Brian Foxworth SC, GA, FL, & TN Mortgage Loans

A few weeks ago I contacted a landlord that I had helped with financing one of her properties to the renters that had been in the property for 7 years. She had been very happy for the help and had even sent me other renters to help buy the homes she did not want anymore.

The reason for my current call 6 months later was to have her update the Verification of the Private Mortgage(VOM) she had given to me during the purchase transaction so that I could now refinance the clients and help them save over $200 a month due to the lower rates available. Since she and I had a great relationship 6 months earlier, I expected it to be no hassle and hopefully get some more referrals from her; however, I was sadly mistaken.

Instead, she replied with a nasty tone in her voice, "YOU ARE THE REASON WE ARE IN THIS MESS! You are just trying to take advantage of these clients and add to their mortgage -I will not let you do this to them!"

I was in shock when I answered, "Actually, I will be saving them over $200 a month and they will be recouping the Closing Costs in less than 18 months -I fail to see how I am taking advantage of them when they are saving money each month AND have a lower interest rate."

She answered by hanging up on me.

I still closed the loan after I explained the situation to the UnderWriter -they just used the original VOM - and the clients are now enjoying $200 extra each month and a lower interest rate.

But I was left scratching my head -what had changed in 6 months for this nice landlady to feel that I was now Public Enemy #1? Then I remembered that she watched the news and that the news had been saying the mean old mortgage companies are to blame.

I took a look back at my past loans and really tried to see if I had taken advantage of anyone: I had never maxed out the fees on anyone or put them into a house they could not afford. I never lied about the income they made on a Stated income loan. Everyone I closed a loan for was better off than when they came to me -especially if they took my advice on how to make their credit better.

Then I started wondering: If I'm not to blame for this mess - then who is? A couple of days ago this Wall Street Journal article written by Economist Russell Roberts was emailed to me.

It explained that this actually all started back in 1992,

"...Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below the median in their area. The target increased to 50% in 2000 and 52% in 2005.

For 1996, HUD required that 12% of all mortgage purchases by Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down...."

And it has snowballed from there -makes sense doesn't it?

So I called the nice landlady and told her the good news and emailed the article to her explaining that I could not be the cause of this mess -I have an alibi: I was in college when it all started in 1992 and I did not start doing mortgage loans until 2000.

I haven't heard back from her yet...

We all remember the old "Mission Impossible" theme song I like to call "da -da- dada - da-da-dadda" In case you don't have perfect pitch while reading it sounds like this :

 

Okay - now humor me for a minute - keep the Mission Impossible theme playing while you read the rest of this post AND while you watch the video -come on, it's gonna work and it's what I had playing in my mind when I wrote this post so you might as we ll get inside my head no matter how scary it is ....

This past Friday, September 19th the "Today Show" aired a segment by Michael Okwu that I have provided in the video below from the "Today Show" website. Pay special attention to what is said at 46 seconds into the video "Gone are $0 down loans often replaced with 20% down..."

Here we go - click they play button again on the Mission Impossible theme above and then immediately after click the play button on the video below with both volumes up high enough to hear them at the same time- it has a Pink Floyd / Wizard of Oz effect -.. (Pretty cool, right? okay when you have played 50 seconds in you can stop both videos)

Obviously many Americans watch the "Today Show" in the mornings and they believe that they are hearing from experts WHO KNOW WHAT THEY ARE TALKING ABOUT.

Sorry - I did not mean to shout, but come on - Michale Okwu has NO CLUE what he is talking about because we still have several $0 down loans programs available:

1. VA still offers 100% loans based on the Sales Price or Appraised Value - whichever is lower -if the Apprasied Value is lower than the Sales Price you need to renegotiate anyway...

2. USDA Rural Housing still offers 100% financing based on the APRRAISED VALUE- therefore, if your Realtor has obtained a sweet deal for you and you have a low Sales Price compared to the Appraised value you can include your Closing Costs and Prepaid items in the loan as long as the sum of the Sales Price + the Closing cost and prepaids do not go over the Appraised Value.

3. State Housing programs require at least 3% down; however, they offer Down Payment Assistance based on your income and the property's county you are purchasing in AND some or all of the Down payment may not have to be paid back (forgivable)

And finally FHA still offers only 3% down (soon to be 3.5% down payment) loans which is a far cry from 20% down. So there you have it - the media is not always correct in their mission to get you panicked every hour on the hour.

Back to my Title Question: Mortgage Impossible? Not even close!

