Tuesday, August 31, 2010

Taking Advantage of Low Rates

Unless you live in a cave (no mortgage on that cave), you have heard everywhere that rates are at historic lows. "Lowest Rates in 50 years... 100 years ... since the birth of Christ!" Yes, we all know that rates are really, really low. So what does that do for you?

If you don't already own a home, then it means this will probably be the best home-buying opportunity of your life. Not only have home prices been reduced by 50% (more or less) in the past few years, but the financing rates are lower than anything your parents or grandparents ever witnessed.

Consider this example. A $200,000 home loan may carry a rate today of 4.375% on a 30 year fixed (4.488% APR). A principal & interest payment in this example is $998.57 per month. This same loan with a 7% rate (an fairly average historical rate) carries a monthly payment of $1330.60. That is a 33% increase in payment when the rate is 2.625% higher.
If you or someone you know is in a position to purchase their first home, please call me.

Now, for those of you that already own a home, the obvious way to take advantage of low rates is to refinance. There are three basic strategies to refinancing.

  • Lower the monthly payment & improve cash flow.
  • Reduce the term on the loan (e.g. 15 year loan)
  • Take cash out to pay off other debt or make a large purchase

I like to work with my clients to come up with the best strategy that fits their needs. Sometimes their best strategy is to not refinance, and I will often tell clients that. Please contact me to discuss your opportunities.

Thursday, August 19, 2010


Having been in mortgage lending for 18 plus years, I am familiar with MERS as just a piece of the mortgage business. For those that don't know, MERS is the Mortgage Electronic Registry System which allows for the easy transfer of a mortgage from one party to the next. For example, ABC Mortgage Co funds a mortgage for a homeowner, they can easily sell it to XYZ Investor without recording new assignments with the local recorders office.

Unfortunately for mortgage companies, this has created some legal issues as judges deal with foreclosure proceedings. The problem according to MERS opponents is that it is not clear legally who holds the mortgage. Therefore it is not clear who can foreclose.


Tuesday, August 10, 2010

Taxpayers Supporting Freddie's Gambling Addiction

Caution: This will make you angry.

Yesterday it was reported that Freddie Mac lost $4.7 billion in the second quarter and needs another $1.8 billion injection from the government to keep operating. We expect Freddie and Fannie to be losing money due to all of the mortgage defaults that are still taking place. But let's dig a little deeper into the losses.

Buried in the report are the details of the losses for the 2nd quarter (which are actually improved from the first quarter) and you will see the following:
  • net interest income of $4.1 billion
  • minus credit losses of $5 billion
  • minus derivative losses of $3.8 billion
  • Net Loss = $4.7 billion
How did Freddie lose so much in derivatives? They made massive bets on rising interest rates and lost billions as rates fell from April 1 through June 30. We the taxpayers continue to fund their losses every quarter and gives them $$$ to play the interest rate market and lose more $$$.

If they were a public (or private) company they would be out of business. But now they are in control of the federal government and go to the casino with an unlimited piggy bank, thanks to the American Taxpayer and our elected officials who allow it to continue.