Mortgage and Real Estate Investment Blog

It continues to be a highly volatile mortgage market. We have seen a few very large lenders cease operations since I sent out the letter explaining all the recent changes in the mortgage market. However, we are seeing very good rates on first mortgages because of the strong moves on Wall Street away from stocks and into bonds as the stock market goes through a correction. Rates on second mortgages are likely to drop in the coming months as the Federal Reserve considers lowering the Fed Funds rate, which directly impacts interest rates on most second mortgages. If you still have concerns or questions about the current market, please give me a call. I am always happy to talk with you.

On a happier note, we had a wonderful vacation at the coast with my whole family in a little cabin. We had fantastic weather and the kids loved playing in the small stream that ran to the ocean. Some days this “river” was diverted through a series of S curves, or became a castle moat. One day it was a “hot tub”, another time a dam and lastly we split it and ran the two streams about 30 feet apart. Good clean (yeah, right!) fun. All I can say is sand gets everywhere!

A few months ago, I mentioned a service called Greendimes.com which helps reduce junk mail. I have now been a member for just a few months and I love it! Every day that I come home and see a completely empty mailbox, I am so happy. All of that random “mail”, (sales flyers, coupons, catalogs I couldn’t care less about, etc.) I never used to look at, no longer clutters my life or my recycling bin. I recently received an email from Greendimes.com stating that they are changing their business model and now for a flat fee of $15 they will remove you from junk mail lists and plant 10 trees on your behalf.

I know I mentioned this before, but in case you meant to do it and did not get around to it, or life happened, you can increase your credit scores and reduce your junk mail by signing up with www.optoutprescreen.com. By opting out, you stop insurance and credit card companies from being able to “soft” pull your credit without your consent. This eliminates the hundreds of credit card offers you get every year. Remember, every time you move, you have to sign up again.

This month’s mailer couldn’t be timelier. It deals with the terminology of the mortgage industry and gives basic explanations of most of the common terms you will hear. It also has a short yet clear graph that shows the various stages in the loan process. According to the diagram, there are only 4 steps in the process, each with only a few items to be completed. There isn’t a single hurtle, curve, or roadblock in the entire process! I know this not to be the case. There are always issues of one sort or another, but I work very hard to ensure that the process is as smooth and worry free as possible. If you know anyone looking to buy or refinance, please have them give me a call. I will take great care of them for you.

It’s back to school time again, so drive carefully and slowly around your neighborhood and schools.

This morning, the U.S. House of Representatives Financial Services Committee voted on H.R.3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007.

While legislators attempt to erect a defense shield against mortgage lending abuse, this current law strikes wide of the target and is sure to inflict collateral damage upon the very group it seeks to protect.

YSP

One of the primary thrusts of the Act is to outlaw Yield Spread Premium (YSP). This is the mechanism by which consumers are able to obtain zero point and no cost loans. Borrowers elect a slightly higher interest rate in exchange for eliminating points and other closing costs. YSP is a rebate (the Premium) paid by the lender to the broker for the higher interest rate (the Yield) on the loan. The amount of that premium is determined by difference or the Spread between current interest rates (at par or no rebate) and the rate elected by the consumer. Mortgage brokers must disclose YSP.

It’s a simple trade-off and a valuable tool for consumers. Without YSP, buyers with limited cash may have to postpone purchasing a home. Existing homeowners might be unable to refinance to a better loan if they had to pay all their fees and points out of pocket.

I do a number of loans for retiring folks relocating to Portland. Frequently, their plan is to sell their old homes once they are settled in to their new home in Portland.  Then they pay off the new mortgage completely, with the proceeds from the sale of the old home. It makes infinitely more sense to accept a higher interest rate over the short term to save thousands in upfront costs. The math isn't that hard.

A Rigged Game

If this legislation passes, consumers will be forced to work directly with a bank like a Countrywide, B of A, or Wells Fargo in order to obtain a no points/no fees loan. However the banks are exempt from the disclosure requirements placed upon mortgage brokers. That’s right, the banks don’t have to tell you how much they are making at the expense of your higher interest rate.

That is a long standing inequity, born of bribery and the lobbying efforts of the big banks. They claim that until they actually sell the loans, they don’t know exactly how much that premium is worth. Therefore they can’t disclose. Last time I checked, that hadn’t kept them from paying my mortgage banker friends a very specific commission at the close of the loan.
Hmmm...

What Happens if Congress Makes YSP Illegal?

Here’s how the game plays out if YSP is outlawed. Mortgage brokers won’t go away, nor will lending abuse. In fact, it will get worse. Mortgage brokers will morph into banks or go to work for banks. Competition will shrink (never good for the consumer), and we’ll all be free, under the banking exemption, from disclosing to the consumer how much they are really paying for their loans.

Other Issues

Press Release, Kurt Pfotenhauer, Senior VP of Government Affairs and Public Policy for the Mortgage Bankers Association underscored the risks of HR 3915 when he stated that:

some people will be locked out of the mortgage market, many of whom would have been successful homeowners.”

