Fred Chamberlin - Eugene/Springfield's #1 Experienced FHA Mortgage Consultant

Last week, I posted two separate articles on my website about refinancing. The first one is about whether or not it makes sense to refinance and takes the reader through the reasoning behind the refinance. A lower rate does not always make refinancing the right option. Just because you are getting a lower rate, doesn't mean you are saving money. Every loan and every situation is different. Please review the following to get a feel of what I mean:

by Fred Chamberlin, Senior Mortgage Consultant, Eugene/Springfield OR, 541-342-7576.

"Mortgage interest rates have dropped dramatically and are current at or near a 27 year low. That means you can save money on your mortgage payment every month, right? Well, the definitive answer to that is, MAYBE! Just because you can get a lower interest rate, doesn’t mean it is in your best interest to do so. Whether it is a conventional refinance or an FHA or VA refinance, a lot depends on what you have now and what you expect to accomplish.

The easiest way to show this is to give a couple of fictional examples. (These are conventional loan examples) First of all, let’s consider that your have a high interest rate on a small loan. For this example, assume you owe $60,000 on a home worth $200,000 and are paying 7.5% on a 30 year loan and are 7 years into the loan. Would a refinance at 5%*** be worthwhile? Conventional wisdom is that if you are saving 2% or more, it is a good move. Let’s take a look:

Current Payment—-Proposed Pmnt Hard—-Hard Cls Costs*

$457————– $341/$388** —————$3,500

Recovery of costs in approx. 69 months.

So, if you are going to be in your home for at almost 6 more years, this makes sense. If you are going to be there less time, it doesn’t and if you are not sure, it probably is a bad move for you.

Now, how about a different scenario? Assume you have a mortgage of $350,000 at 6.5% with 26 years remaining on a home value of $450,000.

Current Payment—–Proposed Pmnt——Hard Cls Costs*

$2,327——— $1,911/$2,041** ———-$6,000

Recovery of costs in approx. 21 months.

So here, you can see that a 1.5% change can more than pay for itself in less than two years. The interesting thing is that the 2% rule really doesn’t apply in either case. In one case 2.5% is not enough and in another 1.5% is.

* Cost associated with loan, doesn’t include prepaid expenses.

** New 30 Year mortgage payment/Payment to maintain current pay off schedule

***Used only for comparison purposes, not an offer.

These are just two examples. Every loan is different. There are no hard and fast rules. An FHA cash out refinance might be the best thing for you. If you use your home to pay off credit cards, what are your plans? Not doing anything might be the best thing for you. If you have a second on your home currently and it wasn’t used to purchase the home, to pay it off would make it a cash out refinance. They are priced differently.

There are a lot of other things to consider when thinking about a refinance. Are you looking to pay other items off? What is my loan to value? What is my credit score? The way to find out if a refinance is the right thing to do is to talk to a professional in the business. I am always available to answer your questions regarding refinancing or purchase. Rates are great, but that isn’t the only thing to be concerned with when considering a mortgage loan. Is it right for you? Should I put more down or borrow more? FHA/VA/USDA loans may be the way to go instead of conventional. FHA allows cash out refinancing up to 95% loan to value. VA cash out refinances are available up to 100%. USDA doesn’t do refinances but has purchase money available up to the appraised value even if it is over the purchase price. Check with someone you trust for up to date and good information for YOU! FHA Streamline Refinances and VA IRRRLs are almost always a good move.

Check out my next post where I cover, now that you know you should refinance, can you? The requirements and qualifications for loans have changed. Just because it may make sense for you to refinance to a lower rate, doesn't mean that you can.

Helping people that are having trouble, not just with making their mortgage payment on time, but puting food on the table or buying gas for their car is something that we all should be concerned with. Oregon State University has established links on the Extension Service website to do just that. There are a lot of groups available to help in times of need and I know there are people in need. I hope these links will help them. This was posted on my website today.

While listening to my wake up music this morning on KKNU Radio, Tracy Berry, the good looking portion of Barrett, Fox and Berry, gave us information about a help website being offered by Oregon State University. This website is being operated by the extension service at the University and is designed to help people find the places to go for assistance in tough times. You can access the site here. I am also posting the link in my links section of the website.

