Is Your ARM Broken?

Ever since the Federal Reserve stopped it’s three year crusade to increase the Prime Rate every six weeks, most people with adjustable rate mortgages (ARMs) expected their already high rate to stabilize. Unfortunately, it can take 9-18 months for the indicators linked to some ARMs to “catch up” to a stable Prime Rate. Even with the recent Fed action, which dropped the Federal Reserve Rate down to near historic lows, the drop in ARM rates hasn't been dramatic, (yet). This means many homeowners have seen their rate creep downward just a few basis points in the last few months. Their previous increases in interest rates, which means ever increasing payments, have left many homeowners scrambling to make their next mortgage payment, and its also a major factor in the nationwide increase in foreclosures.
In many states in the southeast, large increases in property taxes and homeowners insurance have also hit at the same time, making the situation even worse. The combined effect in some cases has resulted in total payments that are 50-60% higher than they were only 1 or 2 years ago, which is a change that few consumers can handle. Fortunately, due to circumstances in the long term bond market, interest rates on Fixed Rate Mortgages have lagged behind the huge jumps in ARMs, and this offers a solution for homeowners that find themselves unable to afford to continue to live in their own homes. But whether or not this is a good solution for you depends on a variety of factors, and hopefully you can use the information in this article as a starting point to figure out whether switching to a Fixed Rate Mortgage will help you. First of all, if you’re “stuck” in an ARM that was highly recommended to you two or three years ago by a Licensed Mortgage Broker or other mortgage professional, don’t feel too bad, or blame the Mortgage Broker for giving you bad advice. Historically, ARMs are a much better deal than fixed rate mortgages, and can save you tens of thousands of dollars in the long term. Plus, no one could have predicted the changes in the economy, and the Federal Reserve’s reaction to those changes, which caused rates to skyrocket in just three years. The advice they gave you three years ago was sound, and may still be valid in the long run. If you can wait out the rate flucuations, you will most likely see your adjustable rate continue to decline, and eventuall drop below current fixed rates. But if you find yourself unable to pay your mortgage now, a change in plans may be in order. To find out if changing your current ARM over to a Fixed Rate Mortgage is a good idea, you need to consider how you would answer these questions.
1. Can you possibly afford your current mortgage payments without getting behind in your payments? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

You need to make some kind of change now, before you get behind on your payments or even lose your home.

2. Are your credit scores worse or basically the same as when you got your current mortgage? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

If your scores are significantly better, you may be paying an ARM rate that is 3% or more higher than the best fixed rate available to you now.

3. Is your current interest rate on your ARM less than 7.5%? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

Current fixed rates could save you 1-1.5% or more on your ARM if it’s rate is over 7.5% now.

4. Do you have only one mortgage on your home? (no second mortgage or Heloc) Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

It may be possible to combine your mortgages into one lower rate first mortgage, and you could save hundreds of dollars each month.

5. Do you no longer pay (or never have paid) mortgage insurance (PMI)? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

You may be able to refinance your mortgage to a fixed rate and eliminate your mortgage insurance at the same time.

6. Is the total amount of your mortgage more than 75% of your homes current value? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

If your current loan to value (LTV) is less than 75%, you have equity available to get the best rates on a refinance with little or no out of pocket costs.



7. Do you plan on staying in your current home less than 2 years? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

For most re-fis, the break even point (where costs of the re-fi equal the savings in payments) is 1-2 years.



8. Do you plan on staying in your home more than 7 years? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

In the long term, rates on ARMs should come back down to a point below current fixed rates, but short term you could still save thousands of dollars, and if you are in danger of losing your home, you need help now.

9. Is your other high interest rate debt (credit cards, finance company loans, etc.) small or non-existent? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

Depending on your equity, credit scores and debt ratio, you may be able to combine all of your debts into one mortgage with a fixed rate and a much lower total monthly payment.

10. Do you have enough savings to cover any large expenditures that you know of that may be coming up in the near future? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

It may be possible to actually get some cash out of your equity, get a low fixed rate, and use that cash to take care of other upcoming expenses.

11. Does your current mortgage still have a pre-pay penalty? (usually first 2-3 years) Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

Pre-pay penalties can be quite large and cut into the money available for closing costs or cash back. Plus if your ARM is more than 2-3 years old, your interest rate is probably higher than it needs to be.

12. Will you be retiring in less than 10 years? Do you have a well funded retirement account? Yes - Go to the next question No - Contact a Licensed Mortgage Broker to discuss options

If you are still 15-20 years or more away from retirement, you may want to consider a plan that will allow you to pull money from your equity, and re-invest it at a higher rate of return than your mortgage interest rate, which can double or even triple the money available to you at retirement.



13. Are property values in your area flat or still decreasing?

Yes - Keep your ARM No - Contact a Licensed Mortgage Broker to discuss options

The money you have invested in your home (your equity) does nothing to increase it’s value. Your down payment and payments towards principal are basically “mattress money”. It earns no interest and doesn’t make you any money, since your home’s value increases or decreases independent of your equity. If your home’s value is stable right now, you may be able to refinance at a fixed rate, plus pull out some of your equity to re-invest at a higher rate of return.
In a later article, I’ll talk more about a program that doubles or even triples your money at retirement, by using this information to your advantage.

Obviously, every individual situation is unique, and this series of questions is only a starting point to help you determine if getting together with a mortgage professional to discuss your options is a good idea. And, of course, if you have excellent credit, low debt ratios and a great relationship with your bank, you can always check with them to see what they have to offer. However, for most people with average credit and debt ratios, you’ll get a much better deal on your new mortgage through a competent mortgage broker. In fact, most large banks like BankAmerica, Suntrust, Washington Mutual, etc., have wholesale lending divisions that you can only access through Licensed Mortgage Brokers. These wholesale divisions have a wider variety of programs and lower rates than the bank’s retail offices! A reputable mortgage broker can usually get you a mortgage from your bank at a lower rate than you could get by going into the bank yourself. Plus, they have no obligation to use that bank’s program, and can research a whole network of lenders to find you the best deal, all with only one application. Do you think anyone at your bank would send you down the road to a competitor for your mortgage, because they know their rates are a half a point better? Of course not.

