Joseph Metzler MMS UMB

FICO CREDIT SCORE GRADE AND FORECLOSURE RISK BY THE NUMBERS

Just something to think about...

Grade
AA = over 760
A = 720 - 759
B = 680 - 719
C = 640 - 679
D = 600 - 639
E = 560 - 599
F = 520 - 559

2% of the population have scores under 499
5% of the population has a 500 - 549 score
8% of the population has a 550 - 599 score
12% of the population has a 600 - 649 score
15% of the population has a 650 to 699 score
18% of the population has a 700 - 749 score
27% of the population has a 750 - 750 - 799 score
13% of the population has over 800 scores

FORECLOSURE RISK
1 in 588 for Standard Conforming Fixed
1 in 189 for Standard Conforming ARM
1 in 147 for FHA Fixed
1 in 101 for FHA ARM
1 in 244 for VA
1 in 77 for Subprime Fixed
1 in 31 for Subprime ARM

Thinking of refinancing to today's great rates? BEWARE before you commit!

Saint Paul, Minnesota: Real 30-year fixed interest rates without discount points have been hovering right about 5% lately for those with high credit scores and plenty of equity. Lender phones are ringing off the hook with mortgage refinance applications at their highest level in more than 5-years!

While this sounds great, applications don't necessarily equal loan closings. A monstrous black cloud is about to burst on many unsuspecting applicants.

Two major issues are crushing refinance dreams as after application, many borrowers are finding out they do not have the equity position or credit to actually get a great deal closed.

A prime example is a customer of mine who bought a new home in October 2006. At the time, he put 25% down from the sale of his previous home. Today, I would be able to lower his interest rate about 1.25%. This would save him approximately $202 per month. Payback for closing costs is under two years, and he plans on living in the home a long time. Therefore this customer would appear ripe for a refinance.

Problem one? His property value has dropped to a level where his NEW loan would have a loan-to-value of 90% (a loss of 15% in value).

I now have to add mortgage insurance to his loan, MAKING HIS NEW GREAT RATE REFINANCE PAYMENT GO UP. Dead deal.

Problem two? Credit score requirements. Another recent customer has a first and second loan he wants to refinance into one new loan at today's great rates. He has heard all the rate news and is ready to take advantage, as he thinks he could lower his rate 1.25%.

In years past, if you qualified for a conforming loan, everyone got the same conforming rate. It didn't matter if your score was a 620, or an 800. Today, you may get a conforming loan, but rates vary greatly depending on your personal situation.

In my example case, because we are paying off a second mortgage, this is considered a higher risk "cash out" transaction. His middle credit score was just 659. Therefore, while I could do the loan, his rate would have been 5.875%, down just 1/4%. Dead deal.

Bad lender problems too. To further complicate matters, and to potentially throw more egg on the mortgage industry face, inexperienced and bad lenders once again are promising the world to customers without doing a proper analysis of the customers situation.

Many of these lenders demand $300 - $500 non-refundable application fees, then send an appraiser to the customers home. The appraisers are told to collect their fee "at the door".

Two weeks later, the customer is told one of the two examples above, and that their great deal isn't so great after all and the application does NOT turn into a closing.

DON'T LET THIS BE YOU. Make sure you are working with a true professional Loan Officer and Mortgage Company. Make sure you ask about credit scores and talk about estimated property values and how they may effect your great deal.

DO NOT EVER PAY APPLICATIONS FEES, and DON'T believe everything you hear, especially from a telemarketer. There are plenty of sharks still left in the mortgage sea.

With a little customer knowledge, you may be able to take advantage of today's rates, or save yourself unnecessary application fees and appraisal costs.

(c) 2009. Metzler Group. www.JoeMetzler.com

Should you be buying a home, modifying your existing loan, refinancing, or running away?

Saint Paul, MN: These are certainly trying times, and 70% of homeowners have some sort of financing on their home. The economy is hurting, and fear of job loss is on many minds. But what you should be doing in today's market isn't always clear.

The economy is hurting largely because of the initial wave of foreclosures and high gas prices of earlier in 2008. This has spilling over into all aspects of American lives, but is it really as bad as the constant beat of the media drum has one to believe?

Unemployment nationwide is averaging in the 6% range. This is significantly below the highs of years past. retailer are reporting bad Christmas numbers, down some 6-8%. Foreclosures are still at historic high levels. These reports sound bad, but sit back and take a look at your own individual lives to examine if it really is bad for you and what you should be doing.

For example, while possible job loss is on a lot of minds, examine your own ability to market yourself? No job is guaranteed. If you did lose your job, how quickly can you replace it with a similar income, even if in a different field.

I am in the mortgage business, which clearly is suffering. I don't worry about my home or income, because I know that if needed, I would take two or three jobs (even menial jobs) to always make sure my family has the three most important items: Shelter, food, and clothing. I know I can cut off cable TV, sell cars, cut expenses, and go into survival mode and that I will always be able to provide the basics.

If unemployment is averaging 6%, this means 94% of people are working. If foreclosures are averaging 10% of homes, this means 90% of people are OK. Turn off the TV, stop reading the paper. If you didn't hear and read all the "bad news", how would YOU personally view your situation?

