Question of the week: What can we do
to make it easier and faster for you to process our mortgage application?
Answer: Don’t staple items together
and do not provide copies that are two sided.
A bit tongue in cheek on the answer, but those
two items do slow down the process a bit.
Everyone needs the same basic items for a loan
application, having copies (electronic or paper) of these items available when
you begin the process will save considerable time in processing your loan and
chasing items that we know are needed up front:
2013 & 2014
2013 and 2014
federal income tax returns, all schedules. Note that if you use a tax preparer
they can usually send us electronic copies directly with your consent
**All pages of
most recent two months statements all asset accounts, including primary
checking/savings, investment and retirement accounts
statement (if currently own)
statement showing premium and coverage if currently own, name and contact information
of insurance agent if buying for first time
**We have discussed asset statements and deposits
several times in the past and they continue to be a source of delay for those
not providing all the documentation we request.
If you have any unusual deposits, i.e. deposits that are not part of
your employment, be prepared to show the source of the deposit. This is one of the primary hold ups to final
loan approval: verifying funds and deposits.
Another hold up is adequate insurance coverage. Single family dwellings must have replacement
coverage of 84% of the replacement value of the property as stated on the
appraisal or the full loan amount, which ever if less. If you are refinancing be aware you may need
to increase your current coverage to meet the requirements of the lender for
Finally, the most important way you can improve the
efficiency of the process is to ensure we have the best ways to contact you
quickly if some additional information is needed from processing or underwriting. Do you respond fastest to work phone? Mobile?
Preparation is always the primary factor in the
success of any endeavor, the better prepared you are with your financial
information for delivery to us the quicker your file can be processed, approved
Have a question? Ask me!
Remember, with Dennis it’s not just a mortgage,
it’s your complete financial picture.
data dominated economic news this week, which isn’t saying much as there
was scant news. Existing home sales rebounded strongly as the winter weather
abated. Existing home sales surged 6.1% in March and the national median sales
price jumped 5.1% and is up 7.8% year over year. The growth in sales is the
highest in one month since December 2010 and the year over year price increase
is the highest since February 2013. With higher prices more homes should come
to market and possibly relieve some of the tightness in inventory. This news is
supportive of higher interest rates.
sales data tempered enthusiasm over re-sale data. Surprising to the
downside of expectations new homes sales fell 11.4% in March. With more new
homes coming on the market and fewer moving off the market builders are seeing
a larger inventory than they would like. This news is positive for lower rates.
ahead two weeks when the April job report is released we can forecast a
more favorable report for April than we have for March. This is based on unemployment
claim filings for the month, which have been under 300,000 new claims each week
for several weeks. The four week average of new claims has dropped 20,000 from
last month. As this news portends a positive employment report for the month
the news is supportive of higher rates.
Friday April 24, 2015: Mortgage Backed Securities (MBS) are trading mostly
sideways for the past few weeks with a brief dip yesterday (higher rates). The
net result is a slight increase in conforming rate from last Friday. We remain
in a range that is around a two year low.
MORTGAGES AT COST OF 1.25 POINTS
conforming 3.5% Up
high-balance conforming 3.625% Flat
30 year FHA 3.25% Flat**
30 year FHA
high-balance 3.375% Flat**
Please note that
these are base rates and adjustments may be added for condominiums, refinances,
credit scores, loan to value, no impound account and period rate is locked. Rates
are based on 20% down (3.5% for FHA) with 740 FICO score for purchase
mortgages. ***FHA rates have no points and credit towards closing costs
For those filing
at or near the April 15th deadline and expecting a refund from the IRS
or state you have to wait a bit longer this year than years past. The IRS is
currently quoting approximately 21 days for electronic returns to be received,
verified and refunds sent out for direct deposit. If you are expecting a refund
from the State of California and filed electronically the estimate is ten days
for you to receive your automatic deposit.
Just to make you
feel a bit better, next Thursday is “Tax Freedom Day” for Californians. The
folks at the Tax Foundation estimate that the average working Californian must
work until April 30th to pay their state and federal taxes—but after
that all the money you earn is yours!
