Do you have a will and a trust?

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Question of the week:  Do you have a will and a trust?

Answer:  This is one of the recurring topics in the Weekly Rate & Market Update, and it is time to revisit it again.

It is coming up this week because in the last few weeks I have run across quite a few professionals in various industries, banking, insurance, financial services and even an attorney, who have not prepared a will and trust. All have property, some have children, and all have referred clients and friends to attorneys with the advice they need to have a plan for their estates.

Physician, heal thyself—patients take heed to what the doctor advises but not how the physician behaves….

For those of you who have a proper estate plan you may wish to skip the rest of this section of the WR&MU, for those who do not I encourage you to read on.

Many people feel that preparing a will and trust is not something they need to do at this time in their lives, they are “too young,” or “do not own enough to bother,” or one of my favorites, “my family will take care of it,” which is a nice burden to put on one’s family.

If you were hit by a bus today what happens? What happens will depend on many things, are you married, do you have joint assets with a non-spouse, do you have children, and very importantly do you have a legal document that spells out what you want to happen? The last phrase would be a will and trust.

One question I asked married couples with children who do not have an estate plan is, “if you were both to die at the same time, what happens to your children? Whose parents, sister or brother would raise them, care for them, ensure their continued education and well-being?”

I then add that without a plan in place, that all family members know about, there is a decent chance that the in-laws may stage a battle of custody of their grandchildren/nieces/nephews. Consider the children have had their parents die and now are in the middle of legal battle between their two sets of grandparents, or uncles and aunts, over where they get to live.

If you have children you are likely having a pretty grim vision of your own children and relatives. Unless you have a plan in place spelling out who will have custody of your children, who will be the executor of your estate and ensure that your assets are properly protected and used for the continued well-being of your children until they reach a certain age at which they will have access to what assets may be left in the estate.

If you have children, whether you own property or not, having a written legal directive spelling out your desires should you and your spouse become incapacitated for your children and assets is a must. If you do not have a plan in place the decision will be made by the state, which means family court, which will take a lot of time, cost a fair amount of money, and not be beneficial to your children and perhaps detrimental to the family members who may be contesting custody.

One of the primary benefits of having a trust is the avoidance of probate. If someone dies without a will outlining how an estate is to be settled then a judge in probate court will make the decisions. Usually a family will hire an attorney to act as their agent for the proceedings and process. The costs can be very high for probate, a lot higher than the cost of having a will and trust prepared, unless of course one of the surviving family members has the time and ability to go through the filing process, court time, etc. Speaking of court time, per friend and attorney Greg Burnight when I asked how long probate is taking in Los Angeles County, “It is almost impossible to close an estate through probate in less than nine to ten months. More often it is a year or so without any real hiccups.” That is a long time for your children to be waiting to find out which relative they will permanently be living with if there is a contest.

The probate process exists whether you are married, single, co-habitating, have children, own real estate, are young or old. If you die and do not have a will chances are your estate will go through probate. The “I am not old enough,” “We don’t have kids,” reasons people give not to prepare a will and trust are not valid—it is something adults need to do and is essential for parents with minor children.

One more point, as I have mentioned before, proper estate planning comes at a cost. There are some areas of our lives where we can look for “deals” or “savings” or cut back. Estate planning is not one of these areas. Look for savings on airline tickets and hotels, new workout shoes or a vehicle purchase, do not look to save money and get a bargain on securing your estate. As I have told many clients over the years when discussing the topic, you will never know if your will and estate plan was properly prepared, fulfilled your intentions and spared your family time and resources while grieving your passing. But they will know, and the frustration, challenges and cost to them may tarnish their memory of you and the legacy you wish to leave behind.

If you have an estate plan make sure you review and have it revised from time to time. Our oldest daughter is now an adult, our estate plan was therefore not current resulting in our consulting with an attorney who specializes in the field to make the necessary revisions so we can be at ease knowing if the tragic were to occur our children will be looked after.

Open your calendar and schedule a for some time next week to call a will and estate planning attorney. If you do not know one and would like recommendations please call or email me.

Have a question? Ask me!

Is inflation tame or not? I often say, “math doesn’t lie.” Two plus two is always four, the square root of 169 is always 13 and 4% of $500,000 is always $20,000 (I use a calculator for the hard ones). But absent math, numbers can be subject to interpretation. Take the June Consumer Price Index, which showed prices increasing 0.1% for the month and 1.6% year over year. These numbers show that inflation is pretty tame, and below the desired 2% inflation target set by the Federal Reserve. Change the calculation for prices pay for goods and services by eliminating food and energy costs (call the “core” rate) and the scaled down basket of items increases 0.3% for the month and is up 2.15% for the year—above the Fed target. The discrepancy is due to falling energy prices in June and rising costs for rents, clothing and automobiles (especially used). Traditionally the Fed uses the core rate of inflation when making monetary decisions, such as whether to raise its benchmark interest rate. If tradition were followed the CPI data for June would be a negative for rates and possible higher rates.

Tradition! Tradition!*** A lot of market activity this week because of the release of the minutes from the most recent meeting of the Federal Reserve Open Market Committee (FOMC). The minutes show that the majority of voting members favor lowering interest rates due to “risks and uncertainties” that weigh on economic outlook for future growth. In testimony before Congress this week Fed Chair Jerome Powell indicated that the business confidence survey in May appears to be a reason the Fed will likely cut rates before the end of the month. Lost in the reasoning for cutting rates is reference to data. In terms of data, there is little that indicates a cut in rates is necessary. Historically, traditionally, when the core inflation rate is at or above 2%, when labor markets are tight and rates are increasing, and when GDP continues growing, the expectation is more towards higher rates to dampen possible future inflation. As the holder of a degree in economics and having studied the field for several decades, I find the potential action by the Fed based on surveys and perceived uncertainties to be untenable. The Fed news is generally good for rates in the long-term, and has already been priced into our rates. The result of the rate decrease, likely a boost to equity markets and a weakening dollar, can lead to higher rates. ***see bottom of update

Rates for Friday July 12, 2019: With the contradiction between data and public comments from the Fed rates have jumped around this week, and there are some large variances amongst the lenders we use. As we close out this Friday, rates are flat from last Friday.  The market is choppy, my advice is to lock when you can and not risk rates jumping while you are waiting to see if they go lower.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%     Flat

30 year high-balance conforming                    4.00%     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 with 740 FICO score for purchase mortgages.

***One of my favorite musicals (I love musicals) is “Fiddler on the Roof.” In 7th grade I was part of the chorus and dance cast for the musical at school, I was not that great but I’m not sure any other kid like the music and story as much as I did. Fast forward, I was fortunate to see Zero Mostel play Tevye at the Winter Garden Theater in 1977 when my mom took me out of school for a Wednesday matinee. For many, many years, when I hear, see or write “tradition” I sing to myself the song from Fiddler on the Roof.

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Follow up from last week..

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Question of the week:  No question this week, but see below for follow up from last week’s question and answer.

Answer:  Last week the subject of our question of the week was the advice I give clients moving out of state to strongly consider retaining their current homes in Southern California for a period of time after they move.

I received a response from friend and CPA Blake,

 “Just one caution for higher net worth clients – CA will factor in the retained house as evidence that the taxpayers have retained their CA “domicile” even though they are no longer “residents”. CA might still tax their income. We are fighting a $250K case like that right now. The taxpayer moved 5 years ago!!”

Great input from Blake, and a reminder that whenever making any large financial moves you consult your tax professional.

Have a question? Ask me!

The Labor Department released data on employment from the month of June earlier today. The two headline numbers, new jobs and unemployment, both showed a very strong labor market. Employers expanded payrolls by 224,000 new hires in June, much more than the 170,000 expected. Hourly wages continued their annual growth rate of 3.1%. The news is somewhat unfriendly to mortgage rates as strong labor markets can, should, lead to higher rates.

An easing of tension between the United States and China, as both sides have agreed to forestall additional tariffs as trade talks continue, also puts upward pressure on rates. The trade tension has caused many companies and investors to show a lot of restraint in new investments and expansion. A pull back of tariffs and a solid trade agreement with China should support stronger economic growth for both nations.

Rates for Friday July 5, 2019: Holidays lead to many major decision makers for major investors heading out to the Hamptons for prolonged weekends, leaving more junior traders in charge with instructions, “don’t screw up.” This tends to lead to moving funds to cash, which generally leads to downturns in daily markets. Today mortgage markets pushed rates higher and we are up from last Friday. 

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%     Up 0.125%

30 year high-balance conforming                    4.00%     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. Rates are based on 20% down with 740 FICO score for purchase mortgages.

Was your Independence Day as exciting as mine? I had a small dumpster delivered on Wednesday for the purpose of filling it with limbs, branches, creeping vines, plants and other vegetation as we clean up the homestead. Yesterday was the first day of the project and project it to continue for the next few days. Nothing says celebration like being a on ladder with a chain saw!

I hope you and your family had a wonderful 4th of July.

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Why did you advise us to retain our home in California when we are moving out of state?

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Question of the week:  Why did you advise us to retain our home in California when we are moving out of state?