BUYING A HOME: We all need a place to live. Home prices are extremely attractive, with great deals to be found everywhere. Mortgage rates are near historic lows. If you have OK or better credit, can come up with a small down payment, plan on staying in the home for at least four years, you are almost foolish to not buy something TODAY.

MODIFYING YOUR EXISTING LOAN: Many people bought homes they shouldn't have and took risky loans to do so. Simply because a lender said yes, doesn't mean you should have. Even more people who originally bought right used their homes as ATM machines, with a constant "cash out" refinance to pay credit cards and live lifestyles they couldn't afford. I just spoke with a customer who bought this home 15-years ago for $85,000 who is losing it to foreclosure owing $300,000.

As little as two years ago, getting a bank to modify your loan was rare, and required you to be seriously behind in payments. Today, banks are very willing to help keep you in your home by modifying your payments. Workouts vary greatly depending on many variables, but the best ones we see lower your rate to around 3% for 5-years. Then the rates start adjusting back to where they originally were.

Unfortunately, we are seeing two problems emerge with modification. The first, is many people who got loan modifications fairly quickly fall behind again. While no one wants to lose a home, you must be realistic. Many times I speak with people where I calculate a payment based on ZERO percent, and they still tell me they can't make the payment. Modifying only delays the inevitable. Getting out completely and into a situation you can afford releases untold weight off your shoulders.

This brings me to another HUGE problem. Unlicensed loan modification companies have popped up everywhere offering to help you. These companies vary from legitimate low or no fee non-profits, to outright fraud. States across the country have files cease and desist orders, criminal charges, and lawsuits against man. We suggest that if a loan modification is right for you, that you consider working with your bank yourself, or contacting a city, county, or state non-profit homeownership center before paying any upfront or advanced fee to anyone, no matter what they promise.

REFINANCING YOUR EXISTING LOAN: Interest rates are currently hovering near historic lows and it is well worth thinking about getting something better if you qualify. The basic criteria is that if you can lower your rate and you'll be there long enough to at least break even on the closing costs, then it is a smart move.

Today unfortunately, we take many refinance applications, but don't actually close a lot of new loans because of a variety of reasons. The biggest is failing values. A customer of mine bought a home 3-years ago with 20% down. Today's appraised value would put him at 90% loan-to-value. While I can lower his rate 1%, I now have to give him mortgage insurance because he would be over 80%. The mortgage insurance cost completely wipes out the interest rate savings making his payment HIGHER than he is currently. (Wondering what your home is worth today, and what it will appraise for? get a FREE home valuation report)

New credit score requirement and tighter lending guidelines in general also combine to make many refinances harder to come by too.

So, should you be buying a home, modifying your existing loan, refinancing, or running away? It all depends, but I suggest we all stop living in fear, properly analyze our lives and personal situations, take our heads out of the sand, and make well educated decisions to put our lives in a better place.

FED ANNOUNCES they will buy Mortgage Backed Securities

4.5% interest on 30-year fixed???

The FED came out today with a few big announcements.

1) First, they have lowered the FED FUNDS Target rate to 0.00 - 0.25%. This is what many rates, like PRIME, is technically tied to. This is good news for credit cards, home equity loans, etc.

2) The Fed has indicated that they WILL buy Mortgage Backed Securities in an attempt SETTLE down the market. At this time, there are no details. There is no plan, no indications whatsoever who will benefit, no direction as to who may qualify, under what terms and guidelines, and is it just purchase transaction, or refinances too.

3) They indicated they will try to keep rates low for a long long time!

Many people will now be tempted to "hold out" for the "bottom" of the market. THAT IS A BAD MOVE. The key strategy is getting somewhere near the bottom with the right rate and cost combination that works, not hunting and holding out for the exact bottom. No one knows when or where the bottom will be until 6 months after it is gone.

Bottom line: If it makes sense for you to take advantage of TODAY'S real historic rates, DO NOT HESITATE to act NOW.

4.5% interest - don't expect it soon.

As we wrote hear previously, The Fed has indicated that they would like to buy Mortgage Backed Securities in an attempt to trick the market into having lower fixed rates right now. Talk has been of about 4.5%.

The rumors of this action has caused many people to wrongly sit back and wait.

At this time, this plan is little more than talk.

The is no plan, no indications whatsoever that it is ever going to happen, no direction as to who may qualify, under what terms and guidelines, and is it just purchase transaction, or refinances too.

Many of the legislative "savior" actions recently are really thinly veiled jokes. Programs like FHASecure, and Hope for Homeowners, which sounds good in 15-second clips of Rep. Barney Frank praising Congressional action, are in reality, gigantic failures. They help very few people because of all the restrictions to the programs, and the unfunded hope that others (like banks) will participate. The Hope for Homeowners program is so bad, many in the industry have been calling it "Hopeless for Homeowners".

To make it worse

Many lenders are calling people and pretending like 4.5% is coming soon. There are telling people to get their "application started" and to "send in your pay stubs". Clearly these people are not whom you should be making some of the biggest financial decisions of your life with.

Bottom line:

If it makes sense for you to take advantage of TODAY'S real historic rates, DO NOT HESITATE to act NOW.