Have a great
Question of the week: How long
should I keep all the paperwork from my loan(s)?
Answer: A common question after
going through tax preparations. If, like
many homeowners, you have had a few refinances over the past several years,
perhaps bought a home, or sold one, how long do you need to retain all the
closing paperwork, disclosures, etc. from your transactions?
The first part of any answer involving taxes and
the Internal Revenue Service is, “Verify with your CPA or tax-preparer…”
The statute of limitations for the IRS auditing
your taxes is three years (they may extend that period if they suspect fraud on
your part in previous filings) and four years for the California State
Franchise Tax Board to audit you on past filings. So if you deducted any part of your loan
transactions, either for purchase or refinance, you will want to retain those
records showing the source of the deductions for at least four years.
If you did not claim any deductions from a
refinance, which is most typical as most refinances are with no points, your
decision to keep or shred your closed loan documents is up to you and what
makes you feel comfortable. I would
advise however keeping copies of your Note for as long as you have your
mortgage in place. We have seen many
examples of the past several years of contentious proceedings for defaults and
foreclosures and if there is any dispute between you and your lender the Note
will be the most important document for you to provide to an attorney.
If you have a Home Equity Line of Credit you
should retain all those documents until the credit line is closed regardless of
whether you deducted any charges on your taxes or not. The HELOC is like a credit card and has
variable rate terms, as long as you have the line open you should retain the
Note and other documents.
My advice is to keep all your loan documents
from your closing in one place and retain those items until that loan is paid
off. I would not rely on being able to
copies of your closing papers and note from your lender in the future as the
servicing rights on your mortgage may be transferred in the future and make it
more difficult to obtain those items should you need them in the future.
One final note, like all legal and financial
documents if you are discarding documents that
have personal financial information do not throw them in the in the
trash but shred the documents. Every
home should have a small shredder for disposing statements, documents and other
items that have your personal information that could be used to establish a
false identity or enable credit fraud.
mentioned last week, this was a data heavy week with inflation numbers,
retails sales, sentiment and production for March all being detailed with
reports. The overall result of the
numbers is a look at an economy that didn’t really do anything in March,
whether it did or not we will find out in a couple of weeks when the 1st
Quarter GDP estimate is released.
the data. Prices did not do much on the producer or consumer side, PPI rose
0.2% in March and is down 0.8% from last March and CPI rose a similar 0.2% for
the month and is flat year over year. With gas and energy prices increasing in
February and March both PPI and CPI should be rising faster but dropping food
costs have neutralized the increases. This news is neutral to positive for
mortgage rates as it shows a lack of inflation in the economy and gives the
rate doves at the Fed strength in their argument to hold off on any rate
are driving the economy, more so than usual. Retail sales rebounded in
March, rising 0.9% though are down 0.8% from 2014 and consumer confidence
remains strong. With more sales of consumer items and strong consumer
confidence we should be seeing stronger pressure on prices to rise and decent
economic growth. Unemployment claims continue their streak of being under
300,000 claims every week (294,000 for the prior week) indicating employers are
holding onto employees. This data should lead to higher rates as consumers are
65-70% of economic activity.
about the other 30-35%? Industrial production dropped in March, down 0.6%,
and it appears our manufacturing sectors are being propped up by those sectors
catering on end user consumers. This mish-mash of economic data is problematic
for strong economic growth, and should lead to lower rates.
Friday April 17, 2015: Rates soften a little bit from last Friday and it
appears we will move sideways for a time. I am feeling that rates are near a
bottom for this cycle as investors are loath to pay higher prices for bonds and
mortgages (lower rates) knowing rates must go up at some point, while at the
same time seeing evidence that rates need to remain low due to domestic and
international economic activity. After peaking in early March rates have
slipped slowly, how much more they can slip is the question.
conforming 3.432% Down 0.068%
30 year high-balance
conforming 3.625% Flat
It is that
weekend when Long Beach is broadcast around the world showing off as the Toyota
Grand Prix of Long Beach runs through the streets. In 1999 Leslie and I took a
trip to Europe, one night in Amsterdam we got back to the hotel late and I
flipped on the television and there was our Long Beach seen from a blimp camera
shot with the Wyland muralled arean, boats in the marinas and crowds ringing
the circuit—proud to call it home!