Answer:  Last week we looked at options if you are purchasing a new home and wish to retain your current residence as a rental (link here). This week we take the question a bit further, what if the new residence is out-of-state?

It is no longer news that hundreds of thousands of Californians annually have been moving out of the state. Whether they are retirees or wage earners who have re-located when their employer moved out of state or have sought new employment outside of California, the primary factors for most of those relocating are cost of living and taxes.

When I am speaking with clients who own their homes in California who are relocating out of state a common refrain is, “you should see how much house we get for so much less…” Or, “we can sell our home here and buy one in fill in a state with no mortgage.” That is an attractive lure, especially since the greatest expense most families has is housing. What if your housing costs were eliminated, and your taxes were lower, and the costs of other goods and services were lower than what you are used to paying in California? How much more financial freedom and less stress would you have?

But should you sell your home in California to finance your new life in your new state?

Maybe, maybe not.

California is surrounded by states that have lower tax rates and lower property values. One popular destination is Nevada. There is no personal income tax in Nevada, its property tax is among the lowest in the nation, and while the sales tax is near or over 8% in most cities, that is offset by the other low tax rates.

There are many other states around the country with lower taxes, lower cost of living and much lower costs for homes. For those who are retired the ability to stretch retirement income and savings to live more comfortably financially, and use their equity from the sale of their home in California to purchase a comparable home in another state with a very small, or no, mortgage significantly helps stretch their retirement dollars.

For those still in their working years, with or without children, the lower cost of living and often lower congestion and density is enticing. Yes, their wages may be lower, but comparable when all other costs of living are factored into their home economics. If they are not homeowners, they see the opportunity to purchase a home that is out of reach in California. If they are homeowners they see that they too can sell their home in California and have a significant down payment for their home in their new state.

But what happens if you sell your home in California, move to Nevada, Washington, Texas or some other state, and you feel you made a mistake, you miss California and want to return?

We have had many clients of the years where this has happened. They sell their home in California, net a nice amount of cash from their home and purchase their new home with 30-40-50% down, or more. Be it the culture, the climate, their employment not being satisfying, or missing friends and family, after a few years they decide they want to return to California.

Then they do the math. Their home in Nevazonaexas has not appreciated much. It will cost them 7-8% to sell their home and are looking at netting about what they put into the home for down payment and closing costs—maybe.

Meanwhile, back in California, they find out they are having a hard time qualifying to purchase a home comparable to what they sold, or if they do they are paying a higher price and have a higher mortgage than they had when they sold their prior home.

It is a difficult conversation we have going through the math and telling past clients looking to move back to the state that what they qualify to purchase is smaller than the home they sold not too many years ago, or the same size home in a different neighborhood.

We have had clients who have moved out of state and retained their homes in California and converted them to rentals. Perhaps refinancing before they left the state to obtain some funds to purchase a home in their new state, or waiting to purchase until they know they are in Nevazonaexas to stay. If they do make the decision to stay they can either continue to rent their former home and retain as an investment, or they can sell the home and take the proceeds to either purchase a new home in their new state, or payoff their mortgage, or invest the money and perhaps shorten their time until they retire.

If they decide they do not wish to live in Nevazonaexas any longer, they simply need to give their tenants notice they are returning to California and need them to vacate their home. They gave relocation a shot, it did not work out for them and they are able to return to their former home without having to worry about if they can afford to purchase a home in California.

If you own your home in California and are moving out of state my advice is that you seriously consider the option of retaining your current home for a period of time after you move just in case it does not work out and you want to return to California in the future.

If you want me to help you with the math of relocation please do not hesitate to contact me.

Have a question? Ask me!

Is it needed? It appears to be a foregone conclusion that the Fed will lower its benchmark interest rate in July. The reasoning is to get ahead of a potential slow-down in the economy, as primarily shown in inflation numbers—data for May shows the annual rate of inflation dipped to 1.5% on a year over year basis, which is well below the Fed’s inflation target of 2.0%. But is the economy in need of any boost? Personal incomes in May grew 0.5% from the prior month, continuing a steady upward trend, consumer spending grew at a good rate for the third month in a row, up 0.4%. Since consumer spending is 65-70% of our economy, consumers are maintaining a foundation for continued, steady growth. Helping future economic growth, is personal savings growth, no surprise since income growth outpaces spending growth, which is at 6.1%. In a normal environment the data would support upward pressure on rates, but the Fed’s desire to lower rates based on their assumption the American consumer will slow consumption in the future takes that pressure off.

Rates for Friday June 28, 2019: As mentioned above, data supports rates not being at multi-year lows but the sentiment and actions of quasi-government organizations are keeping rates low. Looking forward, there is little room to the down side and markets have priced in a rate cut in July from the Fed. Now is a great time to get a mortgage!   

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.625%     Flat

30 year high-balance conforming                      3.875%      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 with 740 FICO score for purchase mortgages.

When is Independence Day? July 4th is when we celebrate. John Adams, in a letter to his wife Abigail** dated July 3, 1776 described the events of the prior day in the Continental Congress during which the delegates from twelve of the thirteen colonies approved a motion for independence from England presented by Richard Henry Lee. In the letter he writes,

“The Second Day of July 1776, will be the most memorable Epocha, in the History of America…I am apt to believe that it will be celebrated, by succeeding Generations, as the great anniversary Festival. It ought to be commemorated, as the Day of Deliverance by solemn Acts of Devotion to God Almighty. It ought to be solemnized with Pomp and Parade, with Shews, Games, Sports, Guns, Bells, Bonfires and Illuminations from one End of this Continent to the other from this Time forward forever more.”

We celebrate July 4th as Independence Day, as that is the day the Declaration as we know it was adopted by the Continental Congress after two days of debate and revisions to Thomas Jefferson’s historic document. The next day, July 5th a printer made hundreds of copies that were then given to messengers to deliver throughout the colonies.

We all know the image of the Declaration of Independence, with the large header “In Congress, July 4, 1776” and adorned with signatures on the bottom, the most prominent being that of John Hancock, the President of the Congress. There is some dispute as to when the signatures were affixed to the document. July 4th is the commonly learned and believed date members of Congress signed, but later statements from those present brought up that not all the signatories were in Congress on that date, either as officials or physically. There is a strong argument that the document was signed by most members of Congress on August 2, 1776. One part of this argument being that it took some time for the adopted declaration to be clearly written in a steady hand on parchment.

Regardless of the dates, in 1870 Congress declared July 4th to be a national holiday as part of a bill that included other national holidays, including Christmas. And so it is, a wonderful national day to celebrate the humble beginnings of our great nation.

Two final thoughts, first I encourage everyone to read the actual text of the Declaration of Independence, it is a wonderful read, especially if you are able to consider that many of the sentiments have never been expressed before as a basis for creating a purpose of not only independence but governance. Here is a link to the Declaration of Independence.

**Second, the John Adams biography by David McCullough is a wonderful book on a fascinating man. One of my favorite parts of the book are the letters between John and Abigail Adams. Separated for much of their marriage, the letters show us not only the history of the era, but the love they had for each other and their family. I strongly recommend the book.

Have a great week and Happy Independence Day!

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Can we keep our current home as a rental and buy a new home?

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Question of the week:  Can we keep our current home as a rental and buy a new home?

Answer:  Perhaps, let’s look at the factors involved.

First and foremost, you need to be absolutely certain you are ready to be a landlord. Like any investment there are risks involved and since rental property is an active, not a passive, investment, there are more risks than loss of value.

The upside to being a landlord is having great tenants who always pay their rent on time, absorb occasional increases in rent, take great care of the property and rarely contact you with any issues. The downside is the opposite of each of these.

If you are going to convert your current residence into a rental you need to also shift your mindset that the property is no longer your home but an investment, which means you need to release emotion and accept your former home is now a business. I had a couple who had spent a lot of time and money over the years creating a beautiful home. When we had the conversation about converting it to a rental when they purchased a new home I looked at the wife, who was rightfully very proud of their home and the work they did, and said, “are you okay knowing strangers will live in your home, they will damage some of it, may paint rooms different colors and not maintain and care for as you have?” She looked at me with a pained expression and after a few moments said, “I don’t think I can do that.”

 She may have been ready to be a landlord, but not for the home she created. They ended up selling the home to buyers who loved it, and over the years cared for it as I notice when I drive by from time to time. The couple ended up purchasing a different property after they purchased their new home and still retain that property as a rental.

Are you ready, as a landlord, for the expenses that may not be covered by the rental income? One big benefit of converting your property to a rental is the tenant will be paying off your mortgage. When considering the possibility of conversion, the first math that is performed is how much rent can we charge and what is our monthly payment for mortgage, taxes and insurance. What also needs to be factored into the equation is maintenance, loss of rent and time. Will you retain a gardener, or if appropriate the pool service? Who will trim trees and bushes? How much longer before you need to replace the roof, the water heater or the garage door opener? Are the kitchen appliances warranties running out soon?

What happens when your tenant leaves the property? Will their one month deposit cover painting, re-carpeting, major cleaning and damage repair if they were particularly harsh on the home? What about the lack of rent income between their departure and the next tenant moving in, do you have funds for that?

