Dennis' Mortgage Blog

Question of the week: After last week’s update an email came in asking for some follow up.  Why will a lender not fund a loan secured by property titled in the name of a revocable living trust? 

Answer:  Many lenders will fund a loan on a property secured by a revocable living trust, but just because they will does not mean you want to. 

The question does bring up a valid point, many lenders will not fund into a trust.  Typically if a lender will or will not do something it has something to do with either their ability to foreclose at a later date if need be, or cost.  In the case of the living trust it is a case of both. 

A large loan outstanding that is in default and an inability to foreclose because the borrower had no legal right to secure the property is a big problem.  This is what can occur if a trust has a clause preventing the securing of trust assets.  If a trust is not carefully and thoroughly reviewed such a situation may occur—and not doubt has in the past.  As a result a trust must undergo a thorough review before a mortgage can be funded on a property secured by that trust.

“A thorough review” means a legal opinion.  Which means attorneys.  Which adds costs to the lender for underwriting the mortgage.

Some lenders will fund into a trust with an opinion letter and warranty from an attorney attesting that certain warranties are met in your revocable living trust.  This review will cost you money as the attorney must read the trust and then sign the opinion letter.  Then the opinion letter and the trust must be reviewed and accepted by the lender. 

These steps add time and costs to your mortgage.  So even if the lender will allow your title to remain in a trust for a refinance, or for you to take title in the trust on the closing of your new home, the added time and expense can easily be avoided by not funding into the trust.  By not funding into the trust you are also not limiting the number of lenders who can fund your new mortgage.

If you are refinancing your home and it is currently in a revocable living trust then an extra set of steps are taking at the closing, or recording, of your mortgage.  On a transaction that is not on a property held in trust when the refinance closes a Deed of Trust is recorded which secures the property as collateral for the loan.

If the property is in a trust before the Deed of Trust is recorded a Grant Deed is recorded in which you will deed the property out of the trust and to you, and your spouse/partner if applicable.  Once the property is out of the trust the Deed of Trust is recorded.  After the Deed of Trust is recorded then another Grant Deed is recorded in which you deed the property from yourself, and spouse/partner, back to the revocable living trust.  These extra steps should be done by the escrow company at the same time and not require extra trips or steps by you. 

Note of caution  Over the years I have had many clients who refinanced with other lenders/brokers in the past who were told their property would be deeded back into their trust and the property was never transferred back.  Thankfully I work with professional escrow and title companies that perform these transfers every time it is necessary.  If you have refinanced in the past and were told the property would be returned to your trust you will have received a copy of the recorded Grant Deed placing to property in the trust. Or you can check the title to ensure it is listed as your trust as owner.  If you need assistance contact me.

The reason the deeds need to be recorded is the title vesting (how you take title to the property) on the Deed of Trust must match the vesting on the title records for the property owner(s). 

If you do not have a family trust, or revocable living trust, and own property I strongly advise you to consult with an attorney that can assist you in preparing such a trust.  After all life is filled with accidents, you want your loved ones and property protected.

If you need any recommendations for attorneys who can assist you in preparing a family trust I will be happy to provide you with referrals.

Have a question for me?  Ask me!

Not a good week for mortgage rates.  After a decent start to the week on Monday rates Mortgage Backed Securities (MBS) were under pressure all week and after trying to hold a technical price point on Tuesday and Wednesday the pressure became too great.  Large sell-offs yesterday and today have pushed rates up.

Consumers took advantage of post-Christmas sales in January pushing retail sales up 4.2% in January.  If this recession has taught us one thing it is the fondness the American consumer has for discounts, sales and tax credits.  We saw home sales climb and then fall on the homebuyer tax credit being introduced and then expiring.  We saw auto sales spike on “cash for clunkers.”  And we see retail sales rise and fall with discounts and sales.  Americans will spend, if they are getting some type of incentive.

Challenges for retailers are already being laid for future sales with rising commodity prices (cotton has more than doubled in the past year), food prices and energy costs.  Retailers are publicly stating they will be raising prices, but are not sure when or by how much.  With their costs rising their profit margins are under pressure.  Either prices go up or they go out of business.  One gets the feeling that similar to the airline industry all the retailers are carefully eyeing each other to see who increases prices first so they can follow.