It looks to be
another weekend that will increase future tourism with beautiful weather and
sites from Long Beach being broadcast around the world.
Question of the week: If you run a
credit report will it mess up my score?
Answer: The question of the week is
one we are asked often and I have had it more frequently lately so I thought it
would be appropriate to answer once again since it has been about a year that
we have covered the topic in the Weekly Rate & Market Update.
The credit score question is one we hear from
clients during conversations for preapproving and determining options for
refinances. Because there is so much misinformation regarding credit scores
some people are over cautious for any credit report being pulled. As a result
they are resistant to our obtaining all the necessary information we need to
provide accurate and complete information so they can begin shopping for a new
My standard response is that I don’t have to
pull a credit report if they do not want me to but I cannot provide a
pre-approval letter for their offer until I do, and any pre-qualification
information I provide has a giant asterisk, *Depending on credit report.
This can often lead to, “well I just got a free
credit report on line, can you use that?”
When we pull a credit report it is through a
company that is approved with Fannie Mae, Freddie Mac and HUD so the reports
are accepted as accurate for showing the applicant’s credit history and
outstanding obligations. The report we receive is a “tri-merge” report, meaning
it combines reports from TransUnion, Equifax and Experian and provides the
credit scores from all three bureaus.
When preapproving a loan, either for a purchase
or refinance, we upload this credit report along with the other information
from the credit report to the Automated Underwriting System (AUS) for either
Fannie Mae (Desktop Underwriter) or Freddie Mac (Loan Prospector). The report
that is part of our file is then read by the AUS and used for determining if
the loan can be approved as long as all the evidence for income, assets and
property match the information we uploaded.
Without having our credit report in our system
to upload into the AUS for Fannie or Freddie a loan cannot be preapproved,
therefore I need to pull my own credit report for your file.
Regarding the impact on your credit scores, our
inquiry has zero to minimal impact depending on your history. The models used to
determine credit scores have built in a tolerance for multiple inquiries for
different lenders in the mortgage and auto loan industries. This is because it
is not unusual for someone looking to buy a car or home to speak with more than
one lender and each will want to obtain their own credit report. As a result if
you have spoken to two other lenders within the past week or two and then call
me and rightly decide you want me to work with you on our new mortgage
application, when I pull my credit report your credit score should be the same
as the score with the first lender you spoke with a week or so before.
Inquiries that will have a negative impact on
your credit scores are for consumer, or revolving credit for credit cards and
department store cards. If you have multiple inquiries from different credit
card companies and/or department stores it appears you are seeking credit from
anywhere. This type of behavior is seen as a negative and will impact your
When you call or come in to get prequalified or
preapproved to purchase your new home or to refinance your existing mortgage be
prepared to have me ask you for social security numbers and dates of birth, I
will need a credit report and this is the information I will need.
about nothing was the title of a Shakespeare comedy and also descriptive of
our mortgage markets this week. There was very little—almost no—economic data
that typically impacts rates and yet we spent the week watching Mortgage Backed
Security (MBS) prices drop (higher rates). The only news of note for the week
was release of the Federal Reserve Open Market Committee minutes from March,
and the minutes should have caused MBS prices move up (lower rates) if they
moved at all. The minutes show a divide of the FOMC as to when to raise the Fed
discount rate, signaling that the first move up may not come in June. The news
was mortgage rate friendly but investors shrugged and continued to slowly sell
off the market.
is a big data week as we get PPI and CPI data reflecting inflation in
March, housing starts and industrial production. A consistent direction in the
data should move rates and depending on whether positive or negative rates will
move either up or down.