Most importantly, can you absorb the expenses if you have a tenant who stops paying rent that  you need to evict which can take up to a year and cost you a lot of money?

Now that I have painted a wonderful picture of being a landlord…there are many advantages. As mentioned above, you have someone else paying for your investment—sort of like an employer contribution to your retirement plan. Depending on your situation you may have some tax advantages due such as depreciating the asset and expenses through the year that exceed income that can be deducted. As well, depending on your timing and how long you have had the property, you might be able to mitigate or eliminate capital gains with the two-in-five rule, if you live in the property two of the previous five years you can sell and not pay capital gains. (I am not a tax expert or CPA, before making any decisions regarding tax advantages or costs please consult your tax professional.)

Perhaps the biggest advantage of the conversion is you have an asset that can, probably will in Southern California and other areas, increase in value over time. For which someone else is paying the holding costs.  

Our question of the week was not “should we….” but, “can we…” I have covered some of the questions regarding should you consider converting your current home to a rental, now let’s look at the can you.

If you are not purchasing your new home with all cash then your ability to qualify for a mortgage to purchase your new home with the expenses of your existing home remaining.

Here are the basic guidelines used by most mortgage programs for qualifying when converting your home to a rental:

  • Borrower must supply a rental agreement and proof of deposit from tenant into borrower’s bank account
  • 75% of the rent will be considered for qualification purposes (i.e. if rent is $2000 per month, qualification rent will be $1500 per month)
  • Borrower must have up to six months PITI in reserves for each property owned, this includes property that is being retained and the new home being purchased (i.e. if your current mortgage, taxes and insurance are $2500 per month and your these payments on your new home are $3500 per month, you will need $2500 x 6 months, plus $3500 x 6 months, you will need $36,000 in reserves after the close on your new home). Depending on the program retirement accounts may be considered in this calculation.

Some loan programs, especially “jumbo,” or non-conforming have additional guidelines:

  • Borrower must have at least 25% equity in conversion property as determined by an appraisal
  • In addition to the rental agreement and deposit, borrower must provide a rent survey for the area that supports the rent on the rental agreement
  • Reserves could be as much as twelve months PITI for all properties owned and retirement accounts may not be considered

A big factor for many families considering the conversion of their current home to a rental is if they have the funds to purchase their new home without selling their current home. If your intention is to access funds from you current home through a refinance or obtaining an equity line your loan rate and amount of funds available can be impacted by the occupancy guidelines by lenders.

I am a big supporter of those who wish to retain their current home and convert it to a rental property when they purchase their new home. There are challenges in qualifying for the new home, from funds available for down payment, closing and reserves and debt-to-income ratios. However, going through all the options will determine the purchase price and payments on your new home for which you will qualify and from there you can decide how to move forward.

If you, or someone you know, is considering purchasing a new home and would like to retain your current home please give me a call so we can go through your situation and all the options available.

Have a question? Ask me!

Maybe, if, but…The Federal Reserve Open Market Committee (cleverly known as the FOMC) met this week. This is the group that determines if the Fed is going to change their fed funds rate or not. Going into the meeting the consensus was that the Fed would leave rates alone at this meeting in June and increase the rates at their meeting in July. The first part was correct, the Fed left rates alone. The second part is no longer a consensus based on the comments following the meeting.

Quick primer on the Fed and rates: if inflation is growing and the economy is running really hot the Fed will increase rates to slow things down and put a damper on inflation—the Fed likes inflation to be very close to 2% on an annual basis. If the economy is slowing and inflation is too low the Fed will lower rates to stimulate investment and growth. Last year the speculation was that the Fed would increase rates three times in 2019. As the year progressed and economic data showed inflation lowering, labor market growth being very tight but slowing, and concern about impacts from the trade and tariff dispute with China, statements from the FOMC meetings made it pretty clear that there would be no rate increases in 2019. After a few months the mummers from the FOMC were that a rate cut or two might occur.

Yesterday the information from the meeting was mixed. Yes, labor markets are tight with wages increasing which could result in higher inflation, and the economy is still strong—both of which support raising rates. Yes, inflation has declined and the Fed predicts it to drop to 1.5% for the year and the trade issues that could impact the economy still exist—both of which support lowering rates. With the FOMC members somewhat split on what’s next, with nine predicting no rate cut this year and eight predicting one or two rate cuts.

Rates for Friday June 21, 2019: Despite the Fed not lowering rates and a split within the Fed as to whether they will drop rates lower in the month, conforming rates have dropped from last Friday to the lowest they have been since October 2017. It feels like we are within sight, if not at or very near the bottom for this cycle—but I felt that way in April when we were at 4% for several weeks.   

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.625%     Down 0.125%

30 year high-balance conforming                     3.875%      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 with 740 FICO score for purchase mortgages.

Historically the summer blockbuster has been “must see.” Certainly, “Jaws,” “Top Gun,” “Raiders of the Lost Ark” captured huge audiences across many demographics. So far this summer it looks like a cartoon, “Toy Story 4” is out today, it may be this summer’s blockbuster—we are seeing it Sunday.

One movie that will not be considered a blockbuster that I saw with my daughter last week is “Late Night.” She is a big fan of actress Mindy Kaling, who is one of the movie’s stars, and also wrote and produced the film; and could not wait to see it. We went up to Hollywood last week for an early screening before the film is widely released. I went thinking it would be okay and was more interested in spending time with her than watching the movie. About halfway through the show I leaned over and whispered, “This is really, really good.” And it is, in fact it is much better than really, really good in my opinion. Wonderful script, casting, acting and story. It is not on many people’s radar for “must see” summer movies, but I put it on mine.

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Our parents have left their home, it has a reverse mortgage, what are our options?

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Question of the week:  Our parents have left their home, it has a reverse mortgage, what are our options?

Answer:  Reverse mortgages are one of the most misunderstood financial instruments available to consumers and inappropriately maligned because they are misunderstood. The latter primarily because of their history, we’ll explain this history a bit further in the WR&MU.

A very quick and broad overview of what a reverse mortgage is and how it works.

A standard mortgage is a loan secured by property, the borrower pays a monthly payment to the lender that is either only the interest owed for the amount outstanding on the loan and/or an amount that is the amount owed in interest for the loan plus a certain amount of principal. The overwhelming majority of mortgages are “amortized,” meaning that each month the payment on the mortgage is calculated so that the interest owed for the month plus a certain amount of principal is calculated so the mortgage is paid off at a known date in the future. If you take out a $300,000 30-year fixed rate mortgage with the first payment due July 1st 2019 and a $1500 payment per month, and make that $1500 payment every month on time for 360 months, on June 1, 2049 your last payment of $1500 will payoff the loan.

With each payment you make on a conventional mortgage the balance of your loan decreases, the decrease accelerates as the loan ages as you pay a smaller amount of interest with each successive payment since the balance is decreasing.

A reverse mortgage is the reverse of a conventional mortgage. There are several options for reverse mortgages, for simplification we will use the option where a lump sum is funded at closing on a reverse mortgage.

The primary benefit of a reverse mortgage is that there is no required monthly payment. If you obtain a $300,000 reverse mortgage you do not have to make any payments for interest, or principal, as long as you own and live in the home. When you “leave” the home the original principal, plus all the accumulated interest that was not paid, is due—in other words, the loan must be paid off.

The longer you own the home and have the reverse mortgage the higher the balance will be that needs to be paid to the lender to close the mortgage. Unlike a traditional mortgage where the balance due declines over time, the reverse is true as the balance increases.

I will not go into the benefits and detriments of reverse mortgages in this week’s WR&MU, but get back to our question of the week, and the clause in reverse mortgages that when the borrower(s) leave the property the loan must be paid off.

Several decades ago saw some major companies in the reverse mortgage market funding mortgages to seniors that were very lender friendly and often ended up in the family losing the home to the lenders when the borrowers passed away or needed to leave their homes for whatever reason. This is no longer the case. Federal regulations changed the rules governing reverse mortgages, enabling families the opportunity to either retain properties with reverse mortgages or sell the properties and retain the resulting equity.

Several times a year we have clients whose parents had a reverse mortgage on their primary mortgage and the parents have either passed away, or moved into assisted living or some other residence, perhaps with one of their children. Reverse mortgages have a clause that when the last borrower, assuming a husband and wife co-signed the mortgage, no longer has the subject property as their primary residence the mortgage must be paid off.

Let’s assume that Nancy, mother to Kyle and Susan, took out a reverse mortgage ten years ago that enabled her to payoff a conventional mortgage with payments she could no longer afford after her husband George passed away so she could remain in the home they shared and raised their children in for forty years. Nancy has passed away and the reverse mortgage has a balance of $300,000 and the home is valued at $500,000. Nancy and George were smart and put their home and other assets into a trust they created many years ago. When George passed away Nancy became the sole trustee and the children were the sole beneficiaries of the assets in the trust when she passed away.