A broker will normally charge you a fee for finding you the best loan for your situation, but that means they work for you, and they’ll help you find the best mortgage available, without having to visit dozens of banks or websites, and without having to fill out numerous applications. You also avoid having your credit pulled dozens of times, which can lower your scores. Plus they have access to many other wholesale lenders that offer programs for just about any credit or situation.

Some brokers charge an up-front application or consultation fee, but many will discuss your situation and options with you free of charge. Many specialize in different niches, such as first time home buyers or bankruptcies, while other local companies specialize in loans in specific states or geographic areas. These smaller companies have access to the same lenders as the large companies, and often offer better rates, lower fees, and much more personal service. Since I live in Florida, I can recommend one local company that specializes in Florida mortgages, Star Mortgage. You can contact them at 813-882-8878, or visit their website at StarMortgageBroker.com. If you live in another state, they may be able to help you, but that really isn’t their focus. If you don’t live in Florida, try calling a few listings under “Mortgage Broker” in the online yellow pages, ask a few friends, or visit http://www.mortgagepages.com, and pick your state from the drop down list.

Whatever you do, if your ARM is making you broke, find someone local who can analyze your mortgage, and who will give you some advice on the best option for your particular situation. Good luck.

FMI

Federal Reserve's Rate Hikes Grind to a Halt

Some Reservations at The Federal Reserve

Almost all major financial analysts are predicting that the Federal Reserve, under Ben Bernanke's direction, will leave the Fed rate of 5.25% untouched at their meeting today. Now, with the recent reports indicating a downturn in sales of durable goods, plus the continuing drop in new housing starts and home values, some think the freeze on rate hikes will last through the end of the year.

There are some signs that the cooling economy is still stable. The sale of homes actually crept up slightly from July to August, by about 14%, and consumer attitude is still very positive. Still, the backlog of homes for sale on the market, decreases in fuel prices, and a drop in consumer spending all indicate the the Fed's policy of raising rates at every meeting for three years has succeeded in driving down inflation. But have they gone too far? Unfortunately no one, including Ben Bernanke and the directors of the Federal Reserve Bank, knows for sure. As I've mentioned before, there are problems with balancing the economy by controlling interest rates, not the least of which is that the full effects of rate changes aren't apparent until 12-24 months after the change takes effect. Because of this lag in cause and effect, the Fed may already have increased rates above what was necessary to slow inflation to a standstill, and a recessionary trend may be developing. What this means to homeowners and prospective home buyers is that currently rates for home mortgages are fairly stable, and have actually moved slightly lower in the last few months. And interest rates on fixed rate mortgages are still very low.

Let's look at what these conditions mean for homeowners thinking about re-financing, new home buyers, and sellers.

Homeowners

Many homeowners have been misled by all of the news and talk about the Federal Reserve's rate increases. They assume that because the Fed Rate has increased by 4.25% in the last 3 years, that mortgage rates have gone up by that amount, as well. This simply isn't true, and many homeowners with current fixed rate mortgages at 7% or above, or who are hanging on to older adjustable rate mortgages (ARM's) with wide spreads, could do much better by re-financing. The fact is that back in June of 2003, when the Fed Rate was at 1%, the best available rates on mortgages were averaging 4.75-5.125%, a spread of about 4%, with fixed rate mortgages significantly higher than ARM's. Right now, with the Fed Rate at 5.25%, the best average rate on a mortgage is running about 6.125-6.5%, a spread of only about 1%! No matter what your credit rating or debt situation, the average rate you could get today, versus what you would have gotten when rates were at their lowest, is only about 1% higher. Plus, due to other economic factors such as changes in the bond market, fixed rate mortgages are actually averaging rates that are almost the same as ARM's, making them an excellent deal for consumers. So if all of the talk about high rates has scared you off re-financing your current mortgage, take a hard look at what your current rate really is, and contact a Licensed Mortgage Broker to find out if you can do better.

Home Buyers

As I stated in a previous article, it's a buyers market, and that still applies. There are real bargains to be found in housing, as more sellers tire of waiting for a sale, while watching their home's value slowly decrease. Plus, rates on mortgages for new purchases are usually lower than those offered for a re-finance. Waiting for the Federal Reserve to perhaps lower rates slightly sometime next year, may mean that you miss out on buying a home at a bargain price, and the small amount you "might" save in interest, won't even be close to the amount you could save by buying at a lower price. For example, if you can buy now at a 5% below market value price on a $250,000 home, financed at 100%, you would save $12,500 off the price, and finance $237,500 at 6.5%, for a payment of $1501.16 on a 30 year fixed rate mortgage. If the Federal Reserve drops rates by .25% early next year, but the housing market gradually improves, and you have to pay full appraised value for the same home, you'd be financing $250,000 at about 6.25%, for a payment of $1539.40! Plus you will have paid $12,500 more for the same house, and have less equity in that home for the entire time you own it.

Home prices have fallen slightly in the last few months, but there are signs that trend is coming to an end, and no one predicts it to continue in the long term. You only have to decide if you want to already own a home when the recovery is in full swing, or wait until then and pay more for the same house.

Sellers

Although the short term prospects for people trying to sell their home appears bleak, there are some things you can do, depending on your situation, to improve your odds of making a deal you can live with. You basically have two options, and the first one is pretty simple. If you have no pressing need to sell your home quickly, either pull it off the market until conditions improve, or just sit back and wait out the current situation in the housing market. If you do decide to leave it up for sale, consider using some of the suggestions under option two. Or, if your need to sell isn't based on location, but instead on the size of your current home or it's amenities, consider re-modeling or an addition to solve those problems. You need to be careful not to improve your home to the point where you "out price" it's value for the neighborhood its in, but in general home improvements give you a very good return on your investment. This is especially true in the current market, when contractors need work, you can often negotiate better deals, and it is an even better deal if you can do some of the work yourself.