Friday April 10, 2015: After peaking last Wednesday MBS prices have slipped
down more than up but we barely retain last week’s rates. The cautious approach
of locking in your rate when you can is advised with the potential volatility—unless
you strongly suspect negative economic data next week.
conforming 3.50% Flat
Spring Break for the kids, unless you count weekends, and starting Monday they
hit the home stretch to summer with only a day off for Memorial Day. For some
reason the remaining two months seem like the longest two months of the school
year. I was telling one of the kids last night that the weather guy messed up
as they had the hot pool/beach weather their last week of school before the
break and we spent the week in cooler weather. Oh well at least they got in
trips to the amusement parks and had plenty of down time to recharge!
of the week: We took out an equity line in 2006,
our interest only phase ends next year what are our options?
Answer: A lot of homeowners took out Home Equity Lines of
Credit (HELOC) in the early 2000’s for home remodels, purchasing other
property, debt consolidation, tuition payments or other needs. The HELOCs of
the period were extremely favorable to borrowers, most price at Prime plus a
very small margin, say one-half percent (0.5%) or less and many had a negative
margin—Prime minus one-half percent perhaps. With the Prime Rate sitting at
3.25% since December 2008, after having been at 7.25% the previous December,
HELOC holders have been fairly immune to any rate risk. (Side note, this is the longest the Prime Rate has ever not changed, the
prior longest period was a 16 month period from December 1951 to April 1953.)
But the static period has recently changed or is
getting ready to change for millions of homeowners across the country, for two
First, at some point in the future your low interest
rate is going to up. As has been a major part of the commentary in the Weekly
Rate & Market Update, the only debate is not if the Federal Reserve will
raise its discount rate but when. And while your rate is tied to the “Prime
Rate,” banks set their Prime rate based on what they are able to pay when they
borrow from the Fed. So if the Fed bumps its rate one-quarter of one percent
(0.25%) then chances are very high the Prime rate will go from 3.25% to 3.5%.
The semi-good news in this pending increase in your
interest rate is that the Fed seems to be pushing further and further out when
it will begin to raise rates—and today’s news as reported below could delay any
increases even further. The other semi-good news is that Fed Chair Janet Yellen
has said that once the Fed starts its hikes they will proceed slowly, meaning
they will not increase their rate 0.25% per month, or perhaps not even
quarterly. Thus any rate hike should be sometime in the future and Prime should
rise slowly over a prolonged period.
“Should” goes out the window however if inflation hits
our economy hard and fast in the meantime.
The second issue that most HELOC holders have to
contend with is the one raised in our question, the end of the interest only
payment period on your HELOC.
Most HELOCs funded prior to the market melt downs in
2007-09 were 20 year loans with a 10 year interest only period. At the end of
the 10 year period the loan becomes fully amortized, meaning no more interest
For example if at the start of your 10 year amortization
period you owe $100,000 on your HELOC and the rate is still 3.25% then your
minimum monthly payment will jump from $271 per month interest only payment to
$977 per month to begin to pay down the principal. If the rate has climbed to 4.00% then your
payment on that 10 year amortization schedule increases to $1012 per month.
What are your options?
The primary factors for your options are your current debt
to income ratio (DTI), the combined amount of your primary loan and your HELOC
and the value of your home.
Assuming that your DTI is sufficient for new financing
our concerns then become the total of
the loan amounts owed and your home’s value.
You have four options with your home equity line:
If you have funds
available in savings/investments you may wish to just pay off the remaining
balance when the rate and payment become more than you are willing to pay.
If you are able
to you can make the fully amortized payments, and you are encouraged to pay
down as much as you can while you can to leverage the current lower rate and
thus reducing future mandatory payments with higher rates while being fully
HELOC, which will depend on the loan-to-value (LTV) limits of the lender—some lenders
are being favorable to current HELOC customers looking to refinance, others are
not giving any favorable treatment
current primary mortgage and your HELOC into one 30 (or 15) year fixed rate
mortgage, thus locking in your rate at today’s low levels and your payment.