Kyle and Susan, following the advice of the family attorney administering the trust, contact us as they are not sure what to do with the family home. They are fearful that the lender will foreclose on the property and they will lose not only the family home, but also the equity in the home. What are their options? Will they lose the home and equity? We ease their concerns and communicate the standard rules for most reverse mortgages upon the death, or leaving of the property by the borrower(s), is the lender needs to be notified within 30 days of the intention of whoever controls the property as to what will happen with the property and plans to payoff the mortgage. The person in control can be the borrower who has vacated the property, individual with power of attorney and legal guardian, executor of the estate, or if no estate the heirs and/or probate attorney. Typically, the plan communicated to the lender must be executed within six months.

Kyle and Susan have four options, nothing, sell, refinance, buy-out. Susan is the executor of her mother’s estate and will need to communicate to the lender which of these options will be taken to payoff the lender.

Doing nothing is always an option. Generally, not the best option, but an option nonetheless. In this case doing nothing will result in the lender going through the foreclosure process, which will result in more interest accumulating on the mortgage, fees and costs of foreclosure being added to the amount owed to the lender and the lender then auctioning the property at a foreclosure sale with the minimum bid being the total amount owed. Bidders will see a property worth $500,000 and perhaps $375,000 owed to the lender to clear the loan balance, principal owed and costs. Any amount over what is owed the lender will be paid to Nancy’s estate and available for Kyle and Nancy to split. For instance, if the winning bid is $425,000 then $50,000 will be paid to the estate. If there are no bidders then the lender will take possession of the property and the estate will lose the asset. It should be noted, if the amount owed on the reverse mortgage is at or above the value of the property then giving the property to the lender is not necessarily a bad option. Susan does not communicate this option to the lender.

Kyle and Nancy do not want to do nothing and risk the loss of equity and/or the property.

We are down to three options, sell, refinance or buy-out.

Kyle and Nancy must decide what they want. Does one, or both, wish to retain the property? If not then the obvious option is to contract with a real estate agent to list the property. Once the property is on the market Susan, as executor, should communicate the status of the property to the reverse lender, this will almost always put any action by the lender on hold. Continue to communicate. When an offer is made and accepted, Susan, again contacts the reverse mortgage lender; lets them know the property is in escrow and the scheduled close of escrow. She also provides the lender with the contact information for the escrow company and tris to get the name and contact information for an individual at the lender for escrow so they can communicate status and timing as closing nears. When the sale is concluded the net proceeds of the sale will be sent to Nancy’s estate to be disbursed according to the trust, typically evenly between Kyle and Susan.

Before deciding to sell the property, Kyle and Susan should discuss if they wish to retain the home. We discuss this option which will entail refinancing the reverse mortgage with a new loan to Kyle and Susan, and perhaps their spouses, and when the transaction is concluded they will jointly own the property. Typically, when this is the scenario the property is then held as an investment property and rented; providing income and appreciation of value for Kyle and Susan. If this is the option Kyle and Susan choose, then Susan, as executor, contacts the reverse mortgage lender, informs them of the intent to retain the property provides my contact information and escrow’s so everyone is communicating status and timing to ensure the lender does not file a notice of default or initiate a foreclosure process.

In discussing retaining the property, Kyle, who lives in Denver, does not wish to be a landlord, especially for a property so far away. He would rather receive his portion of the equity in cash as the part of the division of the estate. Susan, who has been renting her home sees an opportunity to become a home owner and wants to retain the property as her primary residence. Running the numbers, Susan qualifies for a mortgage needed for her to obtain title to the property after paying off the reverse mortgage and sufficient proceeds to buy-out Kyle.

Now our math can get a bit complicated as we must fund a mortgage to pay off the reverse mortgage, and extract enough equity to buy-out Kyle’s share of the property. If there are no other assets the simple math is the property is worth $500,000 and $300,000 is owed, leaving $200,000 equity to be split, therefore Kyle needs to receive $100,000. Our new loan would need to be $400,000 to cover paying off the reverse mortgage and Kyle. At this point we typically discuss “fairness,” as if the property were to be sold on the open market costs can range from 7-8%, or $35-40,000, for real estate commissions, transfer taxes, escrow, title, potential costs for repairs or other items. So, if the property were sold for $500,000 the net proceeds after paying off the reverse mortgage and costs can be around $160,000, or $80,000 each for Kyle and Susan.

Kyle and Susan get along very well, Kyle sees the math if the property were sold and agrees to accept $80,000 from the refinance that will transfer title to Susan. We will therefore fund a loan of $380,000 to clear the mortgage and Kyle.

Unless….when Nancy passed away there was approximately $120,000 in cash and investments. This would be split $60,000 each to Kyle and Susan. However, they agree that Kyle will get $80,000 of the liquid assets in exchange for any proceeds from the sale of the home. Nancy will get $40,000 from the liquid assets in the estate and the title to the property. We fund a mortgage of $300,000 to payoff the reverse mortgage, the other assets are distributed accordingly and everyone is happy.

If your parents, or a client, or you, have a reverse mortgage, there are several options available to heirs and estates when the time comes to payoff the reverse mortgage. Too often we hear from clients, attorneys, accountants, or financial advisors, stories of families panicking and selling a home because there was a reverse mortgage and they were misinformed that the loan had to be paid off and selling the property was to the way to pay it off without risking foreclosure. This is not the case!

If you, or someone you know, is in this situation a steady and calm approach reviewing all the options, the benefits and costs of each, will enable a sound decision to be made as to how to payoff the amount due to the reverse mortgage lender. The amount of equity in the property, other assets in the estate, desire of the heirs and their abilities to finance a new mortgage if that is the preferred option, will determine the best option for the property and paying off the reverse mortgage.

We handle many such situations every year, not just properties with reverse mortgages that need to be paid off but also properties in family estates that one, or multiple, heirs wish to retain. If you, or someone you know, is in this situation, please call me to go through all the options available.

Have a question? Ask me!

Like Mark Twain, the economy is saying, “The reports of my death are greatly exaggerated.” Twain made this comment in a cable to the press in the United States upon reading of his death in the papers while in London. The economy is making this comment with data on retail sales, industrial production and capacity utilization (how much is being produced compared to what could be produced) showing an economy that is not faltering as many reports and commentators have indicated, but rather continues to show steady growth and economic activity. Much of the reports are due to inflation remaining very low, typically an indicator of a slow economy, and slowing growth in the labor markets, due to scarcity of labor more than scarcity of job openings.

Retail sales are good and better. The Commerce Department’s report on retail sales for May showed a strong 0.5% increase from April, which would be discounted by many since last month the report showed April sales decreased 0.2% from March. However, the discount is voided when the report also shows April sales revised from the 0.2 decrease to a 0.3% increase in April, thus showing May to continue a string of months with American consumers consuming in solid numbers. This is important as consumer spending is 65-70% of our nation’s economy. The news is somewhat interest rate unfriendly.

Balancing the sales data were the releases for producer and consumer prices. Both indices showed growth of 0.1% in May, essentially indicating a lack of any substantial inflation in the market place. This data seems to support speculation that the Fed will lower rates at the July meeting of its Federal Open Market Committee, as for many it portends a slowing economy that will need a drop in rates to promote investment and growth.

Rates for Friday June 14, 2019: Reports, commentary, speculation, these are what drive a lot of decisions for investors as they try to stay ahead of downturns and get in before upswings. The tariff issues with China, Mexico and other nations, lack of inflation, slowing job growth, the Fed lowering rates, all have investors anticipating lower rates—which creates lower rates as they influence the markets. Mortgage rates reflect this anticipation, a Fed rate drop is already priced into our market, as rates continue to sit at lows last seen in January 2018. If the Fed surprises the markets and lowers rates at its meeting next week instead of waiting for July, my expectation is that mortgage rates will bump up as investors move to stocks in anticipation of rising prices in the equity markets. Stay tuned, and lock in when you can.  

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%        Flat

30 year high-balance conforming                   3.875%      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 with 740 FICO score for purchase mortgages.

Happy Father’s Day to the dads out there. If you are a golf fan, here is hoping you have a chance in being celebrated to watch the conclusion of the U.S. Open, especially if it is an exciting finish. For many years we started our summer family trip on  Father’s Day and I watched many holes of golf in airports or rushing to get to our accommodations to catch the finishes.

One of the primary lessons I learned from my dad that I hope my children adhere to as well is he used to say, “I’d rather lose a friend telling the truth that to keep or make one telling a lie.”  Of course, this also means do not penalize your friends for telling you the truth.

Happy Father’s Day!

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Should I be concerned if my loan servicer changes?

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Before we get to the question of the week, a small addition to last week’s piece on the impact of tariffs on mortgage rates, see below after the answer to question of the week for the update.

Question of the week:  Should I be concerned if my loan servicer changes?

Answer:  Yes. Concerned by not panicked.  

A quick recap on the path of most mortgages for newer readers of the Weekly Rate & Market Update, and a refresher for loyal readers. The vast majority of mortgages, after they are funded, are packaged into bundles by lenders and then sold on the secondary market to either Fannie Mae or Freddie Mac if they are conventional mortgages, or Ginnie Mae if they are government mortgages. The loans are then re-bundled into larger packages and sold to investors.

The actual loans are sold, but the servicing is maintained by the lenders. “Servicing” is the collection of the monthly mortgage payments, the principle and interest on the loan, and if set-up with an escrow (aka impound) account for taxes and insurance those payments as well. The servicer the retains a portion of the interest, generally 0.25-0.50%,  and forwards the rest of the interest and the principal to Fannie, Freddie or Ginnie, who then retain a small portion of the interest and forwards the remainder to the investors.

