Ken "Yes You Can" Cook

Obviously, from the market numbers, people do not get as excited about "historically low interest rates and low home prices" as they do low rates and rapidly escalating values. My numbers show it, your numbers show it and the national reports show it. Oh there are a few people "doing better than they ever have" but I'm a long stretch from generating the 400-600 loans a year I enjoyed in 2004 through 2007 - cue Archie and Edith singing "Those Were The Days". So if we thought low cost of money and low housing prices were fueling the business obviously we were wrong.

We didn't think that, though. We thought the fact that almost anyone could by homes as primary residence or investment properties was driving the market. However, there are some very important figures to note: Interest rates are lower than ever and housing costs are extremely low.

As you can see from this chart of actual data this is THE point of lowest average interest rates since 1971. With rates in the high 4s and low 5s for prime borrowers and the 40 year average at 9.024 percent I would encourage everyone to think how it may be possible to buy that new home or first home now. I have never said, "right now is the best time to buy" but if that time has ever come it is very likely right now.

There is no way interst rates are going to hold this low for a myriad of reasons including inflation and dollar devaluation. Right now the government is spending your future income as fast as they can pass Bills and Resolutions into law. You can have whatever political bent you care but the facts are the facts and those are the facts. The national debt will soon cause interest rates to begin to rise. They may not rise as quickly as they did back in the late 70s when inflation was out of control thanks to massive government misspending but rise they will and I have not found one economist worth their weight in salt who think the rates will not reach double digits in the next 3 to 5 years.

Compare those interest rates to the Robert Schiller hosueing data set from Irrational Exhuberance and you have a very unique picture:

That top red line "Home Prices" really tells a story. If we combine the two we see housing prices back down to almost 1980 levels and interest rates lower than any other time in this history.

Does this mean now is a good time to buy? The best time to buy?

Only if you need to. If you do not need to buy then no time is a good time to buy - that includes for investors. In fact investment money is much more difficult to find overall than it has been since the mid 90s. Oh, I'm sure someone will disagree but the facts are the facts - just because Joe Smith in Montegumma has been able to borrow the money to buy 10 homes in the last 12 months doesn't do a thing for Bob Davis in Roswell. I'm sure Joe Smith will be more than happy to sell you his book for $29.95 or his seminar for $199 if you know what I mean.

As always if you are in the southeast and you need answers never hesitate to call me on my cell at 678-439-8683 whether you are an agent, seller, builder, buyer, or home owner. I will be more than happy to answer your questions and provide services where I can.

Clark Howard I think you do a great service to the public at large when exposing scams and ripoffs*. Still I'm calling you out Clark and I hope you actually take this to heart - this time. Not to tear you down or make you look bad but to keep you from confusing your listeners with (a) incorrect information and (b) misapplied information.

For those of you who don't know Clark he apparently was quite a successful travel agent (made millions and millions so I have heard) back in the 70s and 80s and is now a syndicated radio personality. I neither dislike Clark nor wish any malice upon him and hope he continues to enjoy success in whatever he does. The trouble is he knows just about enough about mortgages to screw you up if you trust him at his every word. He knows most of the words and the correct correct definition of them but invariably I cringe before he finishes talking about them. Why should I have expected today to be any different? Back when I did a lot of radio advertising I constantly had to battle the "but Clark Howard says ..." callers. What a nightmare that could be. Clark likely has no idea of the confused aftermath he sometimes causes for his listeners who actually believe he knows more about the inner workings of home finance than we seasoned, trained and educated professionals who may have closed thousands of loans.

The call in to his show on Tuesday started out innocently enough and I was driving back to my office, where I work as a mortgage banker which I have done for the last umpteen years, so I listened. I did not hear the caller's question but I heard Clark say something similar to, "then you will have 25% of your debt at over 7% interest and that's not good". Agreeable - that probably is not good but I never give financial opinion without knowing the full story. That scenario may be good if she currently has 75% of her debt at 25% interest, know what I mean?

