How Investment Bankers Made Suprime Loans Into “AAA” Prime Loans

This video from CNBC via YouTube does a terrific job of illustrating how sub-prime mortgage defaults are impacting mortgage rates overall.

There’s some jargon in there, but overall, it’s very easy to follow.

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Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta.

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Get Pre-Approved Before House Hunting

Getting Ready To Buy A Home In Georgia?

The first stop on the road to homeownership is working with an experienced mortgage professional/planner. It’s extremely important you get a written preapproval letter which will show you are a serious buyer in the eyes of real estate agents and sellers. That means you can expect preferential treatment because there’s no concern that your financing will fall apart. Preapproval has other benefits, as well:

• You know exactly how much you can spend on your new home.

• You won’t waste time looking at or falling in love with properties that are out of your price range.

• There’s no nerve-wracking waiting to see if you’ll qualify to purchase a home after you’ve fallen in love with it.

• A preapproved buyer is a sure thing (if you are working with a professional), so sellers will usually accept your offer first.

• Once you select a home, your loan approval process will be expedited and simple.

One-On-One Support

As an experienced professional mortgage planner, I know the Atlanta market and will ask questions that gives me a clear picture of both your current needs and future goals. I can then help you customize a home financing program that will not only help you buy a home now, but one that can also starts you on the road to overall financial success. My team helps homebuyers every day in making the right choices for their home financing needs. Whatever your homeownership goals are, I can help you capitalize on purchase opportunities and make the most out of your home buying experience wherever you are buying in Georgia or the Atlanta area.

Extra Support When It’s Needed

If you discover you’re not qualified to buy a home right away, count on my team to work with you to overcome credit challenges. For example, I provide my clients in such a situation free confidential credit counseling advice and materials that prepares you for homeownership. You’ll work one-on-one with one of my team members who will review your credit report, develop a home purchase action and savings plan, and guide you through every step of the home financing process. It can be your quickest route to homeownership, with personal support that helps you:

• Resolve credit issues.

• Budget for a down payment.

• Establish a savings plan.

• Connect with down payment assistance programs.

• Educate, guide and prepare yourself for the responsibilities of owning a home.

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Larry Gallegos- Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta.

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Sometimes I Feel Like Michael Jackson’s Plastic Surgeon!

Over the last 16 years, I’ve seen far too many people financially over-extended. Fortunately, I’ve helped countless clients consolidate their debt utilizing strategic equity management strategies and have placed them in a situation to both save and payoff their remaining housing debt (or accumulate enough money to payoff if needed) in 10 to 20 years. Many clients did just that and today are financially set; however, some didn’t and ran up their debt again and again and again.

Since early in my originating career, I always kept in contact with my clients and in doing so, discovered both success and the not-so-success stories.

The not-so-success story clients came in two different categories. Both had run-up their debt (again) and had over-extended themselves (again). Yet, there was a key distinction between the two:

1.      One realized the behavioral pattern that put them in this situation and were truly ready to take personal responsibility to make the appropriate corrective action; and

2.      The second group while some times recognizing their consumptive behavior pattern, were still not ready to take personal responsibility to make the appropriate corrective action.

Believe me, I realize people can make mistakes and sometimes need a second (or third) chance, but how many times it too much? There were times I felt like Michael Jackson’s plastic surgeon…how many times does a person need plastic surgery? When do you say no Michael, enough is enough?

While I understand even if you say NO to a client, there are unscrupulous originators who will still do a debt consolidation loan for the client that is addicted to spending…even if it means putting them into a neutron loan*.

At what point do you say no? To tell you the truth, since every particular case is different, every particular answer is different. However, I am thoroughly convinced sometimes the best thing I must do is say no. I have to use common sense and your conscience to guide you. Over the years, I’ve developed five important questions to ask myself:

1.        Does it make sense?

2.        Have I fully counseled your clients?

3.        Is there a reason to think they will make the appropriate corrective behavioral changes?

4.        Would I be doing this loan only to make a commission?

5.        Is my conscience clear?

 

Strategic Equity Management strategies are fantastic and I believe in them to my core, however just like any tool, are they being used appropriately?

I love Mark Twain’s definition of insanity:

“Doing the same thing over and over and expecting a different result!”

Below are two links related to this subject:

Your Hometown Could Be a Saving Grace

Deep in Debt, Deeper in Denial

* Neutron Loan - Much like the Neutron Bomb, these loans leave the home intact yet destroy the homeowner financially, eventually putting them in foreclosure and/or bankruptcy court. The last thing I want for any homeowner.

Rich People Have Big Libraries…Poor People Have Big TV’s

“Rich people have big libraries…poor people have big TVs.”

Now that’s a bold statement?

However, before getting offended, think about it. Do you spend more time/money reading and educating yourself or more time in front of the television? Do you spend more money on books or big televisions, stereos and dvd’s?