Mortgage servicing is a big business, a very big business. Consider that total mortgage debt in the United States is over $10 trillion dollars, of that amount Fannie and Freddie have about 60%, or $6 trillion, of the market. Assume an average interest rate of 4% and that amounts to $240 billion annually in interest payments, if servicers retain 0.25% of the payments that creates a $600 million industry.

Because of this steady volume of revenue mortgage servicing becomes a nice source of income, as well as a very nice asset that can be sold. Why would a bank or mortgage lender sell its servicing portfolio if it provides so much cash flow? If a bank needs cash to purchase another bank, pay off liabilities, build reserves, it may sell its servicing portfolio to another servicing entity. If a bank’s servicing portfolio becomes so large it will require more expenses to handle the volume, it may sell its servicing portfolio to another servicing entity. If a bank or mortgage lender is just not interested in setting up a division to service the mortgages it funds, it will sell it servicing portfolio.

It is not uncommon for property owners with conventional or government mortgages, or even jumbo mortgages, to receive a notice that their servicing is being transferred to another company and they will need to make payments to the servicing company at a certain date in the future.

Should this concern you if you get this notice. Concern may be too strong of a word, but you should definitely be aware of the possible issues that may occur due to the transfer of your mortgage servicing. Steps you should take if your servicing is being transferred:

  • If you have auto-pay setup with your bank to send out your mortgage payment, or setup with your lender to pull your payment from your account, make sure you cancel the payment to your soon to be old servicer.
  • Save your recent statements, this is especially important if you have an escrow/impound account for taxes and insurance. If you do not receive paper statements log into your account with your current mortgage servicer before the transfer is complete and print your most recent statements. Why?
    • Your current servicer may restrict access to their website in the future for non-clients
    • To have verification of outstanding mortgage balance.
    • To have verification of balance in your impound account for taxes and insurance.
    • To have verification of total interest paid to that servicer for your records for filing your tax returns you can match to the IRS form 1098 (mortgage interest paid).
  • After you have made your initial payment to the new servicer, verify the payment has cleared your bank account, once that has been verified contact the new servicer to confirm payment has been applied to your account.
  • If you have an impound account, when you call to verify your payment has been applied properly, ask what the balance is in your impound account before and after the payment.
  • Do not set up auto-pay until you have made one, and preferably two, payments to your new servicer and received statements confirming the payments have been properly applied.
  • If you have an impound account, when property taxes are due verify the new servicer has made the payment, and it was applied to your property. You can do this by logging onto the website for the tax collector for the county in which your property is located.
  • If you have an impound account, confirm with your insurance company that you have a new servicer and that you are to be notified when the payment has been made, and especially if it has not been received when due.
  • If you have issues requiring any phone communication keep a log of date and time of call, get identification of the individual you are communicating with regarding the problem, take good notes and confirm before the call is completed what was said and action to be taken. If you feel it necessary do not hesitate to thank the person for their assistance but that you would like to communicate with a supervisor as your issue has not been resolved, make sure you get the supervisor’s name and direct contact information if possible.

Not all borrowers have issues when their mortgage servicer is changed, in fact the over-whelming majority experience no issues at all. There are, however, issues with some accounts and to be aware of potential issues might make it easier for you to resolve should it happen to you.

The Smith Family Estate’s mortgage servicer is in the process of being transferred to a new company, one I have never heard of. Am I concerned? A bit, mainly because I know the issues that can occur; concerned but not overly worried as I know that the chances are all with go smoothly. But in case they do not, I am prepared. If you are notified your servicing is being transferred you should be prepared as well.

Have a question? Ask me!

Updating: In response to last week’s question of the week and answer, friend Conor asked, “I’m interested in the example of $5 on a $1,000 iPhone.   If there is, say, a 20% tariff placed on such electronic goods, wouldn’t there be a much larger impact?” Conor points out my need for an editor, especially when I write the WR&MU over several hours between more urgent client matters. He also asks a great question. In the WR&MU last week I averaged the cost of the tariffs imposed on Chinese goods across all goods and services consumers purchase, and failed to address the impact on specific goods on Chinese imports impacted. Conor is correct, the $1000 iPhone with a 20% tariff becomes a $1200 iPhone.

The impact of the tariff is for the consumer to either retain brand loyalty and purchase the more expensive iPhone, wait out the tariff and trade conflict for the tariff to be lower or go away, or purchase another brand of smartphone not manufactured in China.

There is another option however that will enable the consumer in the United States to purchase the new iPhone with no additional tariff cost. If Apple changes its supply lines and contracts with companies in Taiwan, India, South Korea, or any other country currently with the ability not subject to the Chinese tariffs to assemble iPhones for the American market and use the assembly plants in China to ship to other nations where there are no tariffs on the imports.

Starting before President Trump imposed tariffs on Chinese imports many companies with facilities in China have been shifting production to other countries so their products are not impacted. This transition has the effect of exacerbating the costs of the tariffs to China with the loss of jobs and revenue.

There are many products that will still be manufactured in China that American consumers purchase, and the consumer will need to make the choice to pay the tariff on the individual item or either not purchase or purchase a competing brand from another nation—perhaps the United States if such an option is available.

Thanks for the question Conor!

Bounce. What is one word to describe Southern California home sales in April, Alex? The California Association of Realtors April housing sales data showed a big bounce in sales for the month. Statewide the median price went from $565,880 in March to $602,920 in April, an increase of 6.5% for the month and 3.2% from April 2018. Prices may have increased statewide but units sold declined 0.1% for the month and 4.8% for the year. More locally Los Angeles and Orange Counties saw large spikes in sales volume, up 18.2% and 17.1% respectfully from March (with LA down 0.1% in units sold from last year and the OC up 0.5%). Prices for both counties also rose. The median price in LA increased 3.5% for the month to $544,170, which is 3.0% from March 2018. Further South, the $825,000 median price in Orange County was a 1.9% month over month increase and 0.9% bump from last April. One month does not make a trend, however it is a positive sign heading into the summer housing market to show some strength in the spring.

Rates for Friday May 24, 2019: China continues to be front of mind for investors this past week, but there has been little impact on the conforming rate, which is flat from last Friday. The high-balance rate skipped off last week’s dip and is up for the week. It is the Friday before a three-day weekend so the junior traders have been left in charge of the desks on Wall Street with the directive, “don’t lose,” which means a lot of equities and bonds being sold to hold cash and be protective of assets.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.875%       Flat

30 year high-balance conforming                      4.25%         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. Rates are based on 20% down with 740 FICO score for purchase mortgages.

Monday, we remember those who have lost their lives in service to our nation. This can be very difficult day for many active duty members of the military, veterans and families as they remember their comrades in arms, friends and family members who died in service. While we enjoy a day off we must also pause to acknowledge the sacrifices made by so many and give condolences to those who have lost their loved ones. From the beginning our nation has been one with many differences in opinions for almost every issue, but we come together to thank and acknowledge those who have stepped up to protect our right and ability to have those differences.

Our Lucky Charm for Boston sports (as explained last week), came home on Monday—the first time since January I have been able to hug her. Very wonderful to have her home for a bit before she takes off on Monday for Camp Birchwood in Minnesota where she was a camper for eight years and this summer will be a counselor for the next two months. She’s doing her job, growing up!

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

What is the difference between an appraisal and a home inspection?

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Question of the week:  What is the difference between an appraisal and a home inspection?

Answer:  This is a great question that comes up frequently with first time buyers, and some experienced homeowners purchasing for the first time in a long time.

The first difference is one is usually required and the other is optional.

Appraisal

If you are getting a mortgage to purchase the property the chances are very high the lender will require an appraisal. (In some instances, Fannie Mae or Freddie Mac may allow a “waiver” for the appraisal, this could happen for transactions with a low loan to value. Waivers are not rare, but are not common either.) The primary purpose of the appraisal is for an uninterested, licensed, professional to ascertain the value the property used as collateral for the mortgage on the date the offer from the buyer was accepted by the seller. The secondary purpose of the appraisal report is to notify the lender if there are any noticeable defects that could impact the value and/or salability of the property or present health and safety concerns for occupants.

Many people are surprised at how little time most appraisers spend at the actual property. They spend so little time because most of the work to prepare the appraisal report is done before the appraiser goes to the property for his/her inspection.

An appraiser will receive a copy of the purchase contract and any counter-offers for the transaction at the time the order is made. Before heading out to the property the appraiser, using the Multiple Listing Service and public records, will research the area looking for comparable properties. A comparable property is one that is similar to the subject property in type of dwelling, size, number of bedrooms and bathrooms and other amenities that impact value such as a pool. The appraiser will look at recent sales to determine prices for the closed sales, how long the properties were on the market, and the condition of the properties at time of sale. Properties that have been recently sold but have not yet closed escrow (called “pending sales”) will also be noted to determine if there is current activity for comparable properties to the subject. Finally, the appraiser will look at active listings on the market to determine what other options did the buyers have at the time they purchased the subject property and at what price and condition.