On the other hand, if you really do need to sell your home as soon as possible, there are several things you can do to improve your chances of selling it quickly. First, make sure your home is "ready to sell". Inexpensive repairs or upgrades can make a big difference in how buyers view your home. Walk through and around your home with "buyers eyes", or have a neighbor do it with you, and look for things that are negatives, that can be easily and cheaply turned into positives.

Some suggestions, if needed:

• Re-paint the exterior and interior with neutral colors. Many realtors and others suggest yellow for the exterior and very light cream for the interior, but buyers get tired of seeing so many yellow houses with stark white interiors. Still, keep it muted, nothing too bright or out of the ordinary. Consider using a three color scheme for the exterior. For example, a very light gray or tan body color, with a medium gray or brown trim color on soffits and shutters, and a dark gray or brown accent color on window ledges and the front door. You can also do the same scheme with other colors like green or blue (but make sure they are muted, think sage green and gray-blue shades), and also consider substituing white for your trim color in any of these. For the interior, stay very light to make your home appear larger, but consider using a darker cream color in certain rooms to make it appear warmer or cozier. The main thing is to follow a consistent color theme from room to room. Bathrooms and the kitchen are two areas you can consider going a little wild with paint color, just don't over do it.
  
  Speaking of kitchens and bathrooms, depending on your budget, and how much of the work you can do yourself, consider adding new faucets, sinks, or complete vanities. (Don't forget to clean throughly around all additions! A new faucet with a hard water ring around it doesn't impress anyone.) Launder or replace shower curtains, bath mats and area rugs. Make sure bathroom accessories are minimal, look new and clean, and match. Buy a few new, good quality towels, and put them out on towel racks for "show".


• Edit, edit, edit! If necessary, rent a storage locker for a few months. You want your home to appear lived in, not cluttered. Clear tables, cabinets, bookcases of all knickknacks and personal pictures, etc., then replace just a few, grouped together by similarity. A good guide for most people is to leave half or less of what was there, and group the items in odd numbers, three or five for example. Take away every canister, appliance, or anything on your kitchen counter that you can, and clean out all of your pantry, kitchen cabinets and drawers. Sell, store or give away anything you haven't used in the last 6 months. Remove furniture that is seldom used to create a more spacious look. For example, if your dining room set has 8 chairs and a leaf in the table, and 2 chairs sit on either side of your china cabinet, put the extra chairs and the leaf in storage. If the room still seems crowded or cramped, consider putting the buffet in storage, and replace it with a narrow hall table from the cramped foyer. Store personal items such as toothbrushes and razors out of sight in drawers or cabinets. Speaking of drawers and cabinets, clean them and your closets out now. It will make moving easier, and make storage appear more spacious. Clothes and shoes that you don't wear regularly, Christmas decorations, photo albums and scrapbooks, even about half or two-thirds of the books on your bookshelves can all be placed in storage. Don't forget the basement and garage. Remove and store anything that keeps you from easily parking your car in the garage. Paint and household chemicals, bicycles or exercise equipment (unless it is in a dedicated "workout room"), all need to go. Consider having a yard sale to get rid of anything you don't want to move with you, and donate the rest to charity immediately after the sale. Then go through and see if you still have any cramped feeling areas or rooms, and edit some more. Then have your friend or neighbor come back through and point out any problems, and edit some more.
  
  


• Clean, clean, clean! I've mentioned these last two things 3 times each, not because they are very important, although they are, but because you should do each of them 3 times! Clean your entire house from top to bottom, inside and out, with special attention to the bathrooms and kitchen. This should include "cleaning up" your landscaping, as well. Trim hedges and overgrown plants, trim trees (or hire someone), remove dead or sickly plants, add plants to create a theme to your landscaping, if you don't already have one. Mow your lawn high (it looks better), trim around it, and add fresh mulch to flower beds, around trees, etc. Sweep or hose off side walks and the driveway, use a special cleaner to get rid of any oil stains. Rent a pressure washer and buy cleaning solution to go with it, if you have a lot of stains to remove, and consider using concrete stain in a color that complements your homes base color, on any really rough looking driveway or walk way, after its been pressure washed. Then go back to the inside, and clean again. Look for areas you may have missed, cobwebs up high on a cathedral ceiling, for instance. Shampoo your carpets, scrub grout lines, reseal or wax tile and linoleum floors, clean windows inside and out, polish mirrors, wax or oil wood furniture, vaccuum and use odor neutralizer on all fabric furniture, launder or dry clean drapes, clean blinds, etc. Really get into every corner, knook and cranny, and make it spotless. Clean trash cans and ashtrays, clean picture frames and polish glass, clean and degrease kitchen and bath cabinets, clean out and wipe out the refrigerator (don't forget behind it!) and use Pledge or lemon oil, or the appropiate sealer or wax, on your counters and cabinets to make them sparkle. Wait a day or two and rest up, then walk through and clean any ares you might have missed. Now comes the hard part, maintain this level of cleanliness until you sell your home. Pick up after yourself daily, vaccuum and dust often, and mop floors and polish counters, furniture and glass weekly.
  
  


• Market your home every way, every where, all of the time.
  
  If you are using a realtor, make sure your contract specifies that any buyer you find on your own is excluded from your broker aggreement. Tell all of your friends, acquaintances, co-workers and anyone you meet that you are selling your home. They may not be interested, but they may have other aquaintances that are. If you are selling it yourself, invest in a professionally printed sign, put an ad in the newspaper, list it on free on-line services. Consider putting an ad in the paper advertising an open house one Saturday or Sunday. Contact a Mortgage Broker to assist your prospective buyers with their financing. Many of the better mortgage brokers will provide you with pre-printed handouts for your open house, signs for your yard, free pre-approvals for your prospects, and some will even give you free listings on-line on their web-sites. Some will do a walk through with you, pointing out areas you may have missed when you were repairing, editing and cleaning. They will also do an Electronic Valuation Appraisal of your home, and give you a "real" estimate of the price you should be asking. All at no cost to you. Once you a Mortgage Broker lined up to assist your prospects, put "Financing and Free Pre-approvals Available" in your advertisements. Research and use every available resource you can find to get your home in front of as many people as possible, and make your home the best looking one they have seen.
  