One thing that has always amazed me is when an individual will not bat an eye at getting a loan for $20,000 or $30,000 to purchase a new car or truck, yet choke on their tongue when considerring getting that same amount for student loans…what gives?

In the end, if you can establish a pattern of learning and continuing education, you’ll punch your own ticket and begin the trip to long-term wealth accumulation. Invest in your education and make time for it. It will pay you back many times over.

Conventional Wisdom

Source: Canvas Beat

How To WACC Your Creditors

Brian Brady at America’s Mortgage Broker wrote a masterful article explaining how to use Weighted Average Cost of Capital (WACC) as a financial tool to calculate whether or not a borrower should refinance to consolidate their mortgages and consumer debt. Many times a potential client has an extremely low rate on their first mortgage and possibly a HELOC and other consumer debt. By calculating the WACC of the borrowers total debt, one can better determine if a refinance makes sense.

According to Brian Brandy:

“I often use a formula to analyze a client’s borrowing costs that is taken straight from a Corporate Finance textbook.  It’s called the Weighted Average Cost of Capital or WACC for short. 

I’ll give you a brief explanation, in layman’s terms, of how I perform a WACC analysis.    Assume these folks have a $350,000 first mortgage at 5.25%, a HELOC of $100,000 8.5%, and consumer debt of $50,000 at 12%.

1- I total up the amount of your debt.  ($350,000 + $100,000 + $50,000= $500,000)

2- I determine what percentage of the total debt each individual loan is :
    a- First Mortgage         ($350,000/$500,000= 70%)
    b- HELOC                     ($100,000/$500,000= 20%)
    c- Consumer Debt         ($50,000/$500,000= 10%)

3- Now, I “weight” each interest rate you pay for a before tax average cost of capital:
    a- First Mortgage         (5.25 * .7= 3.675)
    b- HELOC                     (8.5 * .2 =  1.7)
    c- Consumer Debt         (12 * .1 = 1.2)

4- Add up the weighted rates (3.675 + 1.7 + 1.2 = 6.575)

5- So , the REAL, before tax, cost-of capital for this client is really 6.575%”

Go to Brian’s full post where he goes on to explain how to also calculate the tax benefits of refinancing.

<Click Here To Read Brian’s Post>

Just Follow the Instructions

Seems Ben Stein and I have a similar trait of “endlessly putting things into categories and seeking to find  patterns in life.” While reading Stein’s article, its theme seemed particularly appropriate to achieving any goal in which you pursue (notice a pattern).  In his article, he explains the blueprint for success in most any endeavor, field or business has already been tested and documented, however the problem lies in that most people do not follow the instructions.

For example, I want to lose weight. The formula is fairly simple; burn more calories than I consume. Seems easy, doesn’t it? I can make all kinds of excuses, but the bottom line is I have to either burn more calories via exercise, ingest fewer calories or both to manage my weight loss.

Does the same formula apply to wealth accumulation, YOU BET IT DOES!! As everyday normal people, do we know how to save enough money to retire wealthy or least very comfortably? Yes we do. Problem is (much like weight loss), we know what we have to do, we just don’t do it consistently.

Click on the hyperlink below and read Ben’s article:

To Get Rich, Just Follow the Instructions

Technology and the Mortgage Business

The mortgage industry is going through a paradigm shift in the way mortgage products are delivered to clients. While the principles have not changed, the method in which they are delivered is changing with ever increasing speed.

Part of my job in delivering outstanding customer service to my clients is great communication…that is a principle. However, the paradigm shift referenced above pertains to the method in which I delivery great communication to my clients.

For example:

• Today most Americans own or have daily access to the Internet
• Two years ago, most people had never heard of a blog (your reading one now)
• Five years ago, nobody had a Blackberry that delivered their email to remotely
• Ten years ago, most individuals didn’t have an email account
• Fifteen years ago, most people did not have a cell phone

Because of these and other changes, I can now deliver excellent customer service to my clients whether they are 3 or 3,000 miles away. In many ways, because of technology, my level of communication has increasingly exceeded what was possible in the past.

Used correctly, technology not only enhances my customers experience while getting a home loan, it allows them to also better intergrate their mortgage into their overall financial situation.

For that reason, I’m always on the lookout for new ways to enhance my customers overall personal level of service.

Recently I saw a demonstration for a new product called Microsoft Surface.

Surface is indicative of the current trend in computing and technology. Instead of being about adding new features (or speeding up existing ones), it’s about doing things in a simpler, friendlier way.

This trend is made possible because of decades worth of incremental advances in technology — fast enough processors, inexpensive enough camera sensors, large enough displays, experienced and creative enough coders.

Simple, clean, easy. TiVo did it with television recording. Apple did it with the iPod and is hoping to do it with the iPhone.

This approach is what I expect from technology to operate and do what I need it to do…increase my clients overall experience.