Once the appraiser knows the terms of the transaction and has an idea of the comparable properties in close proximity, s/he will inspect the subject property. The appraiser will measure the property’s interior room by room to make a sketch showing the overall size of the property and rooms. While measuring the appraiser will visually inspect the property to ascertain the overall condition, and not any noticeable issues that may impact value or the health and safety of inhabitants. Any noticeable water stains in the ceilings will be noted as they indicate a leak in the roof at some point, if there are missing window panes, flooring that is missing or has holes, missing sinks or toilets, anything that deters from the property being fully habitable or that could be evidence of a bigger issue is photographed and noted. In California the appraiser will also photograph and take note that the property meets state law by having smoke and carbon monoxide detectors properly installed and that the water heater has earthquake straps and is on a stand or platform so it is off the ground.

The appraiser will not test the plumbing or electrical systems, test windows for their ability to open, or otherwise perform a very close and detailed inspection.

The appraiser will drive by the comparable properties that are being used to establish value and take photos for them from the street.

After all the data is collected the appraiser will prepare the report. The report will compare the comparable properties and make adjustments to the sales price of those properties for size, condition of property, amenities, location (such as on a busy street), etc to arrive at an opinion of value.

Inspection

When you and the seller agree to a sales price one of the clauses you will likely agree upon is the opportunity for you, at your cost, to engage a professional to inspect the property, what the industry calls a “home inspection.” You may choose whomever you desire to perform the inspection, it is recommended that you choose someone certified by the California Real Estate Inspection Association (CREIA). In California there is not state licensing or regulations for real estate inspectors, CREIA a professional organization that has requirements for its members that include continuing education and following codes of ethics.

It is important to note that the inspector works for you. Not the seller or the real estate agents, but for you. The objective of the inspector is to perform as thorough and examination of the subject property as possible, the result of which will be a very detailed report.

The inspector will grade everything examined from needs replacing to estimated longevity to in fair-good-excellent condition. It is not the inspectors concern if the report “blows the sale” or “makes the sale” but to provide an objective, honest report of the property’s condition.

A thorough inspection will include inspecting the roof, and if possible the attic and/or crawl space below the roof. If on a raised foundation, crawling under the property. Inspecting the electrical panel and testing outlets and switches. Testing the plumbing by flushing toilets and turning on taps to gauge water pressure. Appliances that use gas  will be tested to determine if they are functioning properly with appropriate hook-ups and safety features. These are the major areas of concern and cost to repair or replace, but all aspects of the property will be inspected and put into the report for the buyer.

Not included in the report will be the cost to correct any defects noted, and it is not ethical for an inspector to quote, bid on or complete any repairs noted as needed on the report.

Once completed the report will provide the buyer with a very good indication as to the condition of the property. It should be noted that there is not “perfect” home in regard to condition; even brand-new homes can have faults and issues that need to be corrected. The important issues to consider on a home inspection report are the major, “big ticket” items that may need to be replaced or repaired in a short period of time. If there are any such items listed, say the electrical needs to be updated, it is encouraged for the buyer to obtain a bid from a licensed contractor for the cost to correct, and then make a decision how to move forward.

It is highly recommended that you accompany the inspector when s/he visits the property for the inspection. Note that this inspection is much more thorough, and therefore time consuming, than the visit from the appraiser, in some cases a few hours. By attending the inspection you can learn a lot about your new home, where is the gas shut off valve, education on the electrical panel, where are the clear-outs for plumbing, and most importantly get a verbal report and detail form the inspector that will shed more light on the condition than just reading a formatted report.

The primary difference between an appraisal and an inspection is their purpose. While the appraiser will note some condition items the primary purpose is to let the lender know if the sales price is supported by the market in the area, the purpose of the inspection is to inform the buyer of the condition of the property and its components. Both are very important because of their purpose.

Next week what happens when appraisal is low or inspection shows major issues?

Have a question? Ask me!

“Well, that’s surprising.”  This was the thought of many investors, analysts and watchers of the economy this morning when the government released the data for the Gross Domestic Product for the 1st quarter of 2019. Expectations at the end of the 4th quarter in 2018 was for growth this past quarter and as the quarter progressed and economic data was received for January, February and March the consensus expectation rose to 2.3%. Today, the first report for GDP growth in the 1st quarter was 3.2% growth, well above expectations. Besides strong economic growth in the quarter inflation eased from the prior quarter’s annualized rate of 1.9% to 1.4%. Of concern in the data was a slowing in consumer spending to 1.9% growth, the lowest in a year. The report should have no impact on the Federal Reserve’s decision to change its current policy to hold firm on rates through the year. Overall the report should be negative for rates as a growing economy leads to higher rates, however the tame inflation segment of the report and consumer spending data is positive for steady or lower rates.

Rates for Friday April 19, 2019: Will the GDP report cool the speculation about a recession later in 2019? That is the major question investors will be analyzing moving forward as investors react on what they feel may happen, or what others may feel will happen directing their actions. For now rates remain flat from last week.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.00%        Flat

30 year high-balance conforming                     4.25 %       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 with 740 FICO score for purchase mortgages.

Earlier this week we began the Great College Search II with our youngest daughter. We spent a few days in Seattle seeing the sites with the primary site being University of Washington as a possible landing spot. A very successful trip on all accounts. I like Seattle a lot, similar in many respects to San Francisco, but a nicer, cleaner, seemingly safer place to visit the last several years, in my opinion.

Next week is back to regular schedule in the house as spring break ends and the grind to the last day of school begins. I like regular schedules…

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Good Friday Short Update

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Question of the week:  No Question of the Week due to Good Friday

Answer:  With many readers of the WR&MU having short day for Good Friday today and weekend Easter activities we have an abbreviated communication this week.

Tune in next week as we delve into appraisers and inspectors and the roles they play.

Have a question? Ask me!

Markets are closed today, but we have some important economic data this week that impacts rates. Retail sales for March had a very strong jump from February. With a 1.6% increase in retail sales, the highest monthly jump in 18 months, prospects for a potential recession later this year dim. The large increase in sales was pushed by new auto sales, which climbed 3.1% for the month and gas prices which were up 10% nationwide in March. Stripping autos and gas from the data and sales still recorded a very strong 0.9% increase for the month. Overall the news is interest rate unfriendly as consumer spending is 65-70% of our economy, stronger retail sales indicates a strong or strengthening economy which puts upward pressure on rates.

The California Association of Realtors released home sale data for March, and the data shows an apparent early start to the buying season locally. Statewide the median price for a single-family home was $565,880, which was up 5.9% from February and up 0.2% from March 2018. Total sales in the state were down 0.2% for the month and off 6.3% from 2018. In Los Angeles County the median price was down 2.9% for the month and 0.7% for the year at $525,520. The dip in prices and drop in rates created a large jump in sales as the number of units sold was up 36.3% from February, though down 6.3% of the number of sales in March 2018. Next door in Orange County the $809,500 median price was up 2.1% from February and down 1.8% from a year ago. Sales volume in the county was up 52% (not a typo fifty-two percent) from February and down 12.5% year over year. Overall, we see buyers coming to the Southern California market in a big way in March, and based on our activity in our office April and May numbers should be positive as well—though given the very strong increases in sales in March it will be challenging to match those numbers.

Rates for Friday April 19, 2019: The 30 year conforming rate is flat from last Friday and the high-balance rate (loans over $484,350) are up 0.125% from last week. The high-balance products have been interesting this year as they have changed independent of the conforming products due to market and regulatory forces. Fannie Mae and Freddie Mac have restrictions on what percentage of high-balance loans they sell in their pools, without going into the weeds it is generally around 10% of any given pool. If lenders are funding a large amount of high-balance loans they will push the high balance rates higher to slow the number of applications they get. In the past few weeks we have seen some odd pricing on high-balance mortgages, lenders have been getting more high-balance mortgages than they would like so they are trying to slow the flow. This week was one of those weeks, and since most pools are national in structure, a spike in sales in Southern California can skew the pool balance and an effort by lenders to slow their California high-balance volume.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.00%        Flat

30 year high-balance conforming                   4.25 %       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. Rates are based on 20% down with 740 FICO score for purchase mortgages.

Last week in this section I wrote about how much I love the Masters, Sunday morning watching Tiger Woods’ comeback reinforced that feeling. Watching extremely high-level athletes compete under pressure has always fascinated me. Their ability to execute under extreme pressure within the contest, compounded by the large audience in the arena of play and television cameras all around them is wonderful to watch. Some say, “well they are just playing a game and get paid very well to play it.” True, both those games support hundreds of thousands of families around the country. Their own managers, coaches and agents, those who work at the venues, if a team sport the hundreds who work for the organization, local establishments that depend on fans buying food, drink, souvenirs and lodging, television and radio personnel from the voices we hear to those who spool out the cables and hook them up.

Sports in America are about a $100 billion industry. The value of franchises depends on the performance in thousands of split second moments by individuals. Who are just playing a game. Tiger was just playing a game last week that generated tens of millions of dollars circulating in the economy. So were the other players in the tournament, but he was the one who executed the shots that did not go in a pond, or rolled into the cup.