Then Clark started talking about "no cost mortgages". He even said, "many lenders will tell you there is no such thing" but goes on to talk about them as if they really exist. He must not remember the FTC cracking down on those ads which came even from giants like Countrywide for advertising "no cost loans". I'm assuming he has read my blogs in the past as I continue to tell the truth "there is no such thing as a no cost loan" or "there are closing costs and you pay for them".

Clark, there are no "no cost" or "zero cost" loans. They don't exist on the real planet where Jane and John Homeowner depend on the services of dependable mortgage professionals. If those are no cost loans then I should be able to sell you a $100 suit for $500 and tell you the shoes I included are "no cost".

Sure, the broker or lender can make it so that the borrower does not have to bring any money to the closing table and if the home owner only plans to be in that home or that loan for about five years or less it may make sense. But they are not "no cost loans". They have a cost and that cost should be explained in detail to the borrower and the alternative comparisons demonstrated. An informed and properly educated consumer is our best client.

The other thing Clark was wrong regarding (that made me actually look at my phone and think of calling in as though I had an ice cube's chance in getting through to him) was very misleading and will cause someone harm if they believe it. He was doing the right thing about talking about the power of 5/1 ARMS. Then he should have hushed because he started dancing in territory he had no business in - talking about rates and closing costs at particular lenders.

In his defense he probably just looked at some website to get the rate for a 5/1 ARM and he said "ING has it for 4% and there closing costs are generally lower than the other lenders who offer the 5/1 ARM." That was more than he had business or knowledge to say and I challenge him to present actual figures to back it up. Also, if you think ING is offering a good price send me your GFE and TIL and let's see just how good it is.

First of all the rate changes all day every day. I quoted 4% on a 5/1 ARM on Monday and it went up to 4.25% by mid-day on Tuesday and back down to 4.125% by mid-afternoon. PLUS Clark has no idea what anyone's rate is because it is based on many things including credit score, loan amount, appraised value of the property, type of property, geographic location of the property, term of the loan, purpose of the loan, and more.So, his statement is misguided and quite possible dangerous.

When we as lenders, bankers or brokers advertise a rate we are required, by federal law, to also tell the APR of the rate and the terms of the loan in an equal presentation of the rate. In other words if we say 4% and the APR is 4.285% we are required to say it in the same voice and publish it in the same font on the same line. What Clark doesn't get, and obviously doesn't care about, is you hearing him say "4%" and you automatically assume you're qualified for it and it applies to the loan you are seeking. Then you wear some poor loan officer out arguing with her because your rate is 5.125% (or whatever) but you stick to it that Clark Howard Said ... like he's some financial god or something. He's not. HE'S A RADIO SHOW GUY. He has no known formal education or experience in mortgages, okay?

He continuing digging a trap by saying ING's closing costs are "two to three thousand dollars lower than their competitors". I wish I had that noisy alarm he plays when he does his scam alert. Do you know sometimes closing costs are not even two thousand dollars on a loan? In fact many times the total closing costs to the lender are much less than two thousand dollars especially on loans under $150,000. So that's a BIG RED FLAG.

What Clark gives is neither rock solid professional advice nor accurate commentary. He's like other radio show/journalists who have dabbled in tertiary understanding of mortgage finance and real estate who should offer the disclaimer that their information is basically not much better than (or as good) bar-room chat. What Clark did on Tuesday is not unlike what Clark has done many times over the years and that was quote an interest rate and insinuate that interest rate was available in conjunction with a "no cost loan". Wrong on almost every case. When you want the truth and accurate information turn off the radio, get away from the misleading commercials and call me on my cell at 678-439-8683 (Clark you can call me too. I don't dislike you. Come buy my brunch and we'll talk about golf. My office is on Johnson Ferry.)

*I think Clark Howard does a tremendous amount of good for people by exposing scams and ripoff and giving great travel advice. I also know I have wasted hundreds of hours over the years re-educating people from what they have heard from Clark and other people like him who really do not need to be quoting rates and closing costs so freely.