Hopefully Microsoft Surface and others deliver on the promising prospect of simple, clean and easy computing.

 

What’s Your After-Tax Mortgage Rate?

Many homeowners are entitled to two major tax deductions — one for annual interest paid on a home loan, and another for real estate tax bills paid to government.

Calculating your approximate tax credit is basic:

1. Add mortgage interest paid and real estate taxes paid together
2. Find your marginal tax rate
3. Multiple your tax bracket by the sum of Step 1

So, for a homeowner that paid a combined $13,000 in mortgage interest and real estate taxes last year, and who is in the 28% marginal tax bracket, a tax credit of $3,640 may be due from the IRS.

This credit is one reason why some people sometimes refer to “after-tax mortgage rates”. An after-tax mortgage rate is the adjusted interest rate after the IRS doles out credits and is calculated as follows:

(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 – Marginal Tax Rate)

The same homeowner with a 6.000% mortgage rate, therefore, has an after-tax mortgage rate of 4.32%.

Because not every homeowner is eligible for mortgage interest and/or real estate tax deductions, and because not every homeowner should claim them, you should consult with your accountant to see how tax credits fit into your tax liability schedules.

Federal income taxes are highly personal and require the attention of an experienced professional.

How To Refinance When My Home Is Worth Less Than I Owe On The Mortgage

With the recent drop in property values in many cities around the county combined with the large number of adjustable rate mortgages coming due some homeowners in America are in a heap of trouble.

That trouble comes when they try to refinance when a house is worth less then they owe on the mortgage. Although is seems like a major problem there are ways to save your home when it is worth much less then you still owe on the mortgage. The next few paragraphs will cover the two most popular methods used to help home owners in this situation.

How To Save Your Home

The best option for many homeowners is to try and work out a mortgage modification with their mortgage holder. This process basically involves the note holder collecting financial documents to make sure the borrowers can still pay the loan without causing financial difficulties. This is just like a normal loan application.

Then based off the financial worthiness of the borrower the lender may choose to modify the adjustable rate mortgage into a fixed rate or temporarily stop the adjustment of the mortgage for a set period of time.

Although there is no guarantee that the lender will do this you do have a down housing market on your side. Lenders know they will be sitting on your house for many months and more then likely lose money when they sell it. They would much rather keep you in the home so they can protect their investment in the property and maintain a good bottom line.

Government Programs

Your second option is to use the new FHA Secure program offered through the federal government. The FHA Secure will let homeowners refinance up to 97.75% of their homes current appraised value, even with late payments.

The only catches to the program are the mortgage has to have been paid on time and the late payments can only have occurred after the mortgage rate adjusted.

Your current lender must also agree to dismiss any balance on the loan or agree to hold the remaining balance in a second mortgage position. Aside from these differences qualifying for the FHA Secure is no different then qualifying for any other FHA loan.

If you know your home is worth less then you owe and you have an adjustable mortgage coming do it is your best interest to examine one or both of these solutions before your payment becomes unmanageable and your credit rating begins to suffer.

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Reproduced with permission from Darin Sewell. To read more articles by Darin Sewell, click here. Copyright 2008 Darin Sewell. All rights reserved worldwide.

The Oldest And Shortest Written Constitution Of Any Major Government Belongs To The U.S.

In honor of Independence Day, here are 13 little-known bits of trivia about the United States constitution, courtesy of constitutionfacts.com:

1. The first constitution was not known as the Declaration of Independence.  It was called the Articles of Confederation.
2. The U.S. Constitution has 4,400 words. It is the oldest and shortest written Constitution of any major government in the world.
3. There are spelling errors throughout the Constitution, but the misspelling of the word “Pensylvania” above the signers’ names is a notable one.
4. Thomas Jefferson did not sign the Constitution. He was in France during the Convention, where he served as the U.S. minister.
5. The Constitution was “penned” by Jacob Shallus, a Pennsylvania General Assembly clerk, for a fee of $30.
6. The entire Constitution is displayed in public just one day a year — September 17.  This is the anniversary of the day the framers signed the document.
7. Patrick Henry was elected as a delegate to the Constitutional Convention, but declined, because he “smelt a rat.”
8. The oldest person to sign the Constitution was Benjamin Franklin (81). The youngest was Jonathan Dayton of New Jersey (26).
9. When the Constitution was signed, Philadelphia was the nation’s largest city, with 40,000 inhabitants.
10. Because of his poor health, Benjamin Franklin needed help to sign the Constitution. As he did so, tears streamed down his face.
11. The first time the formal term “The United States of America” was used was in the Declaration of Independence.
12. There was initially a question as to how to address the President. The Senate proposed that he be addressed as “His Highness the President of the United States of America and Protector of their Liberties.” Both the House of Representatives and the Senate compromised on the use of “President of the United States.”
13. The word “democracy” does not appear once in the Constitution.