I have always found it a part of the American experience that people help people in bad times. It always seems that there are individuals, organizations and government agencies that are there to help work through tough times if you know where to look for them.

Since the government's Help For Homeowners (H4H) program has turned out to be such a tremendous bust, there has to be other ways to get help. So, I am going to list a few of them here. This list is not all inclusive, but I hope that it will give you some good ways to find what you need:

1. Hope NOW - Non profit Counseling for Home Financing problems
2. NEDCO - Non profit in Lane and Marion Counties for financial assistance and training.
3. Debt Reduction Services - Non profit assisting consumers with consumer debt restructuring
4. Finance and Insurance Department of Oregon - Foreclosure tips and procedures
5. Homeowner Preservation Foundation - Counseling for those in financial distress
6. Home Learning Center - More foreclosure information
7. Fannie Mae HomePath - Very concise website to help with home preservation

This is not an all inclusive list, but there is a wealth of good information on these websites. When it all is said and done, there are a lot of people trying to help homeowners keep their homes. If none of these work and your attempts at a modification, even though you qualify for one, fail, call me. I do offer this service. It is not free, but is reasonable. I believe everyone should attempt to handle this on their own first, but if failure happens, call.

I have a customer that I am working with on a short sale. The property is a definite starter home but more is owed against it than it more than the offer. The offer is the maximum the client is able to pay for the property and qualify for the loan at current interest rates. The property has had no offers to purchase, one of the reasons is that it is in a flood zone so there is extra cost for the flood insurance. So it isn't a case of someone trying to steal it just to get a good deal. It is a case of making a reasonable offer for a property based on ability to pay for it and marketability.

All pretty straight forward, isn't it? Well, the offer went into the bank before Thanksgiving. So that means we are over 6 weeks from the offer date. Knowing that the acceptance of the offer would not be quick, being an intelligent loan officer, I locked the rate (to make sure she would still qualify for the loan after we got the accepted offer) for 60 days. Obviously, in hindsight, not long enough get the loan done.

Today, after constant requests for status by both the listing and selling Realtors, we got the answer from the bank holding the note. The answer, "We are backed up and it will be at least another six weeks before we have an answer." Now, that is just asinine. Don't they know that the unemployment rate is 7.2%. Hire more people. That does two things, it gets things done at the bank and lowers the unemployment rate. A win-win situation.

Needless to say, my client is out looking at other property and when and if, the bank makes up their mind, she will be long gone. Stupid is as stupid does. Another chalk up to the inefficiency of the
Short Sale marketplace. I have to ask, is this a way to keep worthless paper on the books as a viable asset instead of taking the write down generated from the sale? Why would they take so long to decide if it was the right thing to do?

My advice, if you are looking to get a good deal, buy a home that isn't a short sale. I could be wrong, but until these are handled in an expeditious manner, they will continue to be a problem. In the time it takes a bank to make up their mind, the interest rates could have gone up, the house could have burned down or the buyer could have found somewhere else to buy, had three children and two of them started college.

RATES! WHAT ARE THE RATES? MORTGAGE RATES! THE FED IS INFUSING MONEY! WHAT ARE THE MORTGAGE RATES? DOES IT MAKE SENSE TO REFINANCE MY REAL ESTATE LOAN? HOW CAN I MAKE OUT ON THIS NEWS?

Five times in the past year, Mortgage Backed Securities (MBS) have jumped up in price to this level. All of those jumps were short lived and four of them, were followed by dramatic losses in value. What does that mean?

It means that we have seen this type of activity before and mortgage rates have dropped in relation to the spike in MBS pricing because it is MBS pricing that determines the price of mortgage rates. Today's precipitous drop in rates was due to the announcement that the US Treasury department was purchasing $600 Billion in Mortgage Backed Securities. Wow! About time!

This drop in rates equates to a $27,000 savings in price...so why not buy now????? When they go back up...you would have to get a $27,000 price reduction to save the same amount as what rates would save you by buying today.

So, if you have been straddling the fence waiting for the low rates, now may be the time to jump in. Refinance, purchase, either one. Don't get left behind because you were waiting for the bottom. The only time you know where the bottom is, is when you have passed it. Mortgage interest rates are excellent.

authored by Fred Chamberlin, senior mortgage consultant, Eugene/Springfield Oregon, 541-342-7576