Publicly leading the pack is CostCo who has announced a 1% increase in meat prices and others to follow.  Wal-Mart is the key to watch; when Wal-Mart increases prices you can be sure others will follow.  And when they do what of the American consumer?  Will wallets and purses close back up?

Mass confusion in the markets this morning.  Conflicting jobs reports had the pundits and analysts looking at jobs data from two different reports that signified good times are upon us or that we have a long way to go.  The Labor Department reported that businesses reported that only 36,000 jobs were added to the economy in January.  This is well below the consensus of approximately 135-150,000 jobs.  On top of this announcement was that the unemployment rate fell from 9.4% in December to 9.0% in January—a huge drop and completely unexpected as most felt the unemployment rate would come in at 9.5%.

What gives?  For the unemployment rate the data is based upon household telephone surveys.

Ring, ring. Ring, ring.

Hello?

Hi, I’m from the labor department, is anyone in your household looking for a job?

Not anymore.

Thank you.

The unemployment rate does not include those who have given up looking for a job or have decided to become self-employed and are trying to bring in income as a consultant, in commission sales or selling household items on eBay.  Hence the reduced unemployment rate is most likely the results of many telephone respondents in January who just decided to quit looking.

The low hiring numbers are being blamed on the weather.  With severe weather impacting much of the country in January job seeking and hiring were hampered.  I get that, but to the tune of actual jobs at only about 25% of expectations?

Long time readers of the Weekly Update may recall my mentioning in the past that the one element that investors and business owners detest is uncertainty.  Uncertainty in regulations, uncertainty in costs, uncertainty in economic conditions create environments where those with money tend to hang on to it with a wait and see mentality.

A key for mortgage rates will be the stock markets.  The Dow broke through 12,000 this week for the first time since June 2008, 5500 points off its low in March 2009.  If the equity markets are being over bought there will be a correction in the near future, which should result in interest rates retreating.  If however the equity markets continue their steady climb, combined with rising retail costs, we should expect interest rates to increase as well.

Looking ahead I can see the benchmark 30 year rate closer to 5.75% for the summer buying season than 4.5%.  If you are considering purchasing a home this summer you may want to run the numbers on what an increase in interest rates can mean to your purchasing power and ability to qualify for the home you wish to purchase.

Rates for Friday February 4, 2011 Up, up and away on the rates this week.  Of interest is the sharp increase in FHA rates which were well below conforming rates in prior weeks.  Note the FHA rate listed is somewhat of an anomaly as cost for the 4.625% rate is well over 1 point, the cost for 4.75% is below—call for quotes.

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional                             4.875%             Up 0.125%

30 year conforming-jumbo                    5.125%             Up 0.25%

30 year FHA                                         4.75% **          Up 0.375%

30 year FHA jumbo                              4.75%               Up 0.125%

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. 

*Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

**The FHA pricing is skewed, to go below the 4.75% would cost more than 1 point, at the rate listed points considerably less, call for quote.

I read an interesting piece of data in the newspaper yesterday, the Super Bowl is not in the top five days for beer sales.  It trails, in order Independence Day, Memorial Day, Labor Day, Thanksgiving, Christmas and Halloween.  Chances are 9 out of 10 if you are watching the Super Bowl it will be at your own home or that of a friend.  As for snacks?  We’ll buy about 166 million pounds of food for our Super Bowl parties.  (Per Nielsen for these stats).

Depending on your bookie the betting line is either Pittsburgh getting 2.5 or 3 points and the over and under (total of all points scored) being 44.5 points.  This means odds makers see Green Bay winning the game 23.5 to 21, since there are no half points the bet is which way the score goes, 23-21 or 24-21?  If I were a betting man I would take Pittsburgh and the under, final score 23-17 Pittsburgh.

I’ll be watching with no rooting interest other than a good close game.  I am more interested in how my chili and other portion of the 166 million pounds of food come out than how the game does!

Have a great week,

Dennis