  If all else fails, and you have substantial equity in your home, consider dropping your price slightly, and advertise it as selling for below appraied value. If a prospect wants to know why you are selling below market value, explain that you have owned the home for quite a while, have substantial equity, and can afford to sell it slightly below appraisal and still make a reasonable profit. If you are selling it yourself, you could also explain that you are discounting the price slightly because you will have broker fees to pay. Do not tell them that you are "desperate to sell" or "need to move for your job" or the "market in this neighborhood is terrible right now", or anything else that will cause them to make an offer that is ridculously low. Besides, these aren't the "real reasons", they're just conditions that have caused you to reconsider the amount of profit you can live with.
  
  

So this is the bottom line. If you are considering buying a house, or re-financing your current home, conditions are probably a lot better than you thought. If you are selling your home, you will face some competiton, and demand is low, but there are still many buyers out there, and almost 110,000 homes were sold nationwide last month alone. You just may have to work a little harder to make sure that yours is one of the ones that sell this month.

FMI

Federal Reserve Pauses in Their Rate Hikes

The Federal Reserve Pauses in Their Rate Hikes

Well, the two big news stories in the last few weeks were the Federal Reserve Bank's decision to not raise rates for the first time in 3 years, and the terroist plot by Islamic extremists that was foiled in Great Britain. How these two things are related helps explain why the rates on a 30 year fixed rate mortgage actually went up in the days following the Fed's announcement. Of course, the reports after the announcement that showed that inflation wasn't slowing helped spark the bond market, which naturally drove up long term rates. But what this phenomenon actually helped highlight is that although the Fed can influence rates, they can't totally control them.

One of the major problems with the Federal reserve's policy of raising rates to influence inflation is, by their own admission, that the results of rate increases aren't fully seen in the economy until 12-18 months after the increase takes effect. This means that the "best" rate to keep inflationary pressures at bay might be the Fed rate of a year and a half ago, and cuts in the current rate may be necessary to forestall a recession. Although the current rates available to consumers for a new purchase or refinance are actually quite reasonable, at only 6.5-8% (remember the 80's, when rates on mortgages ran as high as 18%!) many people have adopted a wait and see attitude when it comes to buying a new home or refinancing their current one. Thus, the huge drop in new home sales and starts, and the equally large increase in homes on the market versus buyers wanting to buy them.

The feeling among consumers seems to be that rate cuts are on the horizon, and the instability caused by the attempted terroist attacks also contributes to the instability that makes consumers balk at taking any type of risk. The fact that the pressure of increased oil costs is about the only thing fueling inflation at the moment, also doesn't help. This may lead to the Fed maintaining a higher rate than is really necessary, leading to a real estate market collapse that is both unprecedented and unwarranted. The good news is, buyers who aren't afraid of the current rates can really get some good deals on the home they want. Most buyers are afraid of "paying too much in interest" at the moment, so houses are sitting on the market for months at a time. There are bargains to be found at 10-20% below appraised value or more, and a smart buyer can take advantage of this situation. Plus, in a year or two, if rates do gradually creep down (which is my best bet on what will happen) they can then refinance at a lower rate, and still have ten of thousands of dollars in equity. Plus, as an added bonus, those borrowers in an Adjustale Rate Mortgage (ARM) at the moment, should see their rates decreasing.

Another factor that influences inflation, and then effects interest rates, is the manipulation of U.S. currency by foreign governments. Without going into too much detail, China is one of the countries currently driving up inflation in the U.S. Every time a U.S. citizen buys a product made in China, dollars are shifted to the Chinese economy, and the trade deficit with China increases. The Chinese investors then use those dollars to buy up U.S. Treasury bonds, which fuels inflation.

So, we have a variety of factors at work that cause changes in the interest rate you pay, and also cause inflation or recession to occur in the United states. Changing one of those factors, as the Fed does, can influence the others, but can never stop those factors from changing in response. Now the question is, "What can an individual do to influence how the factors that influence their day to day existence?". One thing each of us can do is something that was a catch phrase from 20-30 years ago, and that is to "Buy American". Although that is difficult to do that today, with components for the various things you might purchase being manufactured in a variety of different countries, and U.S. companies being bought out and owned by foreign conglomerates, it is a goal still worth pursuing. It would only take a small shift in consumer buying patterns to influence both the trade deficit, and the economy in the U.S. And when you cosider that the quality of American made products is still, by and large, excellent, the overall cost to consumers is actually negligable.

The other major factor in this equation that each of can control is oil. Wars with, treaties and agreements entered into, sanctions imposed against, and aid and concessions given to oil producing countries are a major source of drain on the U.S. economy. The solution to this problem is both simple and attainable. As a country, we need to stop depending on foreign oil for our energy supplies. Simply cut off all interaction with, commerce with, aid given to, immigration or political asylum allowed from, any country that supports or allows terrorist activity. The benefit to the U.S. economy would be billions of dollars in scope, and those countries could no longer complain that we were intruding on their culture or way of life. But, how could we survivie without the influx of oil from these countries? The fact is that the technology does exist, and it is available today, not at some point in the future, but it simply isn't being utilized by a governmet that has too many ties to maintaining the "status quo", when it comes to the oil industry. This technology would probably be commonplace today, except the federal government of the U.S. and the Europeon nations can't control and tax the prodution of water, so it will cost them literally billions of dollars in revenue, when it becomes the norm. This is the same reason that none of the auto manufacturers or power companies have embraced this technology.

So, what can you do? Basically, there are three things each of us can do:

1. Take advantage of the bargains now available in the housing market. Buying is always cheaper than renting, in the long run.

