Kathy Godin

The greedy bankers did it. It’s commonly believed that easy credit was the cause of the housing bubble. Is it that simple? Let’s expose the culprits.

Meet Suzanne Pellegrin – she has a theory. Not a politically correct theory, but a theory. You won’t hear it on the news or read it in your newspaper. Not even the internet will tell you.

Who is responsible for the damage to the American Dream? Suzanne points to politicians as a starting point for her answer. They promoted programs and policies making it easier for Americans to own their own homes. They opened the door.

The money people took note. Lenders calculated they could make money following the government’s lead. Lots of money. They felt that the government had minimized their risk. With reduced risk and large opportunity for profit, they joined the game.

Real estate agents joined the parade. A volume of commissions was on the horizon so why wouldn’t they jump on this golden opportunity. Agents began banging the drums touting the American Dream. Prices kept going up. This was good since they were paid a percentage of the sale price.

Americans had jobs so they bought homes. Thrilled about this increase in mortgage applications, mortgage lenders were only too happy to help people finance their new home. Interest rates came down which opened up the profitable re-fi market. Houses were refinanced for higher and higher amounts. Some enterprising loan originators wrote mortgages where borrower did NOT have to prove his income (a borrower wouldn’t lie, would he?). They were sold on the idea by big banks who created no-doc loans. Everybody was making money – great day.

Appraisers, not to be outdone, became liberal in deciding what a house was worth. No harm done. With prices rising so fast, nobody would get hurt. Everybody was protected and they were making money.

Loans were sold on the stock exchange. Buyers bought them at a record pace. Why not? They paid well for such a safe investment. They knew they were safe – the rating agencies told them so. Rating agencies enjoyed the fact that people were buying their ratings in very large quantities. This pumped more money in the mortgage markets.

Why did the politicians start this crazy upward spiral? Americans are enthralled with the American Dream. They want a place to call their own. Politicians love pleasing the American voter. Election season is a good time to remind them of the help they provided to fulfilling the American Dream.

So Suzanne, who’s to blame? We all are. No evil intent. Just looking out for our self-interest. Nothing wrong with that. Truth is if we hadn’t all played our part it would not have happened.

Next time, Suzanne will tell why it all went wrong.

Kathy Godin, Award-Winning Loan Officer and Branch Manager
Prime Mortgage Lending, Inc.
(919) 789-9933
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina

Raleigh Real Estate Trends Favor Buyer or Seller in March 2012? Media sound bite usually based on limited data and normally national in scope.

What are media comments based on? In my experience, it's usually a comparison between the current month and the prior month or the current month compared with the same month a year ago. More comprehensive data is needed by those who will actively participate in the real estate market. In response to that need, I present you the following market analysis.

Market divided into four segments:

Black Line: Represents Most Expensive Homes
Orange Line: Represents Upper Middle Segment of Market
Green Line: Represents Lower Middle Segment of Market
Blue Line: Represents Least Expensive Homes

Because all real estate markets are local, this data reflects the housing market in Raleigh, NC. National data doesn't help you very much should you be considering either selling or buying a house.

The Market Analysis Index ™ combines several supply and demand statistics. The result is a single number that reflects whether we're in a buyer's or seller's market. Thirty stands for balance between both market conditions. Over thirty indicates a seller's market. Under thirty indicates a buyer's market. In Raleigh we have been in a buyer's market for the last two years.

Summary: In spite of recent move towards seller's market in three of the four market segments (most expensive homes being the exception), Raleigh is still firmly in a buyer's market. No segment of the market is above 15 – a long way from a seller's market which is above 30.

Kathy Godin, Award-Winning Loan Officer and Branch Manager
Prime Mortgage Lending, Inc.
(919) 789-9933
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina

A friendly wager. I bet you don’t know who owns your mortgage. An additional wager. Bet you can’t find out. Give up? What impact does this have on you?

Lance knew he knew. He took the bets – both of them. I’m Slick Willie and I love people like Lance. They help supplement my meager social security pension. Lance pulled out his mortgage statement as proof of who owned his mortgage. Sorry Lance.

FACT – Mortgages divided at closing

A small piece goes to the servicer. The servicer collects your payments, manages your escrow and deals with whatever situations occur. They usually own nothing. A portion of mortgage income is theirs as a fee. Their name is on the mortgage statement – not the owner’s.

FACT – Mortgages are sold

Minus what goes to the servicer, the mortgage gets sold by your lender. The lender uses proceeds to fund another mortgage. This allows more people to get home loans and it’s considered a good thing.

FACT – Mortgages are sold again

Mortgages get grouped into ever larger bundles and sold again. Most end up in the hands of investment bankers like Goldman Sachs, Fannie Mae or Freddie Mac.

FACT – Mortgages get divided, re-bundled and sold again

Mortgages may get divided at this point. Ownership of the principal (payments paying back the loan) separated from ownership of the interest payments. Mortgages get re-bundled into mortgage backed securities and sold again, usually on stock exchanges.

FACT – Mortgages get divided into shares

Investors from all over the world buy shares in these mortgage backed securities. Some investors are individuals. Most are bought as investments by corporations like insurance companies, pension funds and mutual funds.

