Real Frisco

Frisco, TX News and Events

Headlines:

Sat02042012

Last update10:26:23 PM GMT

Back The Mortgage Minute

The Mortgage Minute

Sr. Loan Office Brian McCauley shares insights and perspective on the current state of the home mortgage

When to 'Float' Your Interest Rate

13 July 2009
Geoffrey Davis
Hits: 831
Section: Mortgage News -
The Mortgage Minute
  • Print
  • PDF

As a mortgage broker my responsibility to you begins at our first contact, continues through the process and does not end until the house you have chosen is officially yours. I stay involved throughout the entire proceeding, watching the market and advising you to the very best of my ability.
 
When you begin working with a lender and go through the pre-qualification for either a refinance or a purchase, you have the ability - once your loan is approved - to lock that interest rate. The question is always when to lock the rate. No one can answer that with total assurance. It is always possible that, after you have locked your rate, rates may decline which means you locked too early. But maybe just the opposite happens: you choose not to lock your rate and in the next day or so the rates go up and it is a quarter percent more. You cannot go back to the better rate.
 
In order for my clients to make the best decision, I ask them to allow me to be in the driver's seat on when to lock the rate. I watch the bond market for a curve and when I begin to see a curve develop - either one way or the other - I am able to ascertain whether or not to lock or wait for a better market. Sometimes when the market is very volatile I may choose to lock the rate on a 30 or 45 day lock as soon as a closing date has been set. Loans may also be locked for 60 days and some lenders will even allow us to lock 90 days out. When you are purchasing a property, lenders will not allow you to lock unless you are locking on to an address. In other words, they do not want you to lock a great low interest rate for 90 days and then go out shopping for homes. Their fear is that at the end of 90 days you have either not found the property you want to buy or have decided not to buy at all and cancelled the lock. This means they have taken the amount of your loan off their available line and have not been able to do another transaction with that money. If they are going to lock a loan, they would like the assurance that you intend to close on that loan.
 
My company does not charge to lock an interest rate but I know that several of my competitors do so.  If they locked you into a loan rate, the rates improved and their company did not have the capability to do a float down, they need the money from you to hold you to that loan so you will stay with them. The reasons I do not charge are 1) I want to work with people who want to work with me and 2) I know that the lenders I work with have float down availability. A float down works this way: If we lock an interest rate - let's say we lock at 5.5% and the market betters to 5.375%. The lender is not going to initiate a float down for you because they are looking at their rate of return and their profit margin. What the lender likes to see is that their profit margin stays the same or improves in a float down environment.
 
The other day I was able to obtain a float down for a client whose rate went from 5.5% to 5%. Unfortunately, this is not something I can do with email so it involved almost an hour on the phone with the lender. The good news is that it did not cost my client a penny but will ultimately save him over $15,000 over the life of his loan. Another friend had a slightly larger loan and I was able to save him over $20,000 over the life of his loan.
 
So there are two things to ask your lender when you are locking your loan.
1.      Are they going to charge you for locking the loan and
2.      Do they have the ability to float it down if the market improves
 
A surprising thing about this business is that it has turned me into a geek - a word I never thought would be applied to me! I spend long hours at my computer reading analyst reports, treasury reports, bond trading information, speculators talk, future earning reports, housing starts, unemployment numbers, LIBOR. But all the time spent enables me to watch for those curves and predict where to place my clients as their closing dates approach. The other day we had a great interest rate for a client - 5.25% - an awesome rate. But the market turned and I was able to float him down to 5%. He did not have to do a thing. And, sure enough, after I did that float down for him and a few other clients I had locked in the pipeline the interest rates began rising. Remember, interest rates move by how the bond and stock markets are doing so I watched the bonds selling off very aggressively one day and I called to initiate the float downs for my clients. The next day interest rates were up by 1/8 to even π% on certain programs.
 
So remember those two questions to ask your lender when you are considering a lock:
1.      Are they going to charge you for locking the loan and
2.      Do they have the ability to float it down if the market improves
 
You might also ask a third question: Is their lender willing to take the time on the phone to initiate a float down when the market improves?
 
That's it for now. Thanks for reading!

Geoffrey Davis

214-529-9622

www.friscomortgageguy.comwww.friscomortgageguy.com

 

Last Updated on Monday, 13 July 2009 09:45

Mortgage Buyer Beware

15 March 2009
Brian McCauley
Hits: 637
Section: Mortgage News -
The Mortgage Minute
  • Print
  • PDF

We’ve all heard the term “buyer beware” somewhere in our lifetime. “Buyer Beware” is a term that means cover your tracks when purchasing a product.

Well, in today’s market it’s more important to stress “buyer be AWARE”. The reason I stress this term is because residential mortgage lending is still very strong, even in today’s market and as a buyer you need to be aware of all the available opportunities to you. What I mean is simply this. Homes are selling for pennies on the dollar, there are plenty of loan products out there that offer little or no money down, rates are at an all time low, and to top it off, the government is agreeing to give you an $8,000 tax credit if you’re a first time buyer and purchase a home in 2009.