2. Buy American whenever you can. The few dollars more you spend will be more than made up for, in most cases, by getting a higher quality product that lasts longer.

3. Explore and promote alternatives to an oil based society, For more information on a technology that has been around for decades, and that would allow you to run your car, lawn mower, portable generator, etc. on water, not gas, check out the posting on another blog, http://www.upaas.com/blog. It can be done, and it is both cheaper and safer, and virtually non-polluting.

The conclusion I'm getting to is simple. Rates are coming down, bargains can be had, and water fueled technology is becoming available, so the future does look bright. However, you can't wait or hope that big corporations or the government will help you to take advantage of these opportunities, you have to take action yourself to succeed. Check out the posting on the blog I've listed above, and the links to the YouTube video that actually shows this technology working in a real vehicle. Consider helping yourself, the country, and the world by spending a few dollars to convert your current car over to a water based fuel system, rather than buying a new fossil fueled vehicle. The bonus is that you get to save the approximate cost of the retrofit each year for every year you own the car. Check it out.

When Will Ben Bernanke Blink? Is the Federal Reserve’s Rate Raising Fight Against Inflation Going Too Far?

When Will Ben Bernanke Blink? Is the Federal Reserve’s Rate Raising Fight Against Inflation Going Too Far?

There is a lot of speculation and debate among economists about whether the Federal Reserve will raise the Fed’s short term interest rate to 5% in their meeting on Wednesday. If they do, it will make 16 straight jumps of .25%, since it reached it’s low point of 1%. Most people seem to feel that statements by Fed Chairman Ben Bernanke have sent mixed signals about whether or not this meeting will be the time for a pause. Or, will they keep consistently raising rates through the rest of the year? No one at the Fed seems willing to commit to an answer. This is no surprise, considering the economy seems to be sending mixed signals as well, and although the risk seems small, some economists fear a pause in rate increases would trigger a rapid increase in inflation.

One problem with judging how far to go with a rate based battle against inflation is the fact that many economic indicators take months to show their full impact. Recent decreases in retail jobs, coupled with increases in manufacturing, apparently caused a sharp jump in the average hourly wage last month. This doesn’t appear to be an indication of true inflation, just a shift in the job market. The increase in oil prices only fueled a small inflationary spark, but as the fuel costs filter down through all manufacturing and transportation in the next 60 days, it could cause widespread price increases. Mr. Bernanke and the Fed have to judge whether its time to put on the brakes, but they can’t know for sure how fast they’re going.

Some economists blame the volatile changes in the Fed’s policy under Alan Greenspan from 1987 to 2006 for the inflation and recession that occurred, as well as the crash of the tech stocks, which caused huge losses in the stock market. During that time, the Fed’s policy changed 7 times in 19 years, going back and forth between raising and lowering rates. Several of these changes were quick and radical, and the effects, of course, were dramatic. From the crash in 1987, until 1990, the Fed raised rates as inflation picked up. Then from 1990 to 1991, they sharply cut rates during the recession. In 1994, Greenspan overreacted to a fear of inflation by raising rates, but the inflation fear was overblown, and never materialized. It did serve to create a very bear market on Wall Street, however. As a result, when rates gradually decreased, and more money was injected into the economy, a massive bubble developed in high tech, and the stock market in general, as an almost irrational exuberance caused both the Dow and the Nasdaq to soar to new levels.

When Greenspan reversed his position and decided to quickly increase rates and curtail liquidity in 2000, the stock market collapsed and entered a three-year bear market – the Dow losing almost 50% of its value, the Nasdaq over 70%. Later in 2000, Greenspan embarked on a road of reducing rates all the way down to 1%, what many consider an artificially low rate of interest, based on his fears of deflation leading to a recession. Since 2003, the Fed’s current policy of raising rates has continued unchecked.

One thing that is not receiving much attention in all of this is how these steady increases are effecting the bond market. During the time that artificially low interest rates ruled, Wall Street investors bid up mortgage REITs, and other interest-sensitive investments, to astronomically high levels. Now, under Alan Greenspan, and Benanke, the Fed has embarked on a campaign of raising rates every six weeks. As a result, the mortgage REITs, muni bonds, and other interest-sensitive investments have come down.

An inversion in that market has caused a change in mortgage interest rates that hasn’t been seen in over 20 years. Right now, fixed rate mortgages, which are traditionally much higher than adjustable rate mortgages (ARMs), are basically at the same interest rate, or lower. While this makes fixed rate home loans more attractive to both buyers and homeowners, in the long term it may prove to be a more expensive choice, if the rates on ARMs decrease. But the problem for many homeowners is that their current ARM, which was a great deal originally, is now costing them more every month. Even ARMs that are based on a traditionally stable index, such as the COSI (Cost of Savings Index, an average of what banks pay as savings account interest), have seen large increases in the last year.

“It’s a difficult situation to judge”, said Karen Pooley, President of Star Mortgage, Inc., in Tampa, Florida, “but right now, I’m telling my clients with ARMs that their best bet is to ride out the current increases. In the past, ARMs have always outperformed fixed rate mortgages in the long run, but you have to be willing to live with the changes as they happen.”

“One option I've used with a few people who were having real problems making the payment, and who had sufficient equity, is to refinance with a fixed rate mortgage at about the same rate, plus get them some cash out.” Ms. Pooley continued, “This allows them to skip a few payments, and gets them some extra cash on hand to help cover their new, slightly higher payment.”

Even Alan Greenspan, in a speech early in 2004, had recommended ARMs as a better deal for homeowners, and said many could have saved thousands of dollars a year over the last decade, if they had one. But this was before the Fed’s constant increases had caused such a significant increase in the average rate on all mortgages, and especially on ARMs. One thing Ben Bernanke and the Federal Reserve should consider in their meeting this week, is how the constant increase in rates is affecting homeowners who took Alan Greenspan’s advice, and now have payments much higher than they expected. According to industry reports, foreclosures are on the rise, and that’s an economic indicator that may be telling Mr. Bernanke and the Fed that the time to pause in their rate hikes is actually past due.