Your Mission - should you choose to accept it - is to thwart the media's mission to hit your panick buttons by TURNING OFF THE NEWS, LIVING YOUR LIFE WITH THE KNOWLEDGE THAT IT IS NOT AS BAD AS THEY SAY, AND BUY A HOUSE DURING THE BEST TIME TO BUY A HOUSE - NOW! (i did mean to shout that time).

This message will self-destruct in 5 seconds..

4..

3...

2...

Dang -fuse was wet ...

The Economy is in the news all day long. Which Bank is going under today? How is the Government going to step in and Solve our Problems? Wait a minute - How is the Government going to Solve OUR Problems? Is the government really responsible for us -or are We responsible for ourselves?

For the past 4 years, I have had a "Solve the World's Problems" Summit during lunch at least once a week with a buddy of mine where we ussually divide this discussion into 3 topics:

How can my Personal Budget keep me from Feeling the Pain of this Economy?

How can I Lessen the Pain of this Economy for others?

How does my Faith affect my Perception of these times?

If anyone was to listen to our converstion, they may think we were a combination of Grumpy Old Men, Dave Ramsey, and Slingblade Carl (just because we enjoy saying "Mmmm hmmmmm" like him to make our points).

Anyway, back to our story - let's take this by the numbers:

1. How can my Personal Budget keep me from Feeling the Pain of this Economy? Now some of you are already scratching your head and asking, "What is a Personal Budget?" Well the down and dirty of it is this: - you write down how much money is coming in after taxes every month and you subtract every monthly expense that comes out from large to small - ussually starting with your mortgage or rent - down to gas for the car and money for food & entertainment. Dave Ramsey and other Financial Advisors actually advize us to write the 1st check every month based on 10% of your Income to charity (Church, United Way, etc.), the 2nd check should be 10% of your Income to your Personal Savings Account (to save for the unexpected expenses), with the rest divided up between your monthly debts & expenses from big to small - purposefully beginning to pay off your debt from small to large debts (Dave Ramsey calls this your Debt Snowball). Okay -here is where we start our weekly discussion during our Summits: If most people (including me) started following Financial Advisors advice our country would be full of citizens who are giving to charities, have Savings for emergencies (so they won't have to use their credit cards), and have begun to pay off their debt. I think it begins with something my Grandparents called Delayed Gratification - if you are not familiar with this term, click on the link. In our society we are bombarded with commercials that play songs like "I WANT IT ALL & I WANT IT NOW" which promote our Instant Gratification culture - we want what we want when we want it and we want it NOW. That kind of mindset increases our Credit Card Debt, defeats any kind of Personal Savings Plan , and sometimes forces us to tap into our home's equity (read Broker Bryant's post about Your Home is your Castle, NOT an ATM Machine!)
2. How can I Lessen the Pain of this Economy for Others? Remember up there in #1 where I told you that Financial Advisors say it is best to write your first check every month to Charity? That's because the old Proverbs of Widom are true - Don't let the flow of money stop with you, let it flow thru you - If you were a body of water, do you want to be a stagnant pond where the water just stands still or do you want to be a River where there is a fresh supply of water everyday? These Charities -Churches, United Way, Red Cross, and countless others - help the less fortunate everyday. You could even take it a step further and tell your family that this Holiday Season during Thanksgiving and Christmas you'll be joining others in Adopting less fortunate families so they can have a good Thanksgiving and Christmas as well. The possibilities are endless when we -Not the Government -help each other.
3. How does my Faith affect my Perception of these Economic Times? I am a believer that God is in Control no matter what is happening around me. Your Faith may help you as well. If I am completely focused on the Nightly News and I believe everything that comes from it - then I am going to perceive that everything is Doom & Gloom; however, if I am anxiously awaiting how God is going to grow my character thru these times and I am following His Wisdom - I can make it thru anything. How does your Faith help you thru these times?

So back to my Title question: How are You Allowing this Economy Affect You? Are you cutting back on wants and just taking care of needs for your family so that you can still easily afford your monthly debts? Are you still helping others? Are you still saving for emergencies? (I know -some of you are already in an emergency - but what if you had saved for it before all this mess happened? You can contact some of those charities others give to to help.) Are you relying on yourself and your Faith to bring you thru this -or are you sitting and waiting for the government to solve your problems?

Are we going to allow this Doom and Gloom mentality anymore or are we going to revive this economy by taking care of ourselves and helping others?

Or do you think it is too far gone to do anything?

Yesterday I received a call from a young lady (We'll call her Gertrude) who asked my opinion on if she should refinance her 15 Year, 5.25% Fixed rate mortgage to receive a lower payment on a 30 Year, 6.25% Fixed Rate Mortgage to give her some breathing room each month.