Wait, so let me get this straight….I can get a 100% loan or close to it, my money to buy the home will be extremely cheap to borrow, I can purchase a property for much less then its worth which means I get a bigger and better home then normal, and I get and $8,000 tax credit at the end of the year as well? Yes, that is accurate to say at this point.

My question to you is, why rent? You are throwing money away, paying someone else’s note for them and not receiving any benefit for doing so. Everyone dreams of owning a home, that’s a major part of the “American Dream”.  As a buyer you need someone who can assist you with all the aspects of purchasing a new home. Where do I start, who do I call, how does the process work and do I qualify? These are important questions and I will hold your hand, walk you through it and answer all of them for you. There’s nothing worse then a transaction gone bad or an inexperienced consultant. Folks, I can assure you that I am not that person.

I will take you through all the steps, break it down for you in Lehman’s terms and put you in position that’s best for you and your family. No ARMS, no balloon notes, no hidden fees, and most of all, no nonsense. This is your home. This is where you sleep at night, have family events, watch your children grow and play. Your home is as much a part of you as your personality so let’s make sure it fits you as well as your personality. I specialize in all types of purchase and refinance loans such as Conventional, FHA, VA, JUMBO, and USDA. Give me a call today to start the process and let’s make sure you aren’t missing out on what’s available to you in today’s market.

I can assure you, I will get you to the finish line. Buyer, be AWARE of what I can do for you. I look forward to hearing from you soon.  

Brian McCauley

Senior Loan Officer

Frisco TX

214-975-3218(Office)

1-214-279-4100( e-fax)

This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

"Mortgage Planning Advice with Experience and Integrity"

Last Updated on Sunday, 15 March 2009 11:37

Current State of the Mortgage and Housing Markets: What Will We Do

04 March 2009
Brian McCauley
Hits: 509
Section: Mortgage News -
The Mortgage Minute
  • Print
  • PDF

What a fascinating and tumultuous time is upon us! Both the housing and the mortgage market are convulsing wildly! There are so many facets to the "big picture" that I would never presume have all the answers, so the following disclaimer is in order: I am a mortgage broker and the following is my opinion based on my experience and my knowledge. You might agree with me, you might not. But I urge you not to jump to any conclusions based on what I or anyone else has to say about the current state of affairs. No one can predict accurately how this is all going to turn out. My point of view is incredibly cynical in some ways, yet leaves room for optimism.  In other words, my cynical prognostications can all be erased if certain entities take certain actions. Last thing is that this article is written for the masses, laypersons included. If you are an industry insider, I apologize, but I will be stopping to explain some things you definitely already know. Away we go...

The Beginning

In this case, the beginning is not an exact date or marked by an exact event, but rather the confluence of two important factors: the incredible loosening of lending standards and the overly-exuberant boom in the housing market. Yes, there are other important factors, and yes, I will discuss them, but these two are the big two in my mind.

Let's start with the loosening of lending standards. People with large amounts of money (banks, etc...) put systems into place to evaluate the potential risk associated with a loan. They've been evaluating the risk on loans since well before I was born. In the mortgage industry, this is called underwriting. There are underwriters (human beings), and underwriting systems (computers) that render decisions. Be they human or machine, the underwriting systems are employed and acting on the instruction of the money source.

"Money source" is a purposely ambiguous term so I can make the following point. Where does the money for mortgage loans really come from? If Wells Fargo gives you a mortgage loan, you might guess the money for that mortgage came from Wells Fargo, and you'd partly be right. Wells did indeed have the money to fund that transaction, and they may actually hold on to your loan forever, but there is a deeper layer to the money source than that. Even big banks need LIQUIDITY in order to continue doing business. When Wells needs liquidity, they obtain their money at a certain rate based on the appetites of the bond market. Sometimes this means selling your mortgage. Ultimately, the actual market metric is what's known as the mortgage backed security.

Mortgage-backed-securities (MBS's) are bought and sold just like stocks and bonds. By the time someone buys a MBS, its underlying risk and obligation have passed hands many times. It's gone from the consumer's intention to finance a house, to a mortgage broker, to a mortgage lender's underwriting staff, to the corporate structure of that lender, to be packaged in a "pool." Then it's either sold or held. When it's sold, it can be sold multiple times. The point is that those that are buying and selling them cannot simply call up the consumer that got the loan and ask them if they are a good credit risk. They are many times removed.

So this creates the necessary and crucial task of "judging" how sound of an investment the MBS is. After all, if a bank was selling a pool of loans with an average interest rate of 8%, the effective interest rate would only be 8% if none of the loans defaulted. Just based on historical statistics, a certain percentage of loans go into default. This risk of default is factored into the value of an MBS. In determining risk of default, investors look at several aspects of the mortgages that comprise MBS's: loan amount, credit score, whether income was documented or not, liquid assets, amount borrower compared to appraised value, whether cash was taken out, and many more.