Ameriquest Settlement: "Don't Judge Too Quickly"

Ameriquest says, "Don't Judge Too Quickly". I say, "Don't Forget So Easily"

I may seem to be going on a bit with another article about the Ameriquest scandal and judgment, but I simply couldn't ignore their new series of television ads. I should mention that the settlement was actually for ACC Capital Holdings, the holding company for three retail subsidiaries, Ameriquest Mortgage Co., Town and Country Credit Corp. and AMC Mortgage Services Inc. Less than a month after making an out of court settlement for $295 million dollars plus $30 million in attorneys fees, Ameriquest's marketing machine was back in force, with a series of commercials that seemed to be aimed at damage control. One showed a woman on an airliner stumbling due to turbulence, and accidentally winding up straddling a stranger, with her blouse also "accidentally" unbuttoned. There are no spoken words, just gasps and looks of discomfort from her fellow passengers as the lights suddenly come up. Another shows a doctor zapping a fly, and holding the paddles over the unconscious patient as his family walks in. He says "That killed him". The tag line on both is "Don't Judge too Quickly ... We Won't", followed by the Ameriquest logo. The more recent ones are simply a short, 15 second spot of the tag line "Don't Judge Too Quickly", followed by the logo.

In a recent article in the Washington Post by Kenneth R. Harney, titled "Don't Believe It Unless It's in Writing", he asks a series of questions;

"Did your loan officer sit you down and walk you through all the key operational details of your most recent mortgage before you signed?
Did you see a copy of the appraisal and have a chance to review it carefully?
Did you understand when, if ever, a prepayment penalty might take effect to discourage you from refinancing? Or was that whole subject left a little fuzzy?
Did you receive a copy of your loan and settlement cost good-faith estimates within three business days of application?
These may sound like the most basic of questions and you may well answer: Duh! Of course I understood everything I needed to, and yes, my loan officer was an absolute font of useful information.
But the recent $325 million multi-state legal settlement involving Ameriquest Mortgage Co. suggests that not all is well on the home loan front, and that even experienced buyers and refinancers need to question more, review more, probe more before committing to what is often the biggest debt burden of their lives."

And Mr. Harney is right. Not only are these the most basic of questions, but are all matters that are covered by law. Laws that set standards that all brokers and lenders are supposed to adhere to. Standards which the president of Ameriquest, billionaire Roland E. Arnall, has admitted publicly that they did not always manage to comply with.

The task force formed to investigate Ameriquest has never specified the allegations made against Ameriquest in 49 states and the District of Columbia, but Arnall disclosed the information in writing to the Senate committee as it considered his nomination by president Bush to the position of ambassador to the Netherlands. According to Arnall's written testimony, the attorneys general alleged that the company had pressured appraisers to inflate property values so borrowers could get bigger loans, charged upfront fees without reducing interest rates as promised, and told borrowers to ignore written information about interest rates because they would give them lower rates later. The company then is alleged to have given them the higher interest rates instead. Ameriquest is also alleged to have assured borrowers their loans would have no prepayment penalties, then inserted such payments into the final loan documents; delayed the time period between the loan closing and the funding; and misrepresented fees and costs. At the November Senate hearing, months before the settlement agreement, Arnall stated that Ameriquest had not handled its dealings with customers "perfectly" and that some employees had been fired.

But according to Connecticut Attorney General Richard Blumenthal, who said he could not discuss any specifics about the negotiations before the settlement had been reached, (and was bound by the agreement afterward), many consumers had been badly taken advantage of in their dealings with Ameriquest.
"What we've seen in human terms is catastrophic damage for some individuals who were misled or deceived or who received loans greater than they could possibly afford because of inflated income levels or appraisals resulting from employee misconduct," Blumenthal stated "We're taking action that will be designed to stop these abuses and effectively scrutinize and monitor these systems going forward. The abuses are systemic in number and nature."

Others sanctions imposed on Ameriquest are specifically designed to hamper them and their other lending groups from violating legal and ethical practices in the future. Still, nothing can be said about ACC Capital Holdings having really done anything wrong, by me or by anyone else. That also was part of the agreement. ACC Capital Holdings and Ameriquest admitted no wrongdoing, and their licenses to do business were not restricted in any way as part of the settlement. Now a total settlement of 325 million dollars might seem like a lot of money, and no one outside of the company appears to know exactly how much they profited from these suspect transactions. But, some estimates put the profit figures between 6 and 12 billion dollars ($6-12,000,000,000) off of those loans, which would make the settlement amount less than the sales tax rate in most states. Of course, Arnall has been President Bush's single largest campaign contributor since 2002, and he is Bush's candidate for ambasador to the Netherlands. He has also made large contributions to many Democrats, including U.S. Representative Tom Lantos (D-Calif.), who endorsed Arnall's nomination to become ambassador at the Senate hearing. So, there are those expenditures to consider, but in Mr. Arnall's case, it seems it was money well spent.

My problem with Ameriquest's new ad campaign is threefold. First and foremost, is the implication that any legal or ethical problems with their lending practices were strictly "accidental", and that firing a few low level employees have solved the problem. Both statements from past and current employees, as well as a somewhat guarded statement from the Connecticut Attorney General, seem to more than suggest otherwise. Although, of course, the terms of the settlement don't allow any definitive accusations.

Second, their campaign seems to imply that all brokers and lenders are using the same illegal and unethical practices they were accused of, so those practices are no reason to "judge" Ameriquest. After all, there was no legal statement of guilt on their part, or judgment of guilt by the court system, so they must be innocent. This implication hurts all of the small, independent brokers that adhere to not only legal, but also ethical practices, with every client they have the privilege to help. I've mentioned this before, and I can't help saying it again, sometimes bigger isn't better, or even cheaper. If you want real assistance with one of the biggest financial decisions of your life, try contacting a small, local Licensed Mortgage Broker.

