monthly update to our clients, colleagues, family & friends
By: Randy Mitchelson, April 2011
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In Issue 37 We Touch On:
Investors Caught Gaming Mortgage Market
Europe Faces Worsening Crisis
Low Credit Score Mortgages
The Mortgage by Randy website is undergoing a redesign as we switch to a new platform. One of the enhancements on the new site will be real-time mortgage pricing. You may still access all the articles at the same address- http://www.mortgagebyrandy.com – during this transition.
Looking forward to the Southwest Florida Association of Mortgage Professionals tradeshow in May. With my new federal license in hand we will begin reinventing our mortgage platform with the goal of offering loan programs in multi-states while retaining control over our branding. Our network of hard money and private lenders is still available to review loan scenarios that the banks reject.
The growth of our sister newsletter – the Daily Dollar – is opening new doors to delivering news, tips and coaching on personal money matters. If you haven’t had a taste of it yet, click here to visit and if you prefer video or podcasts instead of reading, we have those versions available too.
The current newsletter and all prior newsletters are archived at the Mortgage by Randy blog. Bookmark it and share with your friends and family. You can make your own comments and feedback as well. Time for the news…
Mortgage Market: Cooling Period Continues
According to HSH.com, about 3,400 mortgage-related jobs disappeared from Bank of America and Wells Fargo in the past month. Despite really low interest rates (you can get a 5/1 ARM for about 3.75% !) refinancing activity has cooled considerably, and there has been no surge in home sales to support them. Potential homebuyers are still on the sidelines. It is estimated that 25% of homes that would normally refinance are underwater – something that will take years to resolve. Stricter loan guidelines make it tough for marginal borrowers with job interruptions, income changes and credit blemishes. HSH.com also cites that the “inventory levels of available but unsold homes stands at 8.4 months, little changed from last month.” That 8.4 figure does not include the additional months available in “shadow inventory”, which means homes that were on the market and pulled off, foreclosures in process and other such “distressed” properties. When we can get the inventory to 6 months we will be in much better shape.
Personal Credit: Property Investors Caught Gaming The Mortgage Market – It Affects All Of Us
In our September 2010 Mortgage by Randy Newsletter, our Personal Credit section was titled “Are Credit Inquiries A New Trend In Decisioning Mortgage Applications?” More evidence of this continues to appear. One lender recently issued guidance about credit report inquiries that the underwriter must review the credit inquiries section of the credit report to determine if the borrower(s) has received credit not reflected on the report or included in the debt section of the 1003. If the credit report reflects a credit inquiry within 120 days of the credit report date, then additional documentation is required.
Remember, there is a delay between establishing a new credit account and it getting reported to the credit bureaus. One game that property investors have been playing (causing this guidance no doubt) is applying for mortgages at multiple lenders on multiple properties simultaneously. This would enable the investors to finance the purchase of multiple properties that they were buying at bargain prices, regardless of their ability to afford all the mortgages at once. Normally, underwriters would not pay close attention to your credit inquiries unless there were a hug number of them. If you had applied for 2 or 3 mortgages at other lenders for other properties there’s no way for the lenders to know. This new guidance requires underwriters to follow-up on every credit inquiry in the last 120 days so for the applicant there’s no escaping the explanation of what each inquiry was for.
Economy & Financial Insights: European Union Slowly Coming To A Rapid Boil
While signs of small economic improvements continue to sprout this Spring in the United States, a firestorm is brewing in Europe which will impact us whether we like it or not. Having our head in the sand won’t protect us from volatility in the stock market so we must stay aware of threats to our retirement accounts, etc. and act accordingly.
Remember the riots in Greece last year? Things have not improved. 3 year interest rates are 21% there and more budget cuts are looming. Worse, expectations are growing that Greece will default on their debt. What do Ireland, Portugal, Spain and Finland share in common? Answer: The same financial woes as Greece. Without severe budget cuts, these countries all are at risk of creating a European financial crisis that will dwarf our episode in the U.S. when Lehman collapsed. In crisis, New Yorkers, Texans, Idahoans, etc. all rally as Americans and we have a central body (the Federal Reserve) to help manage crisis. Not so in Europe. At the end of the day, Germans, Irish, Greeks and Spaniards stick to their own – they are not structured to unite centrally as Europeans to solve problems – they finger point and play political games for their own country’s gain.