Even if you have been working with your favorite real estate agent for the last 9 months, even if you have already looked at 20 homes with your favorite agent, even if you have already had the home builder install your favorite colors and appliances, I will not do your loan until you call Tommy T Thomas over at Big Builder Incorporated and speak with one of his agents. Now you do not have to buy one of Tommy T's homes but you do have to go look at one and let the sales agent check your contract with the home you think you want to buy.

Sounds ridiculous doesn't it? It would be an insult to you as an agent or builder for me to require "my preferred agent" to read over the contract would it not? Even if I said, "You have to do this but you do not have to use my agent. They are only involved as a safety net to make sure if you can't get it done they will step in and make it happen."

There is no difference when you as a builder, agent or real estate broker demand my client, with whom I have been working for months, in a business I am as good at as anyone in the nation, speak with some other lender. Especially when that lender is my direct competition. You think I don't remember that the next time I think about referring one of my hard earned clients? How would you like it if I kept a list that I gave to my preferred agents and said, "Never show any of these homes from this builder or agent because they pull this monkey business."

Yes, monkey business. The reason they give is to "make sure in the event the current lender can't get it done 'thei' lender can". Okay, that's insulting. If I can't get it done THEN you defer to someone else IF my client, the one I created with my hard work and advertising who may not even originally have been interested in purchasing a new or additional home until they spoke with me as a result of my efforts.

What if you went to Snarky's Department Store and pulled out your trusty credit card to pay for your purchase and the sales clerk handed you an application for a Snarky's credit card and said, "We can accept your major credit card but first you have to apply for our Snarky's card"? Or what if you actually spent all of your time driving around to business association meetings and loan officer's conference handing out your cards and sending greeting cards and newsletters and doing free workshops to generate prospective clients but when you went to present a contract to the listing agent they said, "We'll accept this after our inhouse agent has a chance to sit down with the client and review your contract and make sure you've done it right?"

Oh, I know, you've got the hammer of threat of law under the buyer-broker agreement. How nice. Now you're going to tell me about the time your clients were pre-approved with so-and-so and how the pre-approval wasn't worth the paper it was printed on. Be careful what you say, I've been in this business for a long LONG time and I have a lot of horror stories that fly in all directions.

Yesterday, a client I have known all my life, working with an agent whom I have known all of her life, called and said, "The seller won't accept the offer until they get me pre-approved with their bank." My first thought was, "well it's a bank owned property and some banks work that way." In that case I really didn't have an objection but when I found out it was the LISTING AGENT and not the SELLER and the LISTING AGENT/BROKER required the pre-approval from a CORRESPONDENT LENDER and I work for a DIRECT LENDER I definitely took note of it. I took note of the listing broker's name and the listing agent's name for future reference when I have clients who are shopping.

Think about it, comment about it or state your case. I know what you may say your reason is but I will remind you what an insult it is to a consummate professional who generates their own leads and refers them to local agents. It really just confuses and concerns the client and if that's how you want to treat your clients you can know what they think of it - they do NOT like it. Clients are very careful with choosing with whom they share there very private and confidential information and being forced to do so does not make them happy. I know it doesn't because even when they are not my client I have had them call me for my professional opinion on this specific activity. And do you know what they suspect you of? That's right ... under the table agreements with the lender to get an illegal kick-back.

Every loan officer who has done their job for more than a week or so has heard the question. Some loan officers avoid it altogether by simply not sending the Truth In Lending (TIL) until they absolutely are required by law to do so. Why? Because in the top left corner in prominent font is a number that confuses almost every borrower and non-financial insider - the Annual Percentage Rate (APR).

The APR disclosure requirement was sort of a good idea when it came out back in 1968 when there was pretty much just one type of home loan: a 30 year fixed interest mortgage. With time and exotic mortgage solutions the APR became highly obfuscated and even a tool of obfuscation.

Recent changes to the RESPA laws and the injection of the Mortgage Disclosure Information Act (MDIA - call the Mediah by insiders) was supposed to fix what has been broken for years. What it is doing, however, is bottleknecking the process for almost everyone who is using a mortgage to purchase or refinance a home.

