same interest rate.
Both tell you their closing costs.
One lender's closing costs are $1,336 less!

You feel great... You've shopped, compared, and apparently saved a lot of money on your home mortgage.

CONGRATULATIONS - You just got screwed. You just paid $747 dollars more in closing costs than you needed to.

How did this happen? Easy! You probably picked the lender "advertising" the "best" deal.

Shopping for a mortgage is complex at best -- even for the savvy previous homeowner. Daily rate changes, time sensitive lock-in periods, points, lender's fees... plus the emotional element of probably the largest purchase any of us will ever make. Throw in to this already murky stew the ingredients of tricky rate advertising, commissions for every officer, agent and broker who 'helps' in your transaction, and the obscure differences between 'rates' and 'fees.' It's no mystery that many buyers settle for a mortgage that exceeds their monetary means out of sheer exasperation!

The example above and below, and all calculation, were taken from two real estimates. The client originally was going to use an online Internet Company because of the apparent savings. Here are the MAJOR quoted cost differences:

Items	The Metzler Mortgage Group	Internet Company
Origination (801)	$1,425.00	$0.00
Points (802)	$0.00	$712.00 (1/2 point)
Broker Fee (808)	$0.00	$695.00
Processing Fee (810)	$0.00	$450.00
Underwriting Fee (811)	$275.00	$425.00
Days of Interest (901)	$304.79	$27.71
Reserves (Escrow's 1000-1005)	$1,042.79	$120.71
Title Company Fees (1100-1108)	$1,128.00	$420.00
State/County Fees (1200-1203)	$402.75	$60.00
Misc. Fees	$393.00	$448.00
TOTAL	$4,666.54	$3,330.84

How you got taken:

Their estimate appears to save you $1,336. But when you add up all costs (no matter what they call them), then factor in the seriously under-estimated items, plus the costs they simply left off their estimate, your REAL COST for using the 'cheaper' company is $747.00 HIGHER.

Click here for a Interactive "Sample" Good Faith Estimate

TRICK- No Origination: A significant (apparent) cost difference, and a major 'trick' selling point because it automatically appears as if the lender is a lot cheaper. REALITY - Add up their broker fee, processing fee, lock-in fee, higher rate, high underwriting fee, and other various junk fees. By the time you do this, it usually adds up to more than the standard 1% origination fee.

TRICK- No Lender Fees: A variation of the "no origination" trick. Some of the big Internet Mortgage Companies play this one pretty well. REALITY - There are still "third party" fees. Among these are fees for appraisal, courier, title insurance, state tax, and recording. The TRICK to the customer is that their "real" rate is actually higher than you are being quoted. You pay "loan discount points" to buy down the interest rate to their "great rate" (or about what everyone else is quoting). The "points" you pay them equal about what you would pay any other lender in "lender fees". This no lender fee statement makes them sound better than everyone else, when in reality, your costs are about the same, if not higher. - Nice trick huh?

Confused? It's simple, on a $100,000 loan:

(Rates are not accurate for today - just samples)

	Metzler Group	NO Lender FEE Loan
Rate	6.00%	6.00%
Origination	1% = $1,000	None = $0.00
Other Lender Fees	$400	$0.00
3rd Party Closing Costs	$2,000	$2,000
Discount "POINTS"	None	1.5% = $1,500
Apparent Savings	None	$1,400
TOTAL COST Out of Pocket	$3,400	$3,500

Although NO LENDER FEE sounds like some significant saving, it really isn't. Plus you may actually pay MORE for that great loan! Are you comfortable using a lender who is trying to trick you?

Another "NO COST" or "LOW COST" deception is achieved by simply increasing your interest rate. Everyone knows the TV commercial with; "I lost another loan to" statement. They claim a loan with $395 closing cost. Sounds great, but you should click here to read my article "Best Rate or Lowest Cost - Which is Best for You" You may be surprised.

TRICK- APR vs. Advertised rate: Do you understand APR? Most people don't! If a lender quotes a rate, by law, they must quote APR. REALITY - The lowest Rate or APR does not automatically mean the best deal. The further rate and APR are apart, the more you are paying in closing costs. If you don't understand APR, LEARN! Click here to read my article "APR vs. Rate - How you got screwed"

TRICK- Interest Rate: They appear to be charging the same interest rate: REALITY - You are either paying discount "points" to get the same rate, or they had added a ton of junk fees in order to give you their great rate.

TRICK- Days of Interest: They almost always quote only one day of interest. This is great if you close on the 30th of the month. You pay interest for the days in the month remaining after you close. REALITY - We always find out the exact closing date, then give you an accurate number. If you close on the 10th day of the month, you pay 20 days of interest. The difference between 1 day of interest and 20 days of interest can be several hundred, to over $1000 dollars.

TRICK- Reserves (Escrow's): They marked TBD (to be determined). When pressed, they usually state it is not part of "their" closing costs, or is unknown at this time. REALITY - You need to pay this at closing. We have charts to accurately determine what these fees will be based on your closing date.