I for one am glad I do not have to perform my job with several cameras recording me every move and slow-motion replay allowing commentators to inform millions how I missed a decimal point or forgot a guideline I needed to go back and double check. But then again, when I make the phone and get to say, “Congratulations! We funded your loan and you are now homeowners!” it would be great to have it broadcast with in-depth analysis!

We start Spring Break in the Smith household this week with the thousands of other Long Beach Unified families. That means the end of the school year is about six weeks away!

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Should we buy a fixer for our new home?

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Question of the week:  Should we buy a fixer for our new home?

Answer:  I have always been a strong believer of buying the worst house in the best area that you can afford. There are some qualifications that I will get into, but in general the quickest way to create value in real estate is to improve a property.

Getting a loan on a “fixer” can be easy, or quite the challenge, depending on what makes the property a fixer. Before we discuss the mortgage aspect of a fixer, let’s take a look at some other factors to consider.

Every neighborhood has a price range, the lowest part of the range is the value of the dirt. What is a vacant lot worth in the neighborhood? There are some properties that may be worth less than the lot value, consider a home that was gutted by fire and the lot must be scraped before any new structure can be built, in this type of instance it will cost a buyer significantly to get the permits and pay for the demolition and removal of the old structure.

The highest part of the price range in a neighborhood is a bit harder to determine, but generally not too far above the highest price of the home that has sold in the recent past. There are some exceptions in very high price areas where cash is common for the purchase transactions and the lot values alone have two commas in them. However, in most neighborhoods there is a ceiling above which it will be hard to get an appraisal to support a sales price—and since we are talking about using a mortgage to purchase a property the appraisal is critical.

Consider a neighborhood where most of the homes are somewhat similar, with about six or seven different floor plans ranging from three to five bedrooms and square footages up to 4,000 square feet. The most recent sale of a five bedroom, 4,000 square foot home with a pool that has is in excellent condition and modernized in terms of fixtures and appliances was for $750,000. This is the top of the market, the only other sale near this one was a similar size home without a pool that sold for $725,000.

Can you breach the highest sale in the neighborhood? If you own the exact same model, with a pool, how much more than $750,000 can you sell your home for if you make improvements? If you remodel your kitchen to a smart-kitchen with talking appliances, put in the latest Japanese toilets in all four of your bathrooms, convert the family room into a home theater experience with remote screen, window coverings, dimming lights and of course ultimate sound, plus the highest quality carpets and flooring, if you did all this and spent $100,000 or more how much more will your home sell for than the home that sold for $750,000? Will you get the entire $100,000 you invested plus costs of sale? Will you get more?

You possibly can, but to do so your buyer will likely need to bring a lot of cash to the table as even with all the money you put into the home and the improvements you made, an appraiser will be limited on how much higher than $750,000 s/he will be able to support in value given the neighborhood and other sales. You will have a home that is very nice, but still in the same neighborhood with values within a certain range. If you want to recoup the costs of your improvements, plus costs and some profit so want $900,000 for your fantastic home, the reality is that an appraiser may cap the value at $800,000 to $850,000 leaving your buyer needing to come up with $50-100,000 cash if they are getting financing to purchase.

A property is worth what someone is willing and able to pay for it; if the “able” part requires a loan then the value becomes what an appraiser tells the lender the property is worth.

Back to buying a “fixer.”

When looking at properties there are generally two conditions available, turn-key and needs TLC, aka a “fixer”. Some sellers spend some money before putting their homes on the market to freshen landscaping, paint the interior and possibly exterior and update floor coverings to make the property look as clean and fresh as possible to capture the highest price possible for the size in the neighborhood. These homes are perfect for the family that wants to just have to unpack boxes, purchase some new wastepaper baskets and plug in their entertainment devices.

The second type of property condition, the fixer, has a very broad range of what “fixing” is needed. From a lending stand-point, this is where things can get interesting.

Homes in the non-turn-key condition range can go from needing interior paint and new floor coverings to replacing electrical and plumbing systems, roofs, foundation repairs or other major work. There is generally a direct correlation between the amount of work needed to bring a home to the average, or beyond, for the neighborhood and the price to purchase. Factored into the price is often the ability to obtain a loan based on the condition, the more loan friendly a home generally the higher a buyer will, and can, pay as leveraged markets enable higher prices than cash markets.

What difference does it really make to a lender if a property is not in the greatest of shape? This is a question that comes up with buyers looking at properties that need some work to get them into decent living condition. It is important to remember when getting a loan that two entities are being evaluated for approval, the borrower to ascertain payments will be able to be made on a time basis, and the property to ascertain that not only is the value sufficient to support the applied for mortgage without significant costs to bring the property to reasonable standards and condition. Some clients argue, “well it will be once we fix what needs to be fixed.” What if in doing your repairs and upgrading it is discovered there are deeper issues than you were able to account for and because of this you run out of money trying to bring the property up to snuff?

From a lender’s perspective, the primary concerns are health and safety. If when an appraiser is inspecting a property sees something that s/he feels is of concern that will either cost a tremendous amount of money to fix or is a health and safety factor it will be noted on the appraisal. When reviewing the appraisal the underwriter will make final loan approval conditional on the items listed being corrected.

What are some examples?

A property last sold in 1985 and nothing has been done to the home since. The electrical and plumbing work, the roof still looks good and there are not leaks but the place is dirty with walls showing where pictures hung for over thirty years, the carpets are stained and show a clear path through every room, window coverings are dated and need replacing. None of these are health and safety issues, nor take a considerable amount of money to fix. Depending on the size of the home and whether the buyers can do the work themselves or need to hire others, the house can be spruced up pretty quickly for less than $10-15,000. The buyers of this home putting in some sweat equity will be able to purchase a home at the bottom of the range of value because of the condition and quickly bring the value to the average or above average of the neighborhood.

If you are willing to spend your evenings and weekends peeling decades old wallpaper and painting walls and ceilings this is very good type of property to purchase. The challenge is finding a home with the potential on the market and then being able to outbid other buyers with the same objective in mind.

A property last sold in 1985 and has the same conditions as above but also several other issues:

  • Several of the window panes are cracked or missing; these will need to be replaced as broken and missing glass are health and safety issues.
  • The electrical system in obviously faulty, there are extension cords running from outlets in one room to lights, etc in another room; an obvious safety issue as patchwork electrical is a fire hazard.
  • The roof is visually very worn and sagging, inside the house there are water stains on the ceiling; it appears the roof needs to be replaced as it is leaking.
  • In one of the bathrooms there is a bucket under the sink that is full and the shower head is missing; another health issue as there are obvious plumbing issues.
  • Under the window in the family room the wall is bubbly, evidence of prolonged water damage and the wood flooring below the window has rotted through so the subflooring support is visible; another obvious health issue with a leaky window and unstable flooring.

This home is very much a “fixer” and the type of property that can likely be purchased at the lower end of the price range in the neighborhood and after tens of thousands of dollars are spent to fix the many issues in the home can be brought up to well above the average condition and value.

This property would need the above items to be corrected before any traditional conventional, FHA or VA mortgage would receive final approval and be able to fund. This type of property typically would sell to a cash investor as the seller would not want to take the property off the market while a buyer tries to get loan approval, as well the seller will not be willing to spend the money to correct the items before the buyer gets loan approval—otherwise the work would have been done before putting the house on the market.

Homes in this type of condition can get mortgages from Fannie Mae or FHA using a home improvement loan. These loans are a bit more complicated than the standard loan but for the right amount of patience and effort can be effective in helping potential homeowners with the purchase and repairing of properties that otherwise would not be able to obtain loan approval.

Should you buy a fixer for your new home? If the right opportunity arises a fixer may be the perfect situation for you and your family. If you do find a property that is in disrepair before you commit to a contract give me a call so we can discuss the condition and the options that may be available to you based on your financial situation and ability to qualify.

Have a question? Ask me!

Inflation continues to not be a concern. Consumer and Producer Price Index data released this week shows that absent energy costs inflation both the CPI and PPI are favorable for consumers and the economy. Both indexes were high in March when the complete basket of goods and services were measured, primarily due to higher costs for gas and electricity—nationally gas prices were up 10% in March. Stripping out the volatile energy and food costs, what is known as the “core” rate of inflation, was up only 2% year over year for the PPI and only 1.9% for the CPI. Overall the news is friendly for rates as the higher inflation goes the higher rates go, tame prices lead to tame rates.

Rates for Friday April 12, 2019: A little upward pressure on rates this week, but we end the week flat from last Friday. Investors have been selling their fixed return assets, i.e. bonds and mortgages, for equities this week looking to profit from low inflation, strong labor markets and the Fed taking any rate increases for the rest of the year off the table. We have a very stable rate market and absent any major event rates should drift up and down from current levels no more than an eighth of a percent (0.125%) in the foreseeable future.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            4.00%        Flat

30 year high-balance conforming                      4.125 %      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 with 740 FICO score for purchase mortgages.

Sunday will wrap up one of my favorite weeks of the year. No, not the week before the April 15th tax deadline. The week of enjoying announcer Jim Nance as we move from the Final Four and Championship game in the NCAA basketball tournament to Augusta, Georgia for the Masters golf tournament. Mr. Nance is fortunate enough to be the lead announcer for both of these events, and we are fortunate to have him describing the action for us.