Beneficiaries of pension funds and owners of mutual funds may own a very small piece of your mortgage. Yes, that could be Roy down the street or your father-in-law. Might even be you.

IMPACT – You benefit and you lose too

I mentioned earlier how you benefit. System replenishes money lenders need to make more loans. This allows more people to own homes. Investors hate to lose money and there have been loses the past few years. To avoid loses, investors keep making new demands. Lender must meet these demands in order to sell the mortgage and replenish his funds.

IMPACT – Demands complicate loan-approvals

Investor demands change borrowers’ burden of proof when attempting to qualify for a mortgage. A good credit score may get borrower in the game, but that’s just the beginning. More and more proof (documentation) that borrower is credit worthy gets demanded. Even loan approvals come with conditions that must be met.

SUMMARY

System described (over-simplified) here helps make mortgages available. This will help housing market stabilize and recover. Avoid much heartburn by preparing yourself emotionally for what seems like an endless series of requests for documentation. You can manage your expectations by knowing what’s coming.

Kathy Godin, Award-Winning Loan Officer and Branch Manager
Prime Mortgage Lending, Inc.
(919) 789-9933
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina

Bo Sung was a very careful person. He shopped around for the best mortgage rate. Without knowing it, he was about to be a victim of the great rate hoax.

He read articles on how to get a mortgage. Friends were probed. A simple plan developed:

1. Call five mortgage companies and ask for their best rate.

2. Establish himself as a serious buyer. Tell the loan originator that he planned to buy a home within the next couple of weeks. He’d inform them that he was shopping for the best rate and would give his business to the lender giving him the best rate.

3. Provide loan officer with no information. This would save time and protect him from identity theft.

He started calling. He had to be firm with the mortgage loan originators. They all seemed to have a million questions. Bo Sung just kept repeating that he just wanted their best rate. The lowest rate quote would get his business. Then, and only then, would he provide personal information. One had to be careful these days.

Most companies yielded and quoted a rate. Then Bo Sung called me. It was made clear to me that no personal information would be provided. He was confused when I asked him if he owned a car. His curiosity got the best of him. It seemed safe to ask why I wanted to know.

I explained that I was curious how he went about getting the best price when he purchased his car. Did he call five dealerships and demand to know their best price on a car without giving them any information? Of course not he said – how would they know what price to quote if they didn’t know what car and accessories he wanted?

The same thing applied to mortgages. Rates are based on what he wanted to buy. Quoting a rate without knowing:

1. What mortgage he wanted. There are many mortgage programs. They each have their own version of 30-year, fixed-rate mortgages for instance. Not all 30-year mortgages had the same rate.

2. His risk level. Once a mortgage was selected, rates varied depending on risk. Without his personal information, I couldn’t establish his risk level.

Bo Sung was taken aback. The rates he’d been quoted had no value since they weren’t specific to him. He was still reluctant to proceed. I offered to send him my eBook on Hazards of Rate Shopping. He didn’t want to give me his email address so I gave him a link where he could download the eBook without providing any personal information. A few days later, he called back and we proceeded.

Kathy Godin, Award-Winning Loan Officer and Branch Manager
Prime Mortgage Lending, Inc.
(919) 789-9933
Where people, not computer robots, answer the phone.
Proudly Serving All of North Carolina

Credit Scores Are Not Free – Here is an Alternative

Is Randy’s credit good enough to buy a house? He found that credit scores are not free – just credit reports. So how can Randy know? Seth’s alternative.

Since mortgage lenders use FICO scores, this is the one Randy needs to know according to Seth. Alternative to buying your score involves calculating your score. Result will show Randy a range of credit scores so he will know if he is in the game. Two basic rules:

1. Get your credit reports.

NOTE: AnnualCreditReport.com is the ONLY authorized source for the free annual credit report that's yours by law according to the Federal Trade Commission.

2. Calculate your score.

NOTE: Easy-to-use calculator available from FICO.

The FICO Score Calculator will ask 10 multiple-choice questions. Many of the answers can be found on the free credit reports you received in step 1. When your memory and your credit report come up with a different answer, use information in your credit reports. Why? Because FICO calculates your score based on information in your credit reports.

Seth’s summary of types of questions included in FICO Score Estimator:

· Current Accounts – How many credit cards, etc.

· Credit Availability – How much you owe compared to credit available.

· Recent Activity – Any new credit, applications or late payments?Currently late?

· Negative Events – Any bankruptcy, tax lien, repossession, account referred for collection, etc. in last 10 years?

Seth said that his FICO score should be around 620 – 640 to have a decent chance of qualifying for a mortgage. Randy estimated his score. Now he felt comfortable shopping for a house. Not so fast said Seth. There is one more step:

Validate. Randy needs to prove to real estate agents and sellers that he can get the money to buy. Nobody wants to waste their time with Joe Empty-Pockets. If he wants to be taken seriously, Randy needs a Pre-Approval letter from a mortgage lender.

Armed with a Pre-Approval letter, Randy found real estate agents eager to give him their time and a seller hesitant to let a live one go.

Kathy Godin, Award-Winning Loan Officer and Branch Manager

Prime Mortgage Lending, Inc.

(919) 789-9933

For You, We Try Harder

Proudly Serving All of North Carolina