Have a safe and happy July 4th, everyone.

Source
Fascinating Facts about the U.S. Constitution
http://www.constitutionfacts.com/index.cfm?section=constitution&page=fascinatingFacts.cfm

What is YSP?

YSP is an acronym for Yield Spread Premium. This is the rebate that a lender will pay to a mortgage broker in exchange for selling the interest rate above the wholesale par rate.

This is probably best understood by using an example. If the loan amount is $100,000 and the wholesale par rate is 5%, if the loan is sold or the interest rate is sold at a 5.25%, there is a 1 point rebate to paid by the lender to the mortgage broker. 1 point in this case is 1% of the loan amount or $1,000.

There is some controversy related to YSP because there is incentive for brokers based on this rebate to increase the interest rate more than what it “should” be. Consumers are typically not aware of this YSP as it is paid on closing. Basically this means the borrower is paying a higher interest rate than what may otherwise be available to them.

Many mortgage brokers will offer a “no closing cost” loan product and use the funds from the YSP to cover closing costs. When applying for a loan with a mortgage broker, you should as a borrower ask the broker how much the YSP is and use that as a negotiating tool to lower the cost of your interest rate or possibly the origination fees or get some of the closing costs covered.

There are a lot of lenders out there, so you do have the option to be picky. Work with a lender you can trust and ask for references where necessary.

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Reproduced with permission from Brian G. Armstrong. To read more articles by Urban Sotensek , click here  Copyright 2008 Brian G. Armstrong. All rights reserved worldwide.

Get-Rich-Quick – Make Money Fast…Not So Fast My Friend

A get-rich-quick scheme promises that participants can make money fast with basically no skill, effort or time in a very short period of time. The hottest get-rich-quick schemes offer unlimited profits through various easy-money opportunities, but the only person who is gonna make money fast is the author himself.

Some people do get-rich-quick through the lottery, inheritances, business ideas, property, inventions, etc. Knowledge, luck or hard work is required to make money, don’t let anyone convince you otherwise. If these systems worked, wouldn’t everyone be using them? The thought of easy money may be appealing, but success generally requires hard work.

WHAT TO WATCH OUT FOR

• High Yield Investment Schemes
• Lottery Scams
• Data Entry Jobs
• Global International Trading
• Work at Home Jobs – No qualifications, two hours a day, high salary
• Chain Letters – Send X amount to the X people in the list
• Pyramid Schemes – Especially if they claim that they are NOT
• Every paragraph contains is teasing you to read the next paragraph, without ever fulfilling the promises in the previous paragraph
• The writer says that he doesn’t mind sharing this incredible secret with you because there’s more than enough money for everybody
• The advertisement goes on and on for multiple pages but never gets to the point or tells you what it is selling you
• The advertisement starts out with a sad story about how broke the writer used to be and then proceeds to tell you what a big house he has now
• Smiling happy pictures of individuals or families, images of luxury items and money itself
• Job ads that feature a URL that doesn’t work with a free email address

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Reproduced with permission from Urban Sotensek. To read more articles by Urban Sotensek , click here  Copyright 2008 Urban Sotensek. All rights reserved worldwide.

Pre-Approval Letter Defined – Again

I’m starting to see more of a dirty little secret not often discussed in the mortgage and real estate industry. It however is is starting to pop it’s ugly head more than usual and I have a feeling our current market environment has something to do with that.

I’m talking about “Pre-Approval Letters” and what they REALLY mean.

While researching this issue, I came across a post written by Rhonda Porter titled “Pre-Approval Letter Defined.” Rhonda is a top mortgage originator in the State of Washington and in her Blog she wrote a very clear and concise article about Pre-Approval Letters.

Pre-Approval Letters are something hardly ever mentioned in the press, however in the mortgage and real estate community, it is a topic hotly contested and subsequently has caused issues on numerous real estate transactions. On countless occasions, Realtors, builders and clients have received a pre-approval letter and late in a transaction find out the borrower does not qualify. In many cases, the subject borrower has already moved out of their previous home/apartment, the individuals they are buying the home from have done the same and the home they are buying is dependent upon their buyers getting financing to close. In essence, there is a domino effect with many transactions dependent upon the down line escrow to close.

Sound familiar?

Bottom line; borrowers need to understand what their”pre-approval letter” is and:

1. Their Pre-Approval Letter is only as good as their Mortgage Professional (not always the one who gives them the lowest rate/costs).
2. They are selective about the lender and pre-approval letter they accept.
3. Have them read Rhonda’s Blog – “Pre-Approval Letter Defined“

Below are a few other sites related to pre-approval letters:

• Don’t Forget Your Pre-Approval Letter
• Pre-Approval Letter – What Is It Worth?
• Clarifying Pre-Approval versus Pre-Qualification