She and her husband had done everything she could think of to cut back her monthly expenses, but her family still needed about $400 a month for her to start working less hours a week to be able to be home more for her children. They had paid off their cars, credit cards, and the only "luxury" they had was Satellite TV - there was nowhere else to cut - unless they wanted to skip some meals.

I ran the numbers and Gertrude would save around $380 a month by refinancing into a 30 year mortgage and save about $260 a month if they refinanced into a 20 year mortgage. I continued the questions I ask everyone when completing an Application and we got to the Assets information -in fact, she brought it up before I got to it - that there was a substantial amount of money in CD's that were earning about 4.25% or less along with her savings that earn 2% or less in addition to her 401k that she had stopped contributing to since it was tanking. There was more than enough money in her CD's alone to pay off her mortgage and still give her more than a year's cushion should she or her husband be out of work and she even had a separate Savings account for emergencies.

At this point, let me stop and tell you about an influence in my life, Dave Ramsey. I had taken Dave Ramsey's Financial Peace University Course a couple of years ago. At the age of 26, through his brokerage firm, Ramsey Investments, Inc., he had built a rental real estate portfolio worth more than $4 million. Ramsey's debt-fueled success soon came to an end as the Tax Reform Act of 1986 began to negatively impact the real estate business. One of Ramsey's largest investors was sold to a larger bank, who began to take a harder look at Ramsey's borrowing habits. The bank demanded he pay $1.2 million worth of short-term notes within 90 days, forcing him to file bankruptcy. Ramsey vowed to never again borrow money - however, he did not sit around in self pity for too long - he asked God to show him how to create wealth His Way without debt and promised to teach everyone he could how to do it.Thru prayer, searching the Bible, and attending other Christian Finacial Planners workshops - God showed him how to pick himself up and systematically save his emergency fund, payoff his debts and THEN buy investments with cash. He has been sharing his knowledge of God's Wisdom about money on the radio(on over 300 radio stations), in his books, and DVD study courses ever since.

Now Back to Our Story- After Gertrude had informed me of the amount of money she had in CD's and other Savings Accounts, she immediately asked, "Should I pay off my Mortgage with my CD's? My tax preparer said I shouldn't since I would no longer have a tax deduction for Mortgage Interest." I asked her if her Tax Preparer had backed his opnion with any real numbers - as in showing her Comparisons with her Current 2007 1040 vs. an Amended 1040 without the Mortgage Interest Deduction and she said, "No, he just said it wasn't a good idea."

Immediately, my shoulder angel(played by Dave Ramsey) has beaten up my shoulder devil and is yelling in my brain "TELL HER TO PAY IT OFF! TELL HER TO PAY IT OFF! TELL HER! TELLLLL HERRRRRR!!!!!!"

To quiet my new-found shoulder angel I asked Gertrude to go over some real numbers with me over the phone. I reminded her that I am NOT a Tax preparer so we were going to keep it simple. I asked her if she were to pay off this mortgage how many year's salary would that leave her in Savings? She replied , "Over a year -not counting my Emergency Fund and 401k." Good. Based on the Escrow amount she gave me per year, I calculated that her Principle & Interest amount per month was $988 x 12months = Saving $11, 856 per year if she paid off her mortgage. By using an Amortization schedule for her current loan in it's 3rd year of repayment I calculated she was paying on average about $530 in Interest per month x 12 months = $6,360. Depending on variables that I did not have access to - she would actually get a deduction for a % of the $6,360 -but I used the full amount in my example to her. So I told Gertrude that even if she was getting the full amount deducted from her overall Taxes to be paid after all other deductions She would still save form the totals above $11,856 - 6,360 =$5,496 per year or $458 per month.

I explained to her that more than likely, from what she had told me, we were looking at that deduction being a lot less like maybe $2500, which would actually save her more than $9300 per year or over $775 per month (Some of you tax folks help me out).

So I advise her to have a MBP (Mortgage Burning Party) and do a happy dance since:

1. She will save at least $458 per month - (what she needed to begin with)
2. She is currently paying out 1% in interest (5.25% on the mortgage) more than she was receiving (4.25% in CD's) - this will correct that imbalance
3. She will have over a year's salary remaining in liquid savings
4. She can now work less hours to spend more time with her kids.

She thanked me for my advice and said she was gonna get some real numbers from her Tax Preparer too (even if he is a grumpy old man) to see exactly how much she would save. I told her that if my bosses were not Christians, and they overheard me telling a Prospective Client to not refinance - but payoff her mortgage instead -I would probably be fired - But I have to be able to sleep at night and know I did the right thing for Gertrude.

Sleep easy Gertrude - I know I will.