Wednesday, September 22, 2010

A brief description about Mortgages

The American dream of home ownership is becoming a nightmare to the middle class. It absolutely amazes me that the general public still has the mind set that because they are "American" and live in the United States that they are some how protected from fraud and theft. People sign mortgage documents without reading what they are signing.

When you purchase a mortgage there are a few different options to keep in mind. First is the Government backed loans referred to as Ginnie Mae loan products. These are VA and FHA loans. What this means is the government issue insurance to back the loan. These loans were designed to give the people of this country an opportunity to purchase a home with a fixed rate over a manageable period of time like 30 years.

A VA loan is a loan product specifically designed for our Veterans. If you served in our countries Navy, Air Force, Army or Marines Corps you are entitled to a zero down loan. The cost of this loan is a little more expensive than a traditional loan and most of the cost can either be mortgaged or paid by the seller. The mortgage insurance for this loan is paid by the government. The benefits of this loan are that the mortgage insurance is paid for you and you can purchase with no money down. You will need to show some money however to qualify for the loan.

An FHA loan is 3 1/2% down with mortgage insurance. There are several FHA loan products. One of the best loan products that is frequently overlooked is called a 203k. This loan allows the borrowers to purchase a home that may need work. Say you have your eye on a house that needs a new roof or replacement windows. You can purchase the home for whatever price you negotiate with the seller then add the cost of repair to the loan. You will have to put 3 1/2% down on the total amount that you will finance. The great thing about this is the house transfers title and then you can have the work done and the money is in an escrow account to pay the bill when the work is finished. This loan isn't cheap but you usually get a house for a better price when it needs work so it all evens out at the end.

There are traditional loans called Freddie Mac and Fannie Mae. These generally start at 5% down. Some of these will stop charging mortgage insurance at 15% loan to value. Meaning if your home is worth $100,000 and your mortgage is $85,000 your $15,000 in equity is 15% loan to value. Private mortgage insurance prices vary depending on how much you have in equity and what your credit score is.

When I refer to Ginnie Mae, Freddie Mac, and Fannie Mae these are the names of the products that resell on the secondary mortgage market.These are called Mortgage backed securities. People invest in these and until recently it was a pretty good investment. By making this an investment product it frees the money up to lend more. What has happened is it kind of got out of whack. This was a good thing and it helped get our country out of the 1930 depression. When people lose jobs and were unable to pay their mortgages it created a financial tsunami. When people default on their loan these securities go down in value. If there aren't investors in these securites there is no money. The Federal Government has been investing in these and of course selling these securites.

There are several types of loan products that you can get in all three groups. The best and safest is the fixed rate. This can be for any amount of time. Generally people do 30 years. If you make one extra payment a year you will save thousands of dollars and payoff your mortgage in 20 years. There is a loan product that is kind of hard to find it is called a biweekly mortgage. It is set up on the extra payment principle. You take whatever the 30 year mortgage payment is and divide in half and pay that every two weeks. This will result in an extra payment a year which will pay down your loan in 20 years. You can get a 20, 15,10 year amortized loan as well.

The adjustable rate loan (ARM) is a little more tricky. This is where you really need to read the fine print. If you see an ARM described as 3/2 that means every 3 years it can adjust up or down by 2%. These loans are based on different indexes. Most are based on Treasury securities rates. The lender adds a margin to whatever index they are basing their ARM on. Basically the cost of money with a profit added in.

Always make sure there is a cap on the ARM. There are different kinds of Caps. There is a cap of the life of the loan. Meaning it will not ever adjust over say 7.5%. There is a cap on the amount you can adjust on in every adjustable cycle. Like 5 years or 3 years.

Third Federal has an interesting ARM. They are showing a 5/1 and a 3/1. This means the rate is locked for the first 5 or 3 year cycle. Then it adjusts every year up or down by 2%. They state that you can re lock your rate anytime for the cost of $495 The cap on the life of this loan is 5%. This is a great product if you are planning to move soon or want to take advantage of the lower rate and make extra principle payments. In general adjustable rate loans are risky especially when we are at the bottom of the market. You know it can only go up. The savings is usually 1%.

Another loan is the interest only loan. This is one that I think the banks should start to take another look at. When you have people in a recession like we are in. If we can modify their present loans to interest only for a set time like 5 years then we can keep people in their homes. If after 5 years they haven't been able to correct their situation, they probably won't and should look for less expensive living situations. An interest only loan can cut the cost of the payment in half.

There are interest only loans out there, but the problem is most of these products are put out by mortgage companies. Mortgage companies are in the sales business. Their entire goal is just to sell mortgage loan products. After a mortgagee purchases one of their products Mortgage companies generally sell the loans.The servicing of these loans go to several companies that get paid a fee to collect the money on the debt instrument. The problem with that is the companies that do the servicing aren't that great. I have heard horror stories about the servicing company double charging, or foreclosing on a home because money that was withdrawn from an account went to the old servicer and didn't get credited to the new servicer. By the time a borrower can get the situation repaired there is usally all sorts of penalties and fees that you have to try to get waived. Most of these companies are incredibly hard to work with.