Options one through three are pretty self-explanatory
with not a lot of moving parts, not so with option 4.
Fannie Mae and Freddie Mac consider paying of a HELOC
as part of a new first mortgage transaction to be considered “cash-out.” Some
lenders, including one or two we work with, do not consider the transaction to
be “cash-out” if the equity line has not been used in the prior twelve months
and we use their non-conventional, aka “Jumbo” product—more below.
Whether a refinance is considered cash-out or a rate
and term refinance is a very big issue for several reasons, one is the total
loan to value allowed for such a transaction (very important if the new loan
exceeds $417,000) and second is pricing.
For conventional loans with a total balance of
$417,000 or lower the maximum loan amount for a cash out transaction is 80%; so
if your current primary mortgage and HELOC total $400,000 and that is our
refinance amount then your home needs to appraise for $500,000.
If your refinance amount will be over $417,000 then
the loan to value drops to 75% loan to value as the maximum for eligibility if
we are using Fannie or Freddie financing. However, if your loan amount is over
$417,000 and you have not accessed any funds from the HELOC in the past 12
months (will need statements to verify) then we can do a rate and term
refinance to 80% loan to value. This is a big deal for many people who previously
were shut out of refinancing their HELOCs into a new fixed rate loan without
bringing cash to closing to pay down the loan amount to 75% or below.
One more point on this is the loan amounts exceed the
Fannie/Freddie county limits for high balance ($625,500 for LA and Orange
Counties) and can go as high as $1,000,000 if otherwise qualified.
Finally, if necessary FHA will finance cash out up to
85% loan to value. A bit unpalatable due to the higher mortgage insurance for
FHA, however the option may be cheaper in the long run than climbing rates and
payments on your HELOC.
Do you have a Home Equity Line of Credit and are
concerned about what the future may hold? Call me to discuss your options and
critical date this week that impacts interest rates. First, personal income
and outlays for February were released and while personal income climbed a good
amount, up 0.4% for the month and 4.5% year over year, personal spending barely
rose, up 0.1% from January and up 3.3% for the year. So while the average
American is earning more s/he is not spending the higher earnings. This bodes
well for national savings but our economy is driven by consumer spending and parsimonious
consumers impede economic growth. The news is neutral for rates due to the good
news not so good news in the report.
claims dropped considerably last week, down 20,000 to 268,000 filings, the
second lowest week since April 2000. This number reflects employers hanging on
to employees, which is the required step before hiring new employees. The news
is positive for economic growth and therefore negative for rates.
That was the sound of the consensus getting blown up this morning when the
Labor Department announced jobs data for March. The consensus from analysts was
that 247,000 non-farm jobs would be added to the economy in March, instead
there were only 126,000 additional jobs and the report revised the total hiring
for January and February down by 69,000 jobs. This is extremely negative news,
especially considering 175,000 new jobs are needed each month just to keep up
with new entrants to the labor markets. Needless to say the news was very
mortgage rate friendly.
Friday April 3, 2015: The week started pretty decently for rates and then
yesterday, Thursday, Mortgage Backed Securities (MBS) dropped on the unemployment
filings data. A rebound today with the bad jobs report should have put rates
below Wednesday’s close but so far the transfer from market to rate sheet has
been slow. The expectation is that Monday may see MBS open with a “gap up” and
lower rates—but expectations are not always met, for evidence see today’s
employment data. The result of the week is rates are back to their recent lows
from six weeks ago.
conforming 3.50% Down
high-balance conforming 3.652% Down 0.125%
It is Good
Friday, especially good for our kids and others in the Long Beach Unified
School District who start Spring Break today. I hope everyone has a very Happy
Easter and you are able to find all your eggs!
of the week: I am not on the mortgage to my home,
does this mean I lose the mortgage interest deduction?
Answer: Disclosure, I am not a Certified Public Account,
please consult with your tax advisor before claiming or not claiming any
deductions for real estate or other items.