I love golf, my passion much better than my ability, and really enjoy watching the major golf tournaments. The impossible dream for me would be watching a tape of Jim Nance after the final round of the Masters saying, “And Dennis Smith drains the five footer for par on 18 to win the Masters!” I think I look good in green, especially a green jacket with a lovely logo on the breast. My rooting interest this weekend is for Ricky Fowler, one of the nicest men in golf, to win his first major. As it looks as I write this he has a long way to go as he is six strokes behind the leaders.

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog

Do we have to pay closing costs?

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Question of the week:  Do we have to pay closing costs?

Answer:  Frequent readers of the WR&MU know the standard answer to the majority of questions of the week: Yes. No. Maybe.

 All real estate and mortgage transactions have costs, the question being asked is does the borrower have to pay them or can someone else?

Everyone has heard the ads, “no closing costs…” This is semi-truth in advertising. There are always closing costs, and someone is paying them, who and how?

Before we dig into who and how the closing costs can be paid we need a look at what closing costs are present in mortgage transactions.

Closing costs is usually a general term for any funds collected during the transaction. In reality, there are actual costs and recurring payments that combine to be called closing costs, we define these as non-recurring and recurring costs.

Non-recurring costs are fees you are paying only because you are in this transaction, fees for the appraisal, escrow, title, lender, county recorder are paid once, i.e. they do not happen again until the next time you enter into a transaction to purchase or refinance real property.

Recurring costs are funds that are collected to pro-rate mortgage interest, homeowner’s insurance and property taxes. These are costs that you pay because you own a home and have a mortgage. The funds to cover these costs will depend on three primary factors: whether you will have an impound or escrow account set up for the lender to collect and pay your property insurance and taxes, what day of the month your transaction closes, and what month of the year your transaction closes.

Closing costs are different for purchase transactions and refinance transactions, typically costs for purchases are higher due to the escrow and title fees being higher than for a refinance. If your transaction is a refinance there are two options for closing costs to be paid, if you are purchasing a new home you have those two options plus one more.

The first option is the most obvious one, you pay the closing costs. In refinance, you usually can add them to the new loan, which means you will be paying the costs over the life of the loan. If you are purchasing a home it does not make sense to add them to the loan amount as it would change your down payment, and that would change your loan to value, and that could change your rate. For example, you are purchasing a property for $450,000 with 10% down and your closing costs total $10,000, you add the costs to your loan increasing the loan amount from $405,000 to $415,000, this increases your loan to value from 90% to 92.2% which can impact your interest rate and mortgage insurance. For most refinance transactions, we encourage clients not to add the recurring costs for interest, insurance and taxes to their loan balance so they are not paying interest on those fees they would be paying whether they refinanced or not.

The second option is for the lender to pay the costs. This option occurs very frequently in refinance transactions where we close “no points” transaction and the other costs are either paid by the borrower or added to the loan. The lender can pay part or all of the closing costs for borrowers in a refinance or purchase transaction, on paper. In reality, the borrower is paying for the closing costs through a higher interest rate. Long-term readers of the WR&MU know the teeter-totter relationship between costs to close and monthly payments. The higher the interest rate, and therefore your payment, the lower the costs to close. This is because the higher rate a lender has on a mortgage the more money it can sell that loan for in the secondary market. If you are an investor with $100,000 looking for a relatively safe long term fixed rate investment and you have the choice for either a 4% return or a 4.5% return which would you want? If the cost for both is $100,000 you would obviously take the 4.5% return, but because of the way the market works the 4% investment would be offered to you for less than $100,000 because you will receive $500 less per year, conversely you would pay more for the 4.5% option because the return is higher. Here is the simple way to understand the relationship between costs and interest rates:

Higher Rate
Lower Costs

When locking in a loan for either a purchase or a refinance we will give a range of interest rates and their corresponding payments and what the total costs for each of those options will be. Some borrowers prefer spending more money for a lower rate and others are looking to minimize costs to them out of pocket and opt for the higher rate and payment. As a rule the breakeven point for having lender paid fees due to a higher interest rate is between five to seven years depending on the loan amount and costs; i.e. if you are saving $3500 out of pocket on a refinance by taking a rate that is 0.25% higher costing you about $45 more per month, it will take you about six and a half years to pay for the costs due to the higher payment (3500 divided by 45 = 77.78 months); or the other way if you pay the $3500 up front and reduce your payment by $45 per month you save the $3500 in 77.78 months. Long term you pay more for the costs being added to your rate, short term you do not have to pay the $3500.

The third option, available for those purchasing a property, is to have someone else involved in the transaction pay some or all of your costs for you—most typically the seller. I have always thought this a great option for homebuyers, but it is more popular during periods when the home sales market is slower. Here is how it works. You find a home you like for $525,000. We go through the numbers and with 10% down all your costs for the transaction including points to buy down the loan, escrow, title, etc total $13,000. You have a total of $56,000 in your accounts, so not enough for the down payment and closing costs. You write your offer to the seller for $538,000 with the seller to credit you $13,000 at closing for costs. The seller is going to net almost the same amount at closing—a bit less since if typically costs sellers about 8% to sell their home on the open market using real estate agents. Yes, you pay more for the property, but you save $13,000. Instead of $52,5000 down payment and a much higher rate to cover the $13,000 you do not have, your down payment is $53,800 and your loan amount goes from $472,500 to $484,200; at a 4% rate your payment is $56 more per month. Your “payback” for the $13,000 you did not pay at closing is almost twenty years; if you purchased the home for $525,000 and pay the closing costs of $13,000 and put $56 every month into a coffee can in the kitchen it will take you twenty years to save the $13,000 you could have saved when you purchased the home. I really like this option for home buyers even if they have the funds to pay their own closing costs, unfortunately not many agents encourage their clients to write such offers, or if they are representing sellers to accept such offers.

Like most mortgage questions there is no simple answer to whether you should pay the closing costs of your transaction, it depends on your situation and what makes you the most comfortable in trading off costs and payments. Not being a cookie-cutter lender, I always run through all the options with my clients for their purchase and refinance transactions so they can choose the option that works best for them and their families. Call me to explore the options for your transaction.

Have a question? Ask me!

Playing catch-up from the shutdown, the federal government economic data releases are giving us a picture of the economy in January as well as February. Combining the first and second revisions to the Gross Domestic Product for the 4th quarter of 2018, the initial 2.6% growth in the quarter was revised down to 2.2% and the overall growth in 2018 was 2.86% for the economy. This news is somewhat neutral for rates as the growth is of moderate strength, which should put upward pressure on rates, but with the revision being lower than the initial announcement showing slowing growth that is positive for rates to remain stable.

Consumers still in good shape, per the reports on income, spending and inflation. We will get the February data in the future, but for January consumer spending rebounded 0.1% to the positive after the surprising decline, and very surprising amount of decline, in December. The Price of Consumer Expenditures (PCE), the primary guage of inflation for the Fed, also should 0.1% growth for the month. The annual PCE increase dropped from 1.8% in December to 1.4% in January. The large drop in prices year over year from the prior month is positive for rates as it is well below the target 2% inflation rate. Overall this news is positive for rates as it portends a slowing economy and supports the Fed’s announcement at it most recent meeting that it is backing off on the number of rate increases in 2019.

Possibly putting upward pressure on rates, personal incomes continue to grow as they rose 0.2% in the month of February. Higher personal income reflects a strong labor market, which combined with low inflation should lead to higher consumer spending and economic growth. Overall the news is somewhat mixed for the economy with labor markets signaling a stronger economy than inflation and spending have shown.

Rates for Friday March 29, 2019: Rates tried to break a bit lower early in the week but are flat today from last Friday and the conforming rate is below 4% for back to back weeks for the first time in fourteen months. Now is a great time to explore your options for refinancing to lower your payment, consolidate a HELOC or other debt or purchase a new home—Call me!

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.875%        Flat

30 year high-balance conforming                    4.00 %         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 with 740 FICO score for purchase mortgages.

The great thing about yesterday was despite losing half of my Final Four in my bracket contest with my friends from college (we estimate the core group has been together in this pool since 1985 or 1986) was that it was Opening Day for baseball. That alone would have taken some of the tarnish off Michigan and Tennessee’s horrible shooting, but a shine was put on because the Phillies won convincingly and optimism abounds in the City of Brotherly Love—as much as any Philly fan can be optimistic.

The best $20 I spend every year is for my mlb.com subscription which gives me access to every radio broadcast of every major league game and playoffs for the year. If you call me between now and October, depending on the time of day, you will likely hear a baseball game in the background as I prefer that to music as the sound in the office. If the Phillies are not playing I will dial up whatever game is on the air, often looking for the smaller market broadcasts as I love the local advertising—for instance last summer listening to a Kansas City Royals broadcast during the weekend while crawling around pulling weeds I heard an ad for Popsicles. Popsicles! When was the last time you heard an ad for Popsicles!

Go Phillies, ring the bell!

Have a great week,

Dennis

Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog