Tuesday, December 26, 2006

Payment Options/Minimum Payment

Thanks to Mangie Koza who taught me how to insert a table!

Let's return to the previous Payment Options post for a refresher:

The primary feature which makes this loan program so flexible and customized, if you will, for each borrower is the payment options. Each monthly statement will reflect four payment options:



  • The minimum payment (remember, you must always make at least the minimum payment),

  • An interest only payment,

  • A fully amortizing payment based on a 30-year term, and

  • A fully amortizing payment based on a 15-year term.

Of course, you can really pay anything greater than the minimum payment, so the borrower has a myriad of payment possibilities. However, the four shown above will be the ones reflected on the monthly mortgage payment.

Returning to our sample loan, let's see how this works:

$200,000 loan amount
1% start rate
7.5% annual payment cap
MTA index
2.75% margin
110% neg limit


In the example shown above, the first minimum payment of $643.28, based on a 1% interest rate, was posted. $166.67 was applied to interest; $476.61 was applied to principal; the principal balance was reduced to $199,523.39

For the second payment the interest rate changed to 7.508% (index in effect at that time plus the margin). The minimum payment of $643.28 was made; however, the minimum payment was insufficient to cover even the interest-portion due on the loan. The interest due was $1,248.35. The difference the payment did not cover, $605.07, was added to the principal balance. Consequently, the principal balance increased to $200,128.46 after the second payment was applied.

For the third payment the interest rate changed to 7.577%. The minimum payment of $643.28 was made. The interest due was $1,263.64. The difference the payment did not cover, $620.36, was added to the principal balance. The principal balance increased to $200,748.22 after the third payment was applied.

This process will continue through the 12th payment. For the 13th payment, the lender will attempt to recast the loan by taking into account the principal balance at the time, the interest rate in effect at the time, amortized over the remaining term (348 months). The payment amount for the 13th payment will be increased to $691.53 (increasing by the full 7.5% payment cap).

CA Market Update for December




The median price of a home has increased 2% from one year ago. Inventory is up, but that is not uncommon for this time of year. Homes typically move slower during the holidays. Afterall, who wants to move the week of or after Christmas or Hanukkah?

Note that a stable year is predicted for 2007 with interest rates lowering slightly.

How is the market in your area? I would be interested in knowing!

Friday, December 15, 2006

Women Buyers Beware!

WOMEN MORE LIKELY TO RECEIVE SUBPRIME HOME LOANS;
DISPARITY HIGHEST FOR WOMEN WITH HIGHEST INCOMES

Women are more likely to receive subprime home mortgage than men and these higher rates of subprime lending make it harder for households headed by women to build wealth through homeownership. In 2005, about a third of women took out mortgages with interest rates over 7.66 percent (well above the average prime mortgage rate of 5.87 percent) compared to about a quarter of men, according to a new study released today by the Consumer Federation of America.

“The high levels of subprime lending among women compromise their ability to steadily accrue equity by paying off their mortgage – one of the easiest and most effective pathways to building wealth in America,” said Nancy Register, Associate Director of Consumer Federation of America and National Director of America Saves, a social marketing campaign to encourage lower- and moderate-income households to save and build wealth.

The study examined 4.4 million mortgage originations throughout the country where borrowers identified their gender. CFA examined borrower incomes based on the Area Median Income where they lived to analyze comparable borrowers across the country. The CFA analysis found that the subprime disparity between women and men increased for women with higher incomes relative to men with similar earnings. Although women earning below the area median income were 8 percent more likely to receive subprime loans than similarly earning men, women earning more than double the area median income were 50 more likely to receive subprime loans than men with similar earnings.

“Evidence suggests that women have slightly higher credit scores on average than men and similar credit usage patterns, yet the fact that women are more likely to receive more expensive mortgages at all income levels undercuts the lending industries calm assurances that borrowers are priced based on their
creditworthiness,” said Allen Fishbein, Director of Housing and Credit Policy at CFA.

African American and Latino women had the highest incidences of subprime lending – and the gap between women of color and white men increased as incomes rose. African American women earning double the area median income were nearly five times more likely to receive subprime home purchase
mortgages than white men with similar incomes and Latino women earning twice the area median income were about four times more likely to receive subprime purchase mortgages than white men with similar earnings. African American women make up half the African American purchase mortgage borrowers and Latino women make up nearly a third of Latino home purchase mortgage borrowers. “For the African American and Latino communities, women are a key driver in achieving homeownership. The high rates of subprime lending to African American and Latino women – even those earning double the prevailing local income – may make it harder to sustain homeownership in these communities because of the high monthly payments on subprime loans,” said Patrick Woodall, Senior Researcher at CFA.

Read the entire report.


The findings above focus on the difficulty of building equity by paying down the principal balance due to higher interest rates. Compound that phenomenon with less disposable income due to a higher mortgage payment resulting from the higher interest rate! A double, negative whammy!!

Ladies, please do not let this happen to you! Unless you already have a trusted Mortgage Loan Consultant or Advisor, shop for your loan and compare at least three different lenders along with the loan programs, interest rate & terms offered to you. Request a Good Faith Estimate and Truth-in-Lending Disclosure for each program you are considering.

Just today I received a Good Faith Estimate from a client who was solicited from a mortgage company in Northern California. This lender is actually in violation of federal regulations as they provided her a Good Faith Estimate without the accompanying Truth-in-Lending Disclosure. You see, the Good Faith Estimate is an itemization of the costs involved in obtaining your loan, but it is the Truth-in-Lending Disclosure which provides you the Annual Percentage Rate (APR), which better helps you to compare the total costs of loans.

Ask your family, friends and/or co-workers for the names and contact numbers of loan officers with whom they have completed successful loan transaction. Better to have a referral from a respected friend or family member than to use the yellow pages, radio, television commercial or website ads to find a lender.

You are welcome to contact me by phone or email as I will review your scenario with you and advise you of the current programs, rates & terms that are available for your specific situation. You will then feel better prepared and more confident when comparing and communicating with your lenders of choice.

Thursday, December 14, 2006

Market Update

Fannie Mae is suing its former auditor, KPMG LLP, for $2 billion in damages alleging that negligence on the part of the accounting firm caused it to violate accounting standards and undertake one of the largest earnings restatements in history. A spokesman for KPMG indicated that the firm is likely to file a countersuit, and attorneys everywhere are giddy with a case that is likely to drag on for years.

Mortgage demand increased 11.4% last week. Purchase applications were +8.7% and refinance applications increased 15.8%. It appears that the measures are strong: overall we are +17% from a year ago, refinancing is 60% higher than a year ago, and purchases are 12% higher than a month ago.

The market got smacked yesterday after Retail Sales were up stronger than expected, followed by a weak 10-yr auction. Numerous investors changed prices as the yield on the 10-yr went from 4.48% up toward 4.60%, the highest rates in over a month. The Retail Sales data continued a run of decent economic numbers that have come since the very low national ISM numbers on the first of the month. The consumer appears to have held up in the 4th quarter, adding further upside risk to the growth rate in the quarter.

This morning we've already had all the news that we're going to see:
Jobless Claims dropped from 324k down to 304k, stronger-for-the-economy than expected, and Import Prices were +.2%, year-over-year +1.2%. And
mortgage prices are unfortunately slightly worse again. Tomorrow we have November's Consumer Price Index (CPI). The CPI is one of the most important reports that are released each month (measuring inflation at the consumer level) and is this week's biggest release for the bond market. Forecasts call for +0.2% in the overall index and a 0.2% rise in the core data reading. Rapidly rising inflationary pressures is a concern to the bond market because inflation erodes the value of a bond's future fixed interest payments. The Industrial Production report gives us a measurement of manufacturing sector strength by tracking output at U.S. factories, mines and utilities. Analysts are expecting this report to show a 0.1% increase in output.

Tuesday, December 05, 2006

CA Market Update for November











Take a look at some interesting statistics for California home sales for the month of November. As you can see, though the actual number of sales has decreased, the averge selling price has, indeed, increased. A marketing time of 45 days is very good! Home sellers just got spoiled during the past few years when a new listing would be on the market for less than one week and receive multiple offers. In days past, the typical marketing time for a home was three to six months! Considering those numbers, 45 days is fast!

Interest rates are still relatively low and have actually decreased since the publication of this report. Many of the major indices are decreasing as well, i.e., the 1-month and 6-month LIBOR as well as the 11th District COFI.

(Please accept my apologies for the small text in the tables above. There must be a way to blow it up, of which I am unaware!)

Monday, December 04, 2006

Need Help?

If you are in the process of obtaining a loan for a purchase or refinance and have questions or perhaps you would like clarification on your existing loan, I am here for you. Please post or email me your questions and I will answer them to the best of my ability. I have extensive experience in most all aspects of the mortgage industry and have held very responsible positions with major lenders. If I don't know the answer, I will point you in the right direction to continue your research!

Sunday, December 03, 2006

Market Update

While I'm still trying to figure out how to insert a table or spreadsheet into my post (any help would be welcome and appreciated!), here is a market update courtesy once again of Brian Dragoo:

Wall Street makes money from risk, so what better investment these days than the sub-prime-mortgage business? Morgan Stanley agreed to buy Saxon, Merrill Lynch bought National City Corp.'s First Franklin, and Bear Stearns is buying the mortgage unit of ECC Capital Corp. H&R Block Inc. disclosed it might sell Option One, which last year made about $40 billion in loans. Wall Street firms have built large businesses creating asset-backed securities, including bundles of sub-prime loans, which they sell to investors. Perhaps more important, asset-backed securities are a component in an even more profitable product from Wall Street: collateralized-debt obligations (derivative securities whose value is tied to the underlying asset-backed security.) CDOs are a way to repackage and transfer credit risk. Most asset-backed securities are priced in relation to the London Inter-Bank Offered Rate, or our friend LIBOR. High-quality debt issues are priced to yield LIBOR, and low quality (sub-prime) is priced 1-2 points higher. Profiting on the difference between those rates is what is driving Wall Street investment banks to buy sub-prime lenders.

Mortgage prices did well yesterday, which will be reflected in today’s rate sheets. The Chicago Purchasing Manager’s survey was weak, indicating a weak economy which may lead to lower rates in the future. The yield on the 10-yr went below 4.50% to some levels we haven’t seen since January. The market seems to think the economy is headed south, although the Fed is not convinced, and many investors see more room for rates to improve over the long run. This morning we close out the week with
November’s Institute of Supply Management index (expected up slightly) and Construction Spending (expected down).

I realize much of this may seem rather "technie," but it may come as a surprise to some to learn that mortgage interest rates are more closely tied to the activity of the bond market which is influenced by the stock market and not the Prime Rate.