That said…regarding claiming deductions for interest
and property taxes paid, whoever pays them may claim the deductions, if
eligible, on their tax returns as long as they can show proof of making the
payments. Even if your name is not on the IRS Form 1098 showing mortgage
If you move into your parents’ home and make the
payments on the mortgage they had in place. At the end of the year they are
issued a Form 1098 showing $15,500 paid in interest—but they never paid any of
it you did. Get a copy of the IRS 1098 to keep for your records, create a
payment record showing the payments on the mortgage came from your bank account
(preferably copies of canceled checks or bank statements showing payments to
the lender) and claim the full deduction on your tax returns. If you pay the
property taxes the same process would apply.
This scenario also applies if you have a vacation home
in the mountains or desert you co-own with siblings or own some income property
with a partner(s), where one party may
be on the loan but everyone chips in to make the payments. Keep good records of
your contributions to the property and towards the mortgage and taxes so you
can properly claim any eligible deductions.
As long as the total amount of interest paid that is
claimed does not exceed the amount listed on Form 1098 anyone who has made
payment can claim the deduction—just be prepared to show proof of your making
the payments should the IRS contact you for verification; i.e. an audit.
Again, check with your tax preparer before making any
deduction claims and make sure you have the evidence to support your claims.
If you have any questions please do not hesitate to
economic data to chew on this week. Early in the week the National
Association of Realtors released existing home sales for the month of February
which showed a 1.2% increase from January, good news though marginally good as January
and February sales were the two weakest months since last April. Year over year
sales were up 4.7% and the national median home price of $202,600 was 7.5%
higher than February 2014. Overall the news is neutral to slightly negative for
numbers for February were a bit like the weather—chilly. With increases in
energy prices in the month the Consumer Price Index managed a 0.2% increase for
the month after dropping 0.7% in January. Year over year CPI is down 0.1%,
which means on a $1000 bundle of goods and services purchased last February you
should have paid $1 less this February for the same items. This is positive for
lower rates as it shows a sluggish economy and pushes out possible increases in
rates from the Federal Reserve who has a target range of inflation where they
would like the economy to operate in the 1.7% - 2.0% range for inflation;
obviously our economy is well below that range.
a major part of economic health and jobs in the manufacturing sectors are
considered to be a bellwether for economic health and growth. This week data on
durable goods orders, which gauge manufacturing activity, showed a 1.4% decline
in February after increasing 2% in January. Year over year durable goods orders
are only 0.6% ahead of last February. This data is positive for lower rates as
it shows a slow manufacturing sectors, which would result in lack of overtime,
soft wages and hiring.
data for the week is the final revision to Fourth Quarter Gross Domestic
Product for 2014. The final number was an unrevised 2.2% growth in the quarter,
indicating soft growth. This is positive for lower rates as it also lends
support to those who feel Fed needs to wait longer to raise interest rates.
Friday March 27, 2015: With the economic data, armed conflict increasing in
the MidEast and corporate profits showing declines there is no reason for rates
to increase. But, you knew it was coming, after Mortgage Backed Securities
reached a peak on Tuesday (lower rates)
the sold off strongly on Wednesday and Thursday (higher rates) on concerns
about oil supplies, profit taking and jumping off the sinking ride down. We
have seen a rally today as it appears more fundamentalist views are prevailing
and looking at an economy and markets that support lower rates for a prolonged
period of time. Net result of the movement is we lost what little we gained
conforming 3.625% Up 0.006%
high-balance conforming 3.75% Up
sneezes and the watery eyes it is very apparent that Spring has sprung in our
neighborhood with the beautiful flowers in bloom. While the temperature is
telling us it may be September, the calendar says Spring and our plants are
doing what they do best—making our lives just a bit prettier.
I am hopeful you
have time between checking your basketball brackets, prepping for your meeting
with your tax preparer and getting ready for the kids’ spring break to slow
down and enjoy your surroundings—flora, fauna and persona.
Dennis C. Smith, California Bureau of Real Estate Broker #00966315; NMLS #296660
Stratis Financial Corporation, California Dept. of Real Estate Broker #01269597; NMLS #238166