Dennis' Mortgage Blog

Question of the week:  Our lives have been filled with conversations, some louder than others, about health insurance, what about home insurance?

Answer:  What about it? Get it. 

Okay, I’ll go a little deeper.  Believe it or not your homeowner’s insurance, also known as fire insurance, is optional under law—but lenders can and do make it a requirement to obtain financing.  If you own your home free and clear, however you do not have to have any insurance. 

Homeowners’ policies cover many incidents besides fire. The basic part of the policy does cover the structure from accidents, if your washer floods the home and damages carpets the insurance should cover replacing the carpet, if your coq au vin catches fire and damages your oven and cupboards the policy covers replacing both; if a neighborhood kid learning to drive puts the family Tahoe through your garage door your policy covers replacement—although realistically his parents auto policy should cover it.

Also included in most policies is liability coverage.  Basically the liability coverage protects you and your equity against lawsuits should someone become injured on your property.  Such is the state of our state and tort excess that if the same kid who rammed your garage door tries to scale your cinder block wall in the back to steal some juicy peaches and falls and breaks his arm you are at fault and your insurance will cover you from the pending lawsuit since he no longer has a future as the quarterback for the Detroit Lions.  If your postal carrier trips over the hose you left over the walkway to your mailbox and gets injured your policy will cover any medical expenses brought by the carrier. 

Also included in the policy are the contents of your home.  This amount can vary so you need to check with your insurance agent to see if you have adequate coverage.  If your home resembles my dorm room in college with sparse and meager furnishings you probably need minimal contents coverage. If you have a world renowned collection of rare Elvis plates or extensive amounts of designer jewelry, you will want to discuss increasing your contents coverage to protect your possessions against theft and damage due to fire or other accidents. 

Regarding theft, if your home is burglarized your policy covers repairing any damage caused by the dirty rotten b*$&@% who broke into your home as well as any loss.

What if your home is damaged when torrential rains cause the drainage canal to overflow and it flows into your home? Probably not covered unless you have flood insurance—very costly.  If you are in an area prone to flooding but are not in a Federal Flood Zone (where flood insurance is required) check with your agent as to your options.

What if your home is damaged by a 5.7 rumbler?  Unless you have a specific earthquake policy, also expensive with very high deductible, you are probably not covered for any damage, again check with your insurance agent.  Note that this policy is not required by lenders and as such are not listed as a loss-payee on the policy.

For owners, or buyers, or condominiums, most of the structure is covered by the master policy held by the homeowners’ association.  New buyers in California are being required by lenders to obtain what is commonly referred to as “renters’ insurance” or the contents policy.  Increasingly in California master policies are not covering cabinets, fixtures or other aspects of the dwelling damaged by fire or plumbing issues.  To insure the buyer is able to make necessary repairs lenders are now requiring this policy. 

Just as you go into your doctor for an annual check up you should contact your insurance agent for a coverage check up.  Check your homeowner’s policy, your auto policies and your life policies. 

And be safe!

Have a question for me?  Ask me!   

Time is running out on the IRS tax credit!  If you are considering purchasing a home this year, are qualified and wish to take advantage of the IRS credit hurry and get into escrow.  All escrows must be closed by the end of business on November 30, 2009.  Are you qualified?  Click this link IRS Form 5405 for Frequently Asked Questions click here IRS FAQ

The IRS has received 1.4 million claims for the tax credit so far in 2009.

Earlier in the year, while criticizing the $787 stimulus package I based my criticism on two points.  One, that the current recession would bottom out and the economy begin to turn in late 2009.  Two, that 90% of the stimulus funds would not enter the economy until well into 2010 or later, when the recession would be over and recovery already under way, too much too late.

Earlier this week Federal Reserve Chairman Ben Bernanke said that the recession is “very likely over.”  While he did not say he thought the stimulus package was a waste of tax payer money, he will start to comment soon on the Federal Reserve having a close eye on the inflation that will result when those funds and other government debt hits the market.  We cannot run trillion plus dollar deficits, borrower trillion plus dollars on Treasury auctions, and not expect the money injected into the economy to not have an inflationary impact.  After, the Fed gets to print money without having any tangible assets to back up the bills coming off the press.

Happy, Happy, Happy, friends and watchers of Chef Emiril Lagasse will recognize this phrase from when he throws bacon or garlic into his sauté pan.  Where economic news part of the stew Emiril would be saying that this week. Let’s recap the economic reports that should have caused a big swing upwards in rates this week when combined with last week’s positive news as well:

            * New Housing Starts:              UP

            * Initial Jobless Claims: DOWN

            * Retail Sales:                           UP and HOT

            * CPI:                                      UP (double the estimate)

            * PPI:                                       UP and very HOT

While this is one week of numbers and represent major numbers for the Price Indexes, the gauges for inflation, they are indicative of a positive environment and future for our economy—should things continue as they are.  Keep in mind, as those indexes go up higher the Fed will respond with raising the Fed Funds and Discount rates, treasury auctions and mortgage backed security auctions will see lower prices and rate will climb.  Good news for the economy is generally not good news for interest rates.  Those higher rates can choke off economic growth, and with inflation present the Fed will be restricted as to moves it can make to spur growth while keeping inflation in check.

The inflation target for most Federal Reserve actions is around 3%.  Historically it has been a number that has allowed sustainable and moderate growth in the economy. Below that number and job growth is difficult, above that number and the cost of credit hampers expansion and growth for industries and companies.

Looking to next week the big impact on rates should be yet another set of Treasury auctions, over $100 billion next week in 2, 5 and 7 year notes will be put on the block.  The last several auctions have been very well received, how long can it continue?

Mortgage Backed Securities gave a little back this week using the positive economic news to engage in some profit taking.  Thankfully yesterday was such a strong day in the bond markets, however even with yesterday’s big gains rates are slightly higher from last Friday.

Rates for Friday September 18th:

FIXED RATE MORTGAGES AT COST OF 1 POINT*

30 year conventional  4.75%                 Up 0.125%

30 year conforming-jumbo 5.125%                   Up 0.25%

30 year FHA    4.875%                                    Up 0.25%

30 year FHA jumbo 5.25%                              Unchanged

Remember we have true, honest to goodness quality Jumbo rates again! Call for quotes as they vary depending on LTV, FICO and loan amount. 

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, and period rate is locked (i.e 45 days instead of 30 days).

Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment 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.

Our oldest turns 10 tomorrow, wow.  I am looking forward to enjoying as much of her ten-ness as I can because I know the teen years are not too far off and from what I hear those years can at times be less than enjoyable.  We are very proud of our Blaire and her path thus far.  If you need me tomorrow I will be standing in lines at Disneyland until late afternoon so please leave detailed messages on my voicemail or in your e-mails!

Happy Birthday Blaire, and also to your birthday buddy Aunt Kelly-Kelly! (Who is not 10 J )

Have a great weekend,

Dennis

Remember this update is posted weekly on My Blog at www.DennisCSmith.com ; feel free to forward the link to family and friends who may be interested in past commentaries.

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