The main problem and fault with the APR for the last several years has been the ease of manipulating it by how closing costs and other mortgage related fees can be hidden in the loan or rate to obfuscate the APR. The idea behind the forced disclosure of the APR was to give an apples to apples comparison of mortgage costs. It doesn't work, hasn't worked and another ignorant piece of legislation designed more to give the appearance of help rather than actual help like MDIA is just another road block to home ownership for home buyers.

If every mortgage was exactly the same, all closing costs had to be line itemed and there were no variations in terms them APR would be a more valuable but still useless tool. Here again the intelligent homebuyer is punished because of the few ignorant ones who refuse to take a moment and look at what is really important about home finance. Am I bitter? No. I'm still going to be making home loans and my clients are still going to be paying for them. It's just that sometimes it will take them longer to get to the closing table if anything changes with the loan post application and prior to close - in some cases.

In a nutshell the MDIA law says if the APR changes more than .125% (an 1/8th of a point of interest) then the disclosures must be resent and a period of no less than 3 business days must expire. This means changes to any of the APR tracked fees or loan amount. The law does not say whether or not this applies if the APR decreases or increases just if it changes. Some lenders are redisclosing in both directions other only if the APR increases more than .125%

A quick definition of the APR is the actual interest rate plus the other mortgage associated costs expressed as a percentage of the loan amount over the life of the loan. For example if you have a $100,000 loan and your APR included costs are $3,500 you would first find out what percentage of $100,000 is made up by $3,500. This one is simple it's 3.5% but that has to be annualized so divide it by 12 to get .29% and add that to your initial interest rate - let's say 6% to get 6.29%. So in this scenario our interest rate is 6% but our APR is 6.29% - so you can imagine why people see that TIL and call immediately and say, "I thought I was getting a 6% loan!" When you indicate that is correct they invariably say, "But this paper says 6/29%" When explained to the masses they simply say "oh" and just forget about it!

So what fees affect the APR? I'm so glad you asked. But the answer is variable by the state wherein the property is located. I can give you the ones for Georgia as a reference but your state may be different. Remember all of these fees may not actually be on your loan but if they are they are to be added to the APR.

Georgia APR fees include: processing, underwriting, origination, discount points, broker fees, commitment fee, lock fee, attorney's fee, wire fee, disbursement fee, warehouse fee, amortization schedule fee, copy fee, fax fee, courier fee. There are other fees that may be charged but these are the fees that affect the APR. (These fees may even change from lender to lender believe it or not.)

If you are an agent, home owner or home buyer with questions about APR feel free to call me anytime on my cell at 678-439-8683 and I'll be happy to help you as much as possible.

Looking for a great place to live with some of the best values in America? Look no farther because I am sitting in it right now keyboarding this post to you! On October 6th NBC's Today Show with Al Roker highlighted Marietta, Georgia as the number 4 place in America to buy a home and get the most "bang for your buck".

I happen to agree with them because I live here, have lived here my entire life except a little college stint, and I am very actively involved in my community and lending here. During the boom builders constructed some very beautiful homes which in turn emptied a number of existing homes and left us with a surplus of larger, newer homes. In fact on October the 12th I wrote about "My Home, Marietta, Georgia" which was a featured article here on Active Rain.

We were hit late in the price drops but when we got hit we got hit hard! Sarasota is number one, San Fransisco is number two, is number three is Lansing (another great city), and Marietta (that's me) is number four. By the way, the Gone With The Wind Museum is way down on the list of "pride and joy" of this community. Seriously, only an outsider would say that! Don't get me wrong, it's very cool but the life is in that old town area is very vibrant and that is just one of hundreds of attractions in that immediate area.

You can watch the video here on the City of Marietta's website. When you get finished call me. I'm not a real estate agent - I'm a very seasoned home lender based right here for my entire career in Marietta, Georgia. 3300 homes in the Atlanta/Marietta area have been financed across my desk I have a pretty decent "handle" on the market here.