Finally, I feel their failure to admit any guilt, pay all penalties and make restitution in full, and only resume business after carefully overhauling all of their procedures and practices is insulting. Not only to myself and all of the other conscientious brokers and lenders out there, but also to consumers that might be considering using them for a mortgage.

Yes, Ameriquest did pay back a small percentage of their profits in a settlement to some consumers, and they are under the gun from a committee that's supposed to insure that they don't promote any unethical practices in the near future. Still, their apparent lack of remorse and failure to fully compensate all consumers who were damaged by their practices, plus their "wink, wink ... nod, nod" attitude, makes them seem just a bit insincere. Ameriquest representatives say their commercials are referring to the fact that they don't judge consumers who have credit issues, but even their explanation refers to the idea that "anyone" can make a mistake. I'm not the only one who has a problem with their ads, including some of their past customers, and other editorials have pointed this out.

Luckily, it seems that, contrary to Ameriquest's hopes, maybe people don't forget that fast. Perhaps their ad campaign is a direct response to the fear that potential clients have been flocking away from them, and other large on-line lenders, in droves. Since ACC Capitol Holdiongs has 360 days to fund the settlement agreement, many consumers may have decided not to help them fund it with their money. When Ameriquest says "Don't Judge Too Quickly", it serves to point out Ameriquest's concerned that many people may think they were never properly judged at all, but simply "skated by" on political influence and financial clout.

The decision, of course, is yours. You can get a mortgage through a large corporation, be assigned a number (and perhaps get treated like one), and then fight to get what ever service you can, from a company that is being forced to comply with ethical practices. Or, you can contact a local Mortgage Broker who will treat you right, just because it's the right thing to do. They have access to all of the same loan programs, and really appreciate your business. They'll listen to your concerns, find the best program available for your needs, and you can start to develop a relationship that will last a lifetime. Especially in light of recent events, the choice seems pretty clear.


FMI

What the Credit Reporting Agencies Don’t Want You to Know

A Few Things Credit Reporting Agencies Don’t Want You to Know

Everyone needs to take advantage of the new Federal Free Annual Credit report program, and everyone means you! Why? Because the odds are about 4 to 1 against your credit report being accurate at all 3 bureaus. That’s one of the things the big three credit reporting agencies don’t want you to know. A recent study did random pulls of credit reports from Equifax, Experian and Transunion, with the consumers involved prior permission. They then contacted each consumer and verified all information on those reports. In 79% of the cases, there were one or more errors on the reports from at least one agency! This indicates that there is about a 4 out of 5 chance that there may be an error on your credit report.

Now, some of these errors were pretty harmless, such as incorrect past addresses or employers, but a lot them were not. And many of these errors had a negative impact on the consumers credit scores. This means you could be turned down for a loan or credit card, or charged a higher interest rate for your loan, all through no fault of your own. In our own experience in consulting on Florida mortgage loans, we’ve seen many instances of errors somehow appearing on clients reports. One client had several derogatory items listed, simply because he had once lived in the same apartment complex as a man who had the same first and last name, and who also had some problems with his credit. Even though their age and middle initials, and in fact their addresses, were different, the bad credit data had shown up on his report as well.
And of course, they obviously had different social security numbers...

In another case we had a customer who had a collection listed on their account for an unreturned cable box. After disputing it with the cable company for several weeks on the phone, and reporting the discrepancy to the bureaus, they finally dug through old paperwork from 3 years before and found the receipt for the unit's return. Only after carrying the receipt down to the cable company for their inspection was the collection removed from their account, and then it was simply posted as a collection that had been “satisfied”! It took another series of phone calls, letters to all three bureaus, and almost 2 months to get the incorrect item removed completely.

In other instances, we’ve seen derogatory credit posting on a son’s account from his mother’s credit history, or on a daughter’s from her father, and vice versa. The bureaus “assumed” that since their addresses were the same, that there was a legally binding link between their credit. But this would normally only apply if they were husband and wife, or if they had applied jointly for the credit. In these cases, they had not applied jointly, and one would think that the 25-30 year age difference would give the credit bureaus a clue as to their real relationship, or would at least cause them to seek verification of a marriage through public records.

In my own case, one of my credit card accounts has now shown up on my wife’s credit bureau reports, simply because I mentioned her name on the phone to a credit card company representative, while I was declining their offer to add her to the account. In this instance, it does neither of us any harm, since we both have excellent credit, and as husband and wife are responsible for each other’s debts anyway, but it was an “intentional error”, none the less. I would be willing to bet that the credit card company offers a bonus to their reps for getting co-signers added to an account, and the rep I was speaking to simply cross referenced my address to find my wife’s account.

When confronted with the errors discovered in the study referred to above, all of the credit bureaus had basically the same response. Human beings help compile the data in these reports, and being human, may make mistakes. All of the bureaus have procedures in place for consumers to dispute erroneous items, and say they are happy to remove any that are shown to be incorrect. But if any of you that are reading this have ever tried to have an erroneous listing removed from your credit report, you know what a frustrating and time consuming job it can be. Plus, in my experience in dealing with client’s credit reports, I have rarely seen good credit listings from another consumer magically appear on someone’s report, but I see derogatory ones that don’t belong there, show up all of the time. Somehow the credit bureaus manage to spot differences in consumers account details and social security numbers when posting good credit lines, but ignore them on a regular basis when posting bad ones. Some consumers would just as soon pay off a small delinquency, even if it isn’t theirs, rather than holding up buying a home or a car for 30-90 days while they dispute the item and get it removed. This of course benefits the company listing the delinquency, since they really don’t care who pays, as long as someone does.

All of these problems are why the credit bureaus are now required by law to give you access to your credit reports for free on an annual basis. Even if you’ve never had a issue with your credit rating before, you need to take advantage of this free service. Do it before you need a new mortgage or other loan, so there are no surprises when you do apply. And do it every year, to insure that no new errors appear on your report. It only takes a few minutes of your time to order the reports, and it is time well spent. Consider this, at current fixed rates for an average $200,000 Florida mortgage, a half of one per cent increase in you interest rate, caused by an error on your credit report lowering your score, could cost you over $23,400 in interest over the life of the loan. If it takes you 1 hour a year to request and look over your credit reports to correct that error and save that money, (and it shouldn’t even take that long), you’ll have been paid about $780 an hour for that time.