Over time, default rates on certain "standard issue" mortgages have become very predictable. While there are many different types of mortgages, in recent history, but still before the period of so-called meltdown a certain type of mortgage was by far the most common. This is a 30 year fixed mortgage, with documented income and assets, with a down payment of some sort (or compensating factors to offset it), and with a reasonably strong credit history. In general, these are the components of a "Conforming" loan. A conforming loan is any loan that "conforms" to the guidelines set forth by Fannie Mae or Freddie Mac, huge Government-Sponsored-Enterprises put in place to help the American public realize the dream of home-ownership while protecting investors. So life is good right? Fannie and Freddie have their conforming loan guidelines in place. Investors can anticipate a predictable default rate and people can buy houses.

Enter the Problem #1

Unfortunately, not every family's scenario fits the conforming guidelines. In the not too distant past, there were little or no financing options for these families. To make a long story very short, investors saw great potential for this untapped market demographic. Alternative Loans started to emerge with different standards than conforming loans. Interest rates were raised to account for increased risk of default and investors "guessed" at what would be the best indicators of likelihood of default. They knew it would be higher, but unlike the years and years of historical data behind conforming-type loans, there was no track record for these alternative loans.

What followed was a cataclysmic downward spiral of overly-exuberant underwriting standards. To keep up with competition, lenders got more and more aggressive, all the while operating in a market segment with a non-existent track record. Default rates were being guessed at, and were becoming evident in real time. Also evident was the fact that "experts" underestimated the actual default rate of these new alternative loans. Ratings Agencies (wall street analyst companies), were listing these new MBS's as much better than they were (because no one really knew how they would turn out). This goes back to the point of the investor being so far removed from the consumer. Wall Street analysts were saying that MBS's from these new alternative loans were a hot buy, so investors bought more. And more demand among investors drove an increase in the aggressiveness of loan programs and underwriting standards. It was a downward spiral in which anyone with a pulse could finance a house.

If this existed in a vacuum, it might not be so devastating, but it does not. This fire happened to be ignited at the same time that a large amount of gasoline, in the form of a real estate boom was occurring. There can be numerous "chicken versus the egg" arguments about the housing boom and the loosening of the mortgage market. The fact is they occurred at relatively the same time and they fed off each other.

Problem #2

People talk about the real estate boom that began around 2001 and ended about mid 2006. People and "experts" talk about the boom as if it's something that's happened before. "There have been up times and down times" they say. "This is just another boom." Those "experts" are wrong. There has never been a period like this. We have just experienced the largest housing boom in history. Might there be another one that supersedes it in the future? Possibly, but I would argue that the current time period will serve as a sobering lesson for us in the future. I would argue, this is as big as it gets. And it's not because I have the experience to have lived through previous ups and downs. It's not because I have decades of experience tracking these issues (because I don't). It's not because I have the foresight to predict the future of the markets. It is due to a simple truth: this "boom" is so much more inflated than any previous booms that it will stand as an obvious outlier in historical home price data. That is to say, compared to other upturns and downturns, the current boom is a much much larger digression from the mean than we have ever seenAs you can see, there have been ups and downs. All have been within a certain standard deviation of the mean. The highest highs and the lowest lows have not deviated more 35% from the mean. Now take a look at the last 5 years. Adjusting for inflation a house today costs twice as much as the average value of a home for the last 100 years! We're over 100% away from the mean. I don't remember a lot from my statistics class in business school, but I do remember the concept of regression, or a return to the mean. It will happen. But remember this doesn't mean a house will eventually return to the same price it was in 1940, it means it will return to the same inflation-adjusted price. Even so, we are in the middle of a housing price correction right now that will likely continue. The severity of the correction and the length of the correction are two things that no one can accurately predict. That is where opinion comes in. You will hear a lot of opinions on the news, especially the economic focused news outlets. They vary, but I don't really think the "experts" realize just how bad things are. This is where my opinion comes in. but first, we need to talk about the interconnectedness of the mortgage market and the housing market.There are a couple of caveats to the negativity. First, the mean housing data does not necessarily take into consideration that houses are much bigger and nicer (in general) than they were in the past. This may ease some of the regression to the mean. Furthermore, it's very important to note that different real estate markets around the country have behaved very differently. Although the media is national and national home data seems to spell doom for the entire nation, there are pockets around the country where the real estate market should be staying steadier. Some have already hit past the bottom, some have leveled out, and some will actually continue to grow. It just depends where you are and what market forces at play in your local market. We don’t really know what the future holds but the sooner it bottoms or levels out, the sooner we all can begin the upswing again.

The bottom line is that owning a home is still the “American Dream”, or is it? In my opinion, it is. However, you need financial clarity and expertise when making these decisions more now then ever and that’s where I can help. I specialize in all types of Residential Mortgage loans such as Conventional, JUMBO, FHA, VA and USDA. To find out which loan best fits you and your future needs, give me a call and let’s make your decision an easy one.

Brian McCauleySenior Loan Officer214-975-3218(Office)1-214-279-4100( e-fax) This e-mail address is being protected from spambots. You need JavaScript enabled to view it "Mortgage Planning Advice with Experience and Integrity"

Last Updated on Wednesday, 04 March 2009 14:39

Copyright © 2012 Real Frisco. All Rights Reserved. Designed by seota.comseota.com.