TRICK- Title Company Charges: They usually only list item 1101, the closing fee. This fee is almost always within about $25.00 for all Title Companies. REALITY - There are a LOT more Title Company fees besides the 'closing fee' which you will need to pay at closing (title insurance, doc prep, name search, title exam, etc.). When pressed, they will say it is not part of 'their' closing costs, or is unknown at this time. Again, we have fee charts from the Title Companies, which accurately show these fees.

TRICK- Government Recording Fees: Out-state lenders almost NEVER list the Minnesota Mortgage Registration Tax. REALITY - This tax is either 0.0023% or .0024% of the loan amount, and can easily be several hundred, to thousands of dollars. Out-state lenders usually say they "didn't know about this fee" or put plus taxes on their estimates. Many local lenders usually say it isn't one of "their" closing costs.

TRICK- One Fee Quotes: These type of quotes usually sound good. It definitely appears to be easier to "compare" this way. REALITY - The vast majority of these type of quotes offer nothing great. Other than a great way to hide fees. In reality, your costs are usually about the same, if not higher. I ask, "Why are they afraid to show all costs?"

TRICK- Plus, plus, plus: Many lenders give quotes with a lot of "pluses" buried in the estimate. This allows their quote to sound better than others. REALITY: Add up all the pluses.

THE BOTTOM LINE
You don't have to use us - but don't get fooled into selecting your lender with false and misleading information. It is easy to be misled. By following these rules, you should always be able to make the correct apples-to-apples comparison:

#1 MOST IMPORTANT ITEM TO REMEMBER:
ALL lenders have about the exact same costs for doing your loan - NO ONE can do your loan significantly cheaper than anyone else can, PERIOD. Anyone more than just a couple of hundred dollars cheaper than everyone else on an estimate is usually being deceptive. Anyone who quotes a rate more than 1/4 point lower than everyone else is also leaving something out of the equation - and I can just about guarantee in the end, you will actually pay MORE! Click here to learn about my Lowest Rate, Lowest Cost Guarantee!

Always use a local lender, but never one with just one office (this automatically reduces your chances of being misled by about 90%). We have five offices in the metro area.
Make sure you are dealing with a local lender who understands local closings. Internet Mortgage Companies are notorious for screwing up loans, under-estimating Good Faith Estimates, and giving misleading interest rate quotes. Although you may have found us on the Internet - We are NOT an Internet Mortgage Company! We are a Twin Cities local lender with an Internet presence.
A couple hundred dollar difference in bottom line fees on an estimate is meaningless because of the variations in how lenders calculate costs. All estimates within a couple hundred dollars either way should be considered equal.
Don't fall for "we don't charge for" statements. Nothing is free, and YOU always pay. See the No Lender Fee example above.
Closing Costs / Lender Fee's. - Don't be fooled by "lender fee" statements. PAY CLOSE ATTENTION. Many lenders will give you a ridiculous number that has no bearing on your real total costs by saying "OUR closing costs" or "OUR lender fee's" are X amount. Ask instead for the "bottom line", the "total amount required to complete the transaction", or even "what is the exact penny I will need to bring to closing?" By asking in this manner, you eliminate 90% of the misleading games some lenders play in attempting to make their costs sound so much better than everyone else does. Also let them know in advance, that if the numbers at closing are significantly different than their estimate, that you will walk out without closing.
NEVER pay anything right up-front. You may be asked to pay a credit report fee up-front. This is OK, but why would you, when so many lenders don't require it. We don't! You may be asked to pay the appraisal fee in the beginning. This is also OK, as long as it is AFTER they have your full application, and AFTER you have seen the Good Faith Estimate. NEVER pay anything up-front other than appraisal and credit report (typically "Application Fees")
Ask the lender for a WRITTEN "Good Faith Estimate (GFE)" of settlement charges to verify if they are willing to put their pricing claims in writing. Make sure to tell them you want ALL costs from ALL sources involved in the transaction listed. You don't want anything listed as TBD (to be determined). If they don't know what a fee is, have them find out BEFORE they send you an estimate. Tell them you know RESPA requires their estimate to be ACCURATE.
COMPLETELY IGNORE any interest rate or closing cost estimate online. They are never right, and NEVER real!
GET IT IN WRITING. Then review each Good Faith Estimate VERY carefully, especially if the estimate does not look exactly like a real final settlement statement (known as a HUD-1. Click on the REAL estimate link above to see what a HUD-1 settlement statement looks like). Double check to make sure that EVERY cost associated with your loan is listed. All REAL estimates should be very close in total dollar amounts (assuming the same loan scenario).
NEVER use an unknown lender who solicited you through the mail, or called you on the phone. These are by far the worst rip off, misleading, overcharging, predatory lenders that exist!
Download and view the "REAL" Good Faith Estimates listed above so you know what should be on your estimate.
Call or fax us with the other company's estimate. I will be happy to help you review them. If it is a GOOD, Good Faith Estimate - I'll be the first to tell you!
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