Now, maybe the credit bureaus are correct, and are being honest, when they claim that all of the mistakes in their credit reports are simply human error, but that doesn’t mean you have to be a victim of those errors. Find out NOW if your reports are accurate, and make sure to get any errors corrected before you need your next loan. Don’t be put in the position of having to pay for someone else’s mistake in order to buy your dream home. Or having to pay too much, year after year, for that home.

I’ve said before that dealing with a local, fully licensed Mortgage Broker, is the best way to get your home mortgage, and this is just another reason why. With most banks and large, on-line lenders, all you’ll get is a standard turn down letter if you have problems with your credit. But a truly dedicated Broker will discuss your credit report with you (although they are restricted from actually giving you a copy of your reports), help find any mistakes, and help you get them corrected. Now I may well be prejudiced, considering I’m associated with the one of the best, if not the best, Florida Mortgage Brokers, but considering that about 4 out of 5 clients can use that help, and banks and on-line lenders usually don’t offer it, I think my opinion is actually fair and unbiased. Solving one problem with your credit report could save you 5-10 times a Mortgage Broker’s average fee. And that’s not counting the lower interest rate you’re likely to get to begin with.

To get a copy of your credit reports for free go to this website;

http://www.annualcreditreport.com or call 1-877-322-8228

To contact any of the big three credit bureaus, use the numbers below;

Equifax 1-800-685-1111

Experian 1-888-397-3742

Transunion 1-800-916-8800

And finally, if you live in Florida and want getting your Florida Mortgage or your Florida Refinance Mortgage to be as easy and relaxing as a day at the beach, with no hassles and no pressure, call;

Star Mortgage, Inc. 813-882-8878

Or visit their website at;

http://www.starmortgagebroker.com email - starmtg@tampabay.rr.com

So, check your credit reports now, and correct any mistakes before they become an issue. One thing your free reports won’t give you is your actual score, but if your report is clean, and you’re still paying more than 7% on your first or second mortgage, give Star Mortgage a call. They’ll pull your credit just one time, run it through a matrix of hundreds of programs from dozens of wholesale lenders, and find the best mortgage to solve your problems and save you money. The consultation and mortgage analysis is free, and you’re under no obligation. If there is a solution that will work for you, they’ll be happy to help you find it.


FMI

Federal Reserve's Balancing Act Creates Unique Situation

Unique Opportunity for Consumers

The Federal Reserve's consistent increasing of rates since June 2004, and recent statements by new Federal Reserve Chairman Ben Bernanke, have created a unique opportunity for consumers. During a Senate Banking Committee hearing on Thursday, Bernanke refused to say how high interest rates would need to climb in order to balance the economy, but economists predicted at least one more increase at the end of March, when he has his first meeting as Fed chief.
"There are two possible mistakes. One is to go on too long and one is not to go on long enough," Bernanke said during the hearing. "And, it's a very difficult balancing act."
On the future course of interest rates, Bernanke made a statement Wednesday before the House Financial Services Committee saying that he agreed with an assessment made by his Federal Reserve colleagues in January, and that interest rates would probably need to move higher. Because of this gradual increase in the Fed rate, the available rates on fixed and adjustable rate mortgages have converged, and in some cases, inverted.
"For the first time in 5 years, many lenders have rates on fixed rate mortgages that are almost the same as an adjustable rate mortgage (ARM)," said Karen C. Pooley, President of Star Mortgage, Inc. "This means that many people who shied away from refinancing because the best rates were only available on ARMs, can now get a fixed rate that is much better than what they have now. And even people who have seen the rate on their ARM shoot up in the last year can usually refinance at a lower fixed rate."
In a speech to the Credit Union National Association early in 2004, Federal Reserve Chairman Alan Greenspan had stated that American’s preference for fixed rate mortgages means many are paying more than necessary for their homes, and suggested consumers might benefit from considering ARMs as an alternative. In fact, a Federal Reserve study at the time concluded homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. But the Federal Reserve’s policy of raising rates 14 times since June 2004 has challenged the validity of that position today. Normally, the difference between rates for fixed and adjustable rate mortgages can be more than 1%, with the ARMs having the lower rate, but now, for most consumers, the rate is almost the same on both.
There are still millions of homeowners with fixed rate mortgages that have interest rates of 8% or more, and they could save thousands of dollars a year by refinancing before the Federal Reserve’s next meeting on March 27-28. Many homeowners may think they have already waited too long, and that rates are now too high, but that isn't the case. There are still many programs available from Licensed Mortgage Brokers, who deal with wholesale lenders, that have fixed rates that are in the 6%-7% range, and actually less than the Prime Rate. A drop of just 1% in the rate on a $200,000.00 loan can lower your payment over $1500.00 a year, and many homeowners could actually lower their rates by 2% or more.
"They can normally save back the total cost of the new loan in 2-3 years or less," said Ms. Pooley, who is a Licensed Florida Mortgage Broker, "and pay little or nothing out of pocket to do it."
Economists are predicting the Fed will boost rates by another quarter percentage point to 4.75 percent at their next meeting, and that the average rate on home loans will increase by another one-half of a percent or more by the end of the year. Although economists, and Fed officials, disagree on how many more rate increases may be coming, most agree that the Fed's rate-raising campaign may be coming to an end soon.
According to Ms. Pooley, "The current situation is something that probably won’t last very long, and anyone who wants to get these below Prime fixed rates on a mortgage needs to act now, before the opportunity is gone."
Star Mortgage, Inc., is a licensed mortgage broker based in Tampa, Florida, and offers prospective clients a free mortgage analysis and consultation. They specialize in mortgages for the Florida market. Further information and a short on-line application are available on their web site at www.starmortgagebroker.com.


FMI