He went on to say that,

85% of sub-prime borrowers are paying their mortgages on time. It’s an open question, how many would even qualify for a loan under the proposed regulatory construct.”

Lending abuse is certainly a problem and the consumer needs protection. Stronger licensing and supervision are required. But outlawing YSP and reducing competition takes us down the wrong path.

Happy Halloween! We have one kitty cat and one ninja that are heading out this evening for some well deserved frivolity. I always think of Halloween as the beginning of the holiday season. I know that seems crazy, but from here through New Years, it seems like our lives get more and more chaotic. This month’s mailer has some good ideas that could help make the holi-daze a bit less stressful. I am going to try and adopt a few of these ideas and create some “fun days” with Drake and Quincey on some of the many days they are out of school over the next few months.

I have a good friend whose mother recently passed away. Due to a lack of ongoing estate planning, the family went through a very scary time when they couldn’t find her will and trust paperwork, which created a great deal of stress for her and her siblings. Her mother’s attorney had passed away since these documents had been drafted, and the family wasn’t sure how to get all the estate details worked out.

Things have settled down and everything has worked out fine. However, it got me to thinking of all the people I deal with each year that lack any sort of long term plans for their estates. My friend Scott Nielson, an attorney here in Portland, has been kind enough to put together a summary of how estate planning works and give some advice on getting an estate plan put together. If you don’t have an estate plan, a Will, and a Medical Advanced Directive, you should consider getting these items in place. In my mind, the most critical is a Will, especially if you have children. If you don’t have a Will, a judge will decide who will raise your children, which is a scary thought. Call Scott at 503-329-0229 if you have any questions.

In case you haven’t been watching any TV, I want to let you know that the Dunlap’s are celebrities! We are in an ad supporting Measure 50. We ended up in the commercial when a film crew came to the neighborhood to film kids!? They asked for one shot of us sitting on our front porch after around 3 hours of filming nothing but kids. It is funny how things turn out sometimes. If you haven’t caught it on TV, it’s on You Tube. Search for ("50 kids" Measure 50) to see the ad. I also saw a hilarious You Tube video for anyone with kids or who was a kid themselves. I think that covers most of the people I know. Search for “William Tell mom” to find this one. Let me know what you think.

If you are unsure which presidential candidate matches up with your stance on various issues, there is a good website for both Democratic and Republican candidates. http://minnesota.publicradio.org/projects/ongoing/select_a_candidate This site has a questionnaire that will show which candidates answered most similarly to you. I found it very interesting.

Take care,

Eric

Once again, I am hosting my family Thanksgiving dinner. This year, we are up to 10 people and possibly 2 more. It will be a tight squeeze but the more, the merrier, right? The hazelnut and prosciutto crusted turkey was so popular that I will be making it again with a much larger turkey. Ironically, the candied yams were the big hit, so they are definitely back on the menu.

Thanksgiving weekend is going to be crazy. The day before Thanksgiving, I am the team leader for volunteers for www.donatedinner.org. This is a fundraiser for Meals-on-Wheels at high end grocery stores in the Portland metro area. New Seasons, Haggen’s, Bales Thiftway, Lamb’s Markets, and Wild Oats in Vancouver are all participating. Please consider supporting these stores. For $2.95 you can donate a hot, nutritious meal for a homebound senior. We are going to be at the Murray Hill Haggen’s Foods on Nov. 21^st. Since it is the largest grocery shopping day of the year, if you happen to be out and about, feel free to drop by and say “Hi”. 

We have a little claim to fame here in the Dunlap family. As most of you know, my brother is my business partner. Well, if you see the “50 kids” ad for Measure 50, in the upper right hand corner, towards the end of the ad, you see a picture of a cute family, talking and laughing. This is my brother’s family. It is so cute to see my niece, nephew, brother and sister-in-law on TV. The ad is on YouTube.com as well, search for “50 kids” Measure 50, and you can see it too. I always knew they were a darling family, but who knew they were the quintessential Portland family?

If you are thinking about lending money to friends or family members, check out VirginMoneyUS.com, a site designed specifically to help you remain within the rules. The company handles all the paperwork, including sending notices about payments and collecting on debts in the event of default. Whether you use Virgin Money or not, the important thing to remember when you lend to family or friends is that you must do an arm's length transaction. That means you have to charge the market rate of interest to avoid getting into trouble with the IRS. You can always forgive interest of up to $12,000 per year under gift rules, but your loan must be structured as the real thing.

If you are unsure which presidential candidate matches up with your stance on various issues, there is a good website for both Democratic and Republican candidates. http://minnesota.publicradio.org/projects/ongoing/select_a_candidate/ This site has a questionnaire that will show which candidates answered most similarly to you. I found it very interesting.

This month’s mailer is about making the most of the Holidays and making the time to spend with the people you care about. I am a proponent of scheduling fun time and shopping online. Last year, I purchased almost everything online and then had the opportunity to get out and hit the malls just to feel the vibe and holiday spirit. Luckily, with all of my shopping completed, it was a fun, stress-free few hours. J

All my best,

Kelly