Category Archives: Investing

Foreclosure or Buyer Remorse?

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Well, I promised I’d report in if I saw anything really good sitting around with no offers, or signs of foreclosure woes, on “the Eastside”.

As to good properties sitting around with no offers…not!  I showed a few properties on Sunday, turned around and one went STI two hours later.  Of course, very close to Microsoft.  A few others left over there, but doubt they will last.  Even then, those were not of the quality I would recommend.  The best of day was a For Sale by Owner and not in the MLS at all.  Interesting day.  Literally only 5 to show from Juanita to Issaquah in the price range.

But today, I was shocked!!  An agent asked me, “What does this mean ‘commission may be modified by lender'”? I said, “WHERE?”  They said Kirkland.  I said, Oh No!

Then I took a closer look.  Who the heck bought that piece of crap at that price last year?! What lender did 100% funding in there?  Don’t they know there was a huge suit against the builder for basically irresolvable drainage problems?

That’s not a foreclosure.  That’s someone who walked into the bank and said, “Here!  You can HAVE it BACK!

Now don’t ask me where it is.  I can’t point fingers, but I promised to tell you if I saw “a short sale on the Eastside”, so here’s the first one I’m seeing.  Based on the purchase date, there’s no way this should be selling for less today.  But it will.  Someone overpaid for it back then, never should have bought in there with the problems, and some lender wasn’t paying attention.  Some Buyer Agent as well.  Buyer Agents should have stripes so we can “strip them of their stripes” when they are responsible for someone buying a distressed property, for too much money, with zero down.

When you didn’t spend a dime on it, no downpayment, stacked closing costs, your credit was already crap which is why it was subprime…why not just walk away if you decide you don’t want it?

That wasn’t a foreclosure…it was a RETURN! No need to ask for their money back.  They had not a penny invested in the first place.  Don’t like it…walk away and bring the key to the lender.

That one was easy to figure out.  But let’s keep our eyes open, because even though there seems to be a frenzy with three offers on one unit in that condo conversion up in Bothell on Sunday, it is definitely time to proceed with extreme caution.  Make sure the value is there, before you buy.

Now that Matt…

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… has a new condo in Bellevue at the Meritage, you might have thought he would slow down the pace of his condo blogging at Urbnlivn. But no chance there… instead he unleashes the urbnlivn forum for the Seattle-area Market. Very cool. It’s a little quiet at the moment (the site is brand new), but I’m sure under Matt’s guidance, it won’t stay quiet for long…

Also a belated, but HUGE, congratulations to Matt on your new condo!

Why Selecting a Lender by Rate Alone is Not in Your Best Interest

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When Ardell suggested that I post rates on Friday, I was a bit reluctant to do so.   Why?   Because it promotes rate shopping and I don’t believe that is the best way for consumers to select the professional who will be advising them on one of the largest financial transactions they will make in their lifetime.   But I must admit, the posts have created a lot of very interesting comments and kudos to Ardell for putting me on the spot to post rates.

Recently, one of RCG’s frequent readers added a comment on Mortgage Rates for Friday Morning that brings home why you should not shop mortgage professionals by rates and that you should select your mortgage professional by referrals instead: 

I got a GFE from a broker recommended to me by my boss. She was smart and knowledgeable, but not particularly personable. 

I also got one from a guy who worked with my Realtor who called himself a Home Mortgage Consultant (with BIG BANK Mortgage). Personable, but not that sharp. 

I also called a few other brokers off the net and paper – straight APR shopping. 

The first broker, the one recommended, had the best rate. Because I liked my Realtor, I gave the (Bank) guy a shot to match her rate, which he did. 

He made numerous mistakes, and I was forced to go over my docs repeatedly with a fine tooth comb to make sure they were correct. 

In retrospect I should have gone with the recommended broker, though perhaps not, given that she was angry with me and showed it. 

In the end, however, I am going to go with the reputable person who gives me the lowest rate in an apples-to-apples comparison. A quarter point could mean 10s of thousands of dollars over the life of a loan. That’s going to trump loyalty every time, and you are fooling yourself if you think otherwise. 

There are many issues with shopping lenders by rate:

  1. You must shop all of the lenders at the same time on the same day.   There can be several price changes throughout a day.  You cannot compare apples to apples if 5 minutes after you receive one quote, you call the next lender and rates have changed up or down.  Brian Brady did an excellent post:  You’ll Never Get the Lowest Rate.
  2. Unless you’re prepared to lock in the rate the moment you’re dialing for dollars, the rate that is being quoted to you may very well not be the rate you receive when you decide to lock.    If it’s not a confirmed locked in rate, you don’t have it.   It’s a quote, not a guarantee.
  3. The lender who is “quoting

What's the Point?

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Brian Brady recently suggested that I explain how mortgage interest rates can be priced with or without a discount point since I’m now posting mortgage interest rates on Fridays here at RCG.  

One point is one percent of the loan amount.   Typically, but not always, one point equals 0.25% in interest rate.   You may hear lenders refer to discount points or origination fees…for me, they’re one in the same.   I’m paid eitiher way.  If you’re a buyer shopping rates, look on the Good Faith Estimate for the origination fee and discount points and add them together.   That’s how many points you’re paying to buy that interest rate for a certain period of time.
For example, if a 30 year fixed rate has a rate of 5.75% with paying 1 point, zero points would probably be 6.00%.   Whether or not someone pays for a point should be decided by how soon they will break even on the point as it is a significant cost.   A simple formula to determine when you break even is to divide the difference in payment between the 1 point and the 0 point scenario into the cost of the point paid.   The scenario below is based on a loan amount of $400,000.

Rate:  5.75% based on 1 point = $4,000
Principle and interest payment:   $2,334.29
Monthly savings over the 6% payment at zero points = $63.91
How long to break even on the $4000 = 63 months

Rate:  6.000% based on 0 points = $0
Principle and interest payment:  $2,398.20

If a borrower is planning on living in their home more than 5 years and not refinance during that time, then paying the point may be the right choice.  
A borrower can also have their loan priced to pay their closing costs. 

Rate:  6.125% = 0 points and approx. $2000 in rebate to cover closing costs (a.k.a. the “no cost mortgage

Zero Down Loan? You Better Have a 620 Credit Score or Higher

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Update 11/11/2008:  This is post is more of a reflection of the times.  Zero down loans are not available with convetional financing at this time.  Private or hard money may have zero down loans available.   FHA with a loan from family members is the closest to 100% financing that I’m aware of.   As with any posts about mortgage guidelines, be mindful of when they were written as guidelines have (and will continue to) change.

I’ve been working on a zero down rate quote for Jillayne, since she requested that two weeks ago when I did my posted my first Friday rate’s on RCG.   She was curious how 100% loan to value mortgages compare based on different credit scores.   At the company I work for, we have around 80 (woops…make that 78 now) lenders we work with.   A majority of our business is handled in our credit line (Mortgage Master is a Correspondent Lender) and some business is “brokered”.  Typically this is subprime or unique loans with added risk.   As a Loan Originator, you wind up selecting 3-5 of your favorite “a money” sources, a few “alt a” lenders and of course, and I like to have around 3-5 sub-prime lenders.   These are the lenders and representatives you rely on, get to know their products and trust their underwriting.   

Back to Jillayne’s request, last night I called my three preferred subprime resources for my rate quotes…what’s the lowest credit score they will lend to at 100% ltv and is the rate and program?  Thanks to RCG’s Tim, I’ve just learned that one of those resources I’ve relied on, New Century…and the only one that I work with who did quote yesterday an 80/20 with a 600 mid-score is facing troubling times to say the least.

“New Century Financial Corp. said it’s the subject of a criminal probe and Fremont General Corp. agreed to a cease-and-desist order with bank regulators in the biggest regulatory actions to emerge from the subprime mortgage meltdown.”   To read the entire article on Bloomberg, click here.

