Mortgage by Randy

a monthly update to our clients, colleagues, family & friends

by: Randy Mitchelson, July 2008

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In This Issue We Touch On:

Unemployment, Inflation & Credit Score Drops on Perfect Payment Histories

We have to start this newsletter with a quick sidebar about my recent experience volunteering with Major League Baseball in New York City.  As a fan of baseball and especially the New York Yankees, I wanted to be a part of the All Star experience during this final season at Yankee Stadium.  I was fortunate enough to be chosen as an ambassador for MLB and want to thank Jaime Whittington from MLB for helping make it all happen.  The highlight of my week was sharing the infield with so many ghosts of Yankee greats as we helped the 3 Doors Down crew set-up its sound stage and getting to spend a few minutes in the Yankee dugout helping ESPN rehearse some camera shots.  Many of you have asked to see pictures and the best ones are on the Facebook page at: http://www.facebook.com/p.php?i=1313563886&k=XV1TX66ZWVVM5ACEUAZ3P3

The current newsletter and all prior newsletters are archived at our blog space mortgagebyrandy.spaces.live.com.  Bookmark it and share with your friends and family.  You can enter your own comments and feedback as well.  On to the news...

Mortgage Market: Outlook for Rates: Just Look Up

Inflation fears are dominating more of our financial news these days.  These concerns mean that interest rates should continue sneaking up.  It's a good news, bad news story.  As rates increase, savers earn more, but borrowers pay more.  Historically, rates are still very low and combined with lower home prices, first time homebuyers are able to purchase homes.  Our government is also considering new tax breaks to encourage first time homebuyers.  The sources of the inflation are clear. One is rising food costs. World demand for grain is growing at 1.2% a year, yet yield increases are growing at 1.1% a year ("Thoughts from the Frontline Weekly Newsletter", John Mauldin, 6/28/08). Also, higher oil (see June newsletter for more info in oil) translates into higher costs to transport food items like milk and so we see food prices going up. One of the benefits of our housing situation is that the lower home prices combined with the banks restricting availability of credit is deflationary and helping keep the overall inflation picture from getting out of hand.  Remember, despite what you read, no one has a crystal ball.  Even the most experienced analysts disagree on what to expect to be the predominant force ahead.....inflation or deflation.

Personal Credit: Watch Out for Dropping Scores Even With PERFECT Payments

Those of you with home equity lines of credit should pay close attention to this one.  One of the major factors that affect your credit score is your debt ratio.  This is calculated by dividing the total of what you currently owe to what the maximum line amount is for each account.  For example if you have a car loan of 12,000 and a credit card with 9,000 limit and you have paid the car loan down to 4,000, and have a 3,000 balance on the card, your debt ratio is 33% (4,000+3,000 divided by 12,000+9,000).  To optimize your credit score it is recommended to maintain a ratio of about 35%.

To protect their exposure to falling home prices, banks are freezing and in some cases slashing the lines of credit that they established with their clients.  For example, if you had $100,000 line of credit set-up two years ago, your bank may be reducing your credit line to $50,000.  Set aside the fact that the bank signed a contract with you for the original amount, a bigger issue involves your personal credit score from this action.  As banks cut the credit lines, the ratio of what you owe goes up!  If you have $20,000 outstanding on that home equity line from the earlier example, your ratio just jumped from 20% to $40%.  Regardless of whether you have maintained a perfect payment history, your credit score takes a negative hit from the bank's action. 

Want to learn more about your credit?  Contact me for a personalized credit consultation or to schedule a group presentation.

Economy & Financial Insights: Unemployment

The unemployment rate increased to 5.5% nationally meaning some local markets are well above this mark (including my home in Lee County, Florida).  Fancy math allows the government to understate the numbers.  For example, the one of the models used understates unemployment during times of slow economic growth because it uses birth/death ratios calculated from the previous years (when the economy was stronger).  Likewise, when we begin economic recovery, unemployment will be overstated since the birth/death ration will be based on the most recent slowest years of economic growth.  The ongoing scarcity of jobs in the near term as companies, especially banks, continue reducing payroll will contribute to the current economic slowdown.  Uncertainty will reign for the foreseeable future.

Question of the Month: How Can I Help a Friend Facing Foreclosure?

Many people are facing financial challenges due to job loss, illness, readjusting mortgage payments or loss of a loved one.  Although it is a tough conversation to have, and even tougher for the homeowner to admit it, dealing with a foreclosure proactively can minimize the emotional and financial damage.  There are steps to take to avoid foreclosure in the first place.  (1) Call the lender to explain the situation and create a new payment plan.  Some lenders have special units to work with customers in trouble.  (2) Don't accept the first "no" as the answer.  Bank employees are not all created equal.  Banks are scrambling to deal with high volumes of cases and not all staffers are well versed to handle these calls.  (3) Re-examine the daily lifestyle.  Can you cut back on certain expenses to make your housing payment work?  The sad truth is that some homeowners are still buying things at the mall and paying $4 for a Starbucks coffee while they struggle with their housing expenses.  (4) Talk to a real estate attorney about your options.  Don't use the Yellow Pages either....get a qualified referral from a mortgage professional or other trusted advisor in your circle of friends.  There are good legal options to consider and do not assume that it will cost a lot of money.  (5) Don't do anything stupid or unethical.  Reports of arson and vandalism on properties in foreclosure are on the rise.  Desperate people think they can steal a quick insurance claim, but in the end their actions will be discovered and they will be held accountable.

There are good resources available for those in need.  There are also predators out there seeking to take advantage of desperate people.  Call me anytime for guidance on a specific situation.

Giving Back: Supporting our Communities

Congratulations to Sydney Scruton in Fulton, New York who earned the 2008 Larry Mitchelson Fine Arts Award.  Sydney just graduated from high school and will begin the next stage of her promising career at Finger Lakes Community College in September.  Visit www.mitchelsonartscholarship.org to see Sydney.  While you are there, check out some of the ceramic pieces on display at Buffalo State College by the very first award recipient, Matt Hill.  We are very proud of the progress all the award recipients are making.

Need volunteers? Do you have a fundraising event upcoming?   Do you have a personal web site where you are raising donations for your cause?  Submit the information to randy@mortgagebyrandy.com by the 5^th day of each month and we will do our best to include your information in the next issue.

We will be working from Orlando the first few days of August and looking forward to seeing some friends there.

Randy

Mortgage By Randy newsletter, Copyright 2008 Randy Mitchelson.  All Rights Reserved.

Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson.  Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.

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You have permission to publish this article electronically or in print as long as the following is included:

Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with 15 years experience in financial services.  Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.

As a member of National Association of Mortgage Brokers, Randy educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy, accessible at mortgagebyrandy.spaces.live.com. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC. 

He is founder of Estero, Florida based National Web Leads, LLC (www.nationalwebleads.com), an online lead generation service matching consumer finance lenders with customers.   Through their network of partners, National Web Leads, LLC delivers bleeding edge Web 2.0 software solutions such as lead generation platforms and real time desktop widget and mobile reporting tools.

Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY.  He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership (www.swfrtp.org) and Strategic Planning Director for The Michelle's Angels Foundation (www.michellesangels.com).  He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.