One piece of good news for the U.S. is that investors may flock to the safety of the U.S. Dollar if all these European situations collide. A stronger dollar will ensure low interest rates for a little longer (unless of course our economy starts humming and hiring like mad overnight).
Question of the Month: I Have A Good Job But Lousy Credit – Where Can I Get A Mortgage?
I receive calls regularly from people who have good jobs, steady income, but for one reason or another, their credit score is low. It may be due to a nasty divorce. Or maybe there was a previous job loss which caused late payments. Lenders don’t care why the score is low – it is what it is. But there is still an option to get a mortgage without seeking private money sources. An FHA loan is a mortgage loan fully insured through the Federal Housing Administration (FHA) and issued by FHA-approved lenders. FHA insures lenders against losses that may result in the event of a borrower default. Advantages of an FHA loan are:
-Low down payment.
-Lower cost.
-Easy credit qualifying.
-Straightforward mortgage terms.
Let’s focus on the easy credit qualifying part. At one time, credit scores were irrelevant but they’ve tightened up slightly. If your credit score is above 580 and you have good income and little other debt, you may qualify for a program with a minimal down payment – 3.5%. If your score is below 580 you may still get approved, but the down payment minimum jumps to 10%.
FHA is more concerned with your monthly income and debts. Debts do not include your monthly expenses such as utility bills. Rather, debts include any loans like car loans and student loans as well as your credit card debt. An acceptable ratio of monthly debt payments to monthly gross income is something below 43%, but sometimes exceptions can be granted.
Example Of Calculating How Big A Loan You Can Afford From Your Debt Ratio
For example, if you had a car loan payment of $290 per month, a student loan payment of $100 per month and you pay $100 per month toward credit card debt, your total monthly debt is $490. If you gross $3,000 per month from work your debt ratio is $490 divided by $3,000 or 16.3%. Given that the maximum debt ratio for an FHA mortgage is 43%, you can estimate what you can afford in a mortgage payment (remember to include estimates for taxes and insurance). In this example, 43% of $3,000 is $1,290. Since you already owe $490 per month you have $800 left. Taxes and insurance on a small home will run at least $200 per month so that leaves $600 for principal and interest. At a 5.00% interest rate on a 30 year fixed loan, you could do a loan of $110,000 and have a principal and interest payment of $591.
Giving Back: Two Loyal Newsletter Readers Raising Money For Good Causes This Month
For the fourth year, our friend Adam Selsley will be cycling in the American Diabetes Association’s Tour de Cure fundraising event. Please support Adam with a donation by clicking here. Adam tells us that “as long as I can ride and as long as I can help I will do what I can so that one day the more than 20 million Americans with diabetes no longer have to say “diabetes is still there.” Please help me make my goal of raising $1500 this year. I am nearly a third there.”
Another cause worthy of your heart and generosity is the Muscular Dystrophy Association. Our friend Dr. Chris Green writes “”Did you hear the news…they finally caught me! I’m going to jail…but it’s for a great cause…MDA!” Click here to help Chris out of lock-up as he works toward his fundraising goal – we need him back in the office fixing our aches and pains!
Need volunteers? Do you have a fundraising event upcoming? Do you have a personal web site where you are raising donations for your cause? Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.
Just returned from a business trip and mini vacation to Northern California. We were in San Francisco for a tradeshow and did some typical tourist stops – Chinatown, Coit Tower, Ghiradelli, Fisherman’s Wharf, Giants vs Dodgers – to name a few. Then a spectacular long and relaxing weekend in Napa – why we ever postponed doing that is beyond me. Can’t wait to go back. For now, we are staying home for a while.
Randy
Mortgage by Randy newsletter, Copyright 2008-2011 Randy Mitchelson. All Rights Reserved.
Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson. Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
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You have permission to publish this article electronically or in print as long as the following is included:
Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with over 15 years experience in financial services. Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.
As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval. He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.
He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products. Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.
Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY. He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle’s Angels Foundation Inc. He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.
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