Every day I’m receiving memos from various subprime lenders with details of (much needed) tightening guidelines.  If you currently have clients shopping for a new home and they are using subprime financing (you might know this if they’ve told you their credit is not great, if the mortgage is a 80/20 with a prepayment penalty, etc.) you just might want to contact the Loan Originator to make sure the preapproval is still valid.  If that client has a credit score below 620, they may (1) not be approved any longer or (2) be approved for an entirely different rate (much higher). 

Subprime lenders are either eliminating their zero down products all together or are raising the credit score requirements.  Previously, a 580 – 600 mid-credit score was no problem for 100% financing.   They were beating down our doors to do these loans!  Now, the new standards for mid-score (with the lenders I work with) seems to be 620.  This is a significant jump that will delay some rentsers from buying homes until they improve their credit.   Which again, I think this is good.

I’ve mentioned this before, but this is so important.  If you have clients who have used subprime financing who have purchased homes in the past 1-2 years, this could be a good reason to pick up the phone and call them.   Hopefully they received good counseling from their Mortgage Planner AND they took the advice to heart…working on cleaning up their credit usage, managing their spending, etc.  With the subprime market tightening, if those subprime borrowers have credit scores below 620 when their prepayement penalty is up and their fixed payment is adjusting towards the sky, they may be are in a very tough situation.

Jillayne, this post is all ready a bit long… I promise I’ll have your zero down rates posted soon!

Are You Financially Prepared for a Disaster?

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It’s hard to believe that just six years ago today, the Nisqually Earthquake rattled our cages. I was just getting ready to quote interest rates for a purchase at my office when I was so shook (literally) that I accidentally quoted rates for a 15 year amortized mortgage instead of the 20 year amortized that my client was interested in…needless to say, I honored my quote. You never know when an emergency might happen, whether that’s an earthquake, a tree crashing through your roof or a illness or death in your family. Life happens to all of us when we least expect it. The anniversary of this event reminds me of being prepared for such emergencies.

A few months ago, I read an article from the Financial Planning Association which, among other things, discussed creating a simple three ring binder that contains your important financial information. I thought this was brilliant. In the event you need to leave your home quickly or if you have your partner in the hospital, you need to be able to access your important information quickly instead of running around your house or riffling through filing cabinets, etc.

The three-ring binder is intended for you to create a central source of answers and personal information that can help provide direction and instill hope following a disaster or other family emergency. Unfortunately, a disaster could result in death and incapacity. Accordingly, the binder is an ideal place to record your memoirs, personal wisdom, parting thoughts, and answers to questions that only you can answer. It’s important to keep this information in your binder current and always handy. It should include

  • Instructions for whom to call first, what to do first, and where to find things.
  • Personal family information: names, dates of birth, Social Security numbers, and other ID numbers and pertinent information about family members.
  • A family medical history that includes doctor contact information, current medications, allergies, and so forth.
  • A current telephone and e-mail directory that lists family members, friends and advisors.
  • A current inventory of your financial assets, including all account numbers.
  • Estate information that includes details about end-of-life wishes and arrangements.
  • A list of service contracts and warranties.
  • Detailed information about your business (if applicable).

I know…you all ready have the emergency kit with three days of water and food on your to-do list! This is just food for thought.

Redfin's First Year

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In a follow up to Dustin’s post, I started to examine Redfin’s numbers in a bit more detail.

Redfin released a report today (it was yesterday, but I am on vacation… I guess you can say Maui Time :)) that opens saying, “Finds .904% Negotiating Advantage, 1.952% Average Commission Refund, 95% Customer Satisfaction; The Most Common Type of Redfin Buyer is a First-Timer

Use Your Sent-Items Folder as Inspiration

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It was so much fun to stop off in Seattle last week to give the seminar in downtown. Meeting up with Rhonda and Jillyane (and potentially a new contributor I’ll introduce soon!) was awesome!

One of the tidbits I share with the real estate professionals in the audience that seems to resonate well (at least based on the feedback I’m getting) is when I explain to them that even the non-bloggers in the audience are already writing blog posts, but they are not getting credit for it. Here’s my logic in a nutshell…

Assumption #1: Writing a blog post is just like sending a webmail (via Hotmail, Yahoo Mail, Gmail, etc), except that it is one step easier. With a webmail you need to (1) click on “write” or “compose” message, (2) fill in the email address of recipient, (3) fill in the title of email, (4) write your message, and (5) click “send”. Blogging is one step simpler because you do not need for step 2, i.e. fill in the email address of the recipient since a blog post is essentially an “email to the world.” Otherwise, all the steps are essentially the same with the final step being “publish” instead of “send”.

Assumption #2: The sent-items folder for most real estate professionals is already filled with good stuff that they are already experts on… For most real estate agents, the sent-items folder of their email program is likely to find information on neighborhoods, mortgage and closing process, local events, etc..

Because most agents are already sharing lots of their knowledge via email and because a blog post is nothing more than an email to the world, hopefully, you’ll start to see how I can say that most agents are already blogging… The idea that they are not getting credit for their knowledge stems from the fact that if a professional has a lot of stored up information in their “sent items” folder, then the search engines and other bloggers can’t give them credit for this knowledge. The last bit is critical to the seminar, but not necessarily to this blog post… 😉

Interestingly, both Steve Rubel (Turn Gmail Into Your Personal Nerve Center) and Greg Swann (Feed guarding: Protecting your weblog content from theft — or worse fates . . .) wrote articles today that either demonstrate the blurring of email and blogging (i.e. blogging via email) or take it for granted (i.e. RSS syndication).

By the way, I’ve been taking my own advice about unleashing the “knowledge” from my sent-items folder over on the seminar blog by publishing answers to many of the questions that I’ve been getting from seminar participants. I’ve been inundated with email questions lately which is great for providing me blog content, but not so good in terms of providing me time to answer everyone quickly! 🙂

15 Year Mortgage Too Pricey for Normal People

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This morning, I read a commentary on seattlepi.com from columnist, Christy L. Thomas called Seattle too pricey for normal people.   It’s regarding her move from Boise and how she and her boyfriend are considering whether or not they can afford to buy what they would like to have in Seattle. 

The part that struck me, being a Mortgage Planner, is that they are selecting a 15 year fixed mortgage for their financing.   That avenue would be an expensive choice for anyone.   She mentions trying to find a home priced around $320,000 based on what she sold her Boise property.   I’m assuming that Christy and Tom (her boyfriend) are conservative folks since they’re looking at a 15 year fixed mortgage…so the following comparisons are based on putting approx. 20% down.   I’m also using the rates I quoted on Friday.

  • With a sales price of $320,000, their loan amount would be $256,000.  A mortgage amortized over 15 years would provide a principle and interest (P&I) payment of $2108.75
  • A mortgage amortized for 30 years with P&I of $2108.75 would provide a loan amount of $356,480 and an approx. sales price of $427,750.
  • Amortize a mortgage over 40 years with P&I of $2108.75, you will have a loan amount of $377,270 and an approx. sales price of $452,725.

Same payment with each scenario…except you’re able to buy $132,725 more home using a 40 year fixed over the 15 year fixed and  $107,750 more home with the 30 year fixed mortgage.    With an interest only product, such as a 30 year fixed rate with a 10 year interest only payment, the savings (or how much more home they could buy) would be even more substantial.

I hardly ever recommend 15 year fixed mortgages to my clients…unless they’re doctors or someone who makes so much money that their mortgage deduction is reduced and they all ready have all the investments they need.  

Even if Christy and Tom’s case where they want to “look around and buy the home where, if we’re lucky, we’ll grow old together”.    Why pay off your mortgage and lose one of your best income tax deductions?

Christy, Seattle is not too pricey for normal people…your 15 year fixed mortgage is.