In short get a fixed rate loan try to make principle payments or one extra payment a year if you can. If you do a ARM be careful understand it completely before doing it. If you find you are in some sort of hardship call your bank before you get behind and try to work something out. As you can tell I'm not a fan of mortgage company loans because your loan becomes a piece of paper with no face behind it. If you work with a bank that you use on a regular basis hopefully they will help you with some sort of modification. Most important make sure wherever you get a loan from make sure they service their loans. Third Federal does not sell their loans and will always be the servicer. They do not have FHA or VA loans and tend to prefer at least 15% down. Most banks keep the servicing of the loan as another tool for the bank to earn income. Always ask about the servicing to avoid the nightmare to can result from ending up with one of the bad companiesout there.

Saturday, September 11, 2010

Look what our Congress it up to now!

I recently got this in an email and it really bothered me!
The Time Has Come:

Governors of 35 states have already filed suit against the Federal Government for imposing unlawful burdens upon them. It only takes 38 (of the 50) States to convene a Constitutional Convention.

This will take less than thirty seconds to read. If you agree, please pass it on.

An idea whose time has come!

For too long we have been too complacent about the workings of Congress. Many citizens had no idea that members of Congress could retire with the same pay after only one term, that they specifically exempted themselves from many of the laws they have passed (such as being exempt from any fear of prosecution for sexual harassment) while ordinary citizens must live under those laws. The latest was to exempt themselves from the Healthcare Reform ... in all of its forms. Somehow, that doesn't seem logical. We are not supposed to have an elite that is above the law.

I truly don't care if they are Democrat, Republican, Independent or whatever. The self-serving must stop.
A Constitutional Convention - this is a good way to do that. It is an idea whose time has come. And, with the advent of modern communication, the process can be moved along with incredible speed. There is talk out there that the "government" doesn't care what the people think. That is irrelevant. It is incumbent on the population to address elected officials to the wrongs afflicted against the and me. Think about this...
The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971...before computers, before e-mail, before cell phones, etc.
Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land...all because of public pressure.

I'm asking each addressee to forward this Email to a minimum of twenty people on their Address list; in turn ask each of those to do likewise.

In three days, most people in The United States of America will have the message. This is one proposal that really should be passed around.

Proposed 28th Amendment to the United States Constitution:
"Congress shall make no law that applies to the citizens of the United States that does not apply equally to the Senators and/or Representatives; and, Congress shall make no law that applies to the Senators and/or Representatives that does not apply equally to the citizens of the United States ."

We need to do something about this! Like write your Congressman today!

Friday, September 10, 2010

I agree with Donald Trump

Donald Trump is known as a great Real Estate investor. I have not always been a big fan of his, but I have to side with him on this one. Donald called Inman Feisal Abdul Rauf, lets just call him Inmam for this article. He is the man who wants to build the Mosque in New York close to Ground Zero in New York. Donald offered this man 25% more plus all closing costs to purchase the building from this man with the agreement that Inman would not build a Mosque within a certain amount of blocks from Ground Zero. The man countered Donald.

Her are the details. Inman bought the building for 4.85 million and some change. Donald offered 6.2 million and some change. Inmam countered at 20 million.He has since been quoted to say if someone wants to give me 18 - 20 million I will sell it. Donald's take on this guy is that he doesn't have the money to build a Mosque. In fact Donald thinks this guy is using emotional blackmail on the people of the United States to get rich or richer! Talk about cold hearted business!

Are we going to let this guy pull this off? He has gotten the public so upset and outraged using our countries laws of freedom to fuel the fire. Like a game of chess what is the next move here?

Donald doesn't want to give into Imam's use of emotional blackmail to make him rich. Inmam has a pretty shady background. Otherwise this is this guys style! Ugly yes but do we let him win and get the best of us?

Donald has stated that Inmam has stated that he would be interested in selling. Donald and I think this guy is grandstanding and the he has no real interest in building a Mosque. Do we call his bluff? What happens if Donald and I are wrong and he does build this Mosque so close to Ground Zero.

I say lets call his bluff and see what he does. If he comes up with the money to actually get the building started then we can start using other methods to delay and add expense to his plans.

I looked at the building site and it really isn't that big! Usually a Mosque takes a lot more space. I thought that a Mosque would require more area for parking. This property is a building that has buildings on both sides of it with no space in between. Every Mosque that I have seen is a monument style building with lots of space around it. Plus the entry of the site has to face Mecca their most holy city in Islam. Does this site allow that? I can't tell from Cleveland, Ohio. So unless I'm wrong the property might not be the proper site according to their Islamic rules to even construct is correctly!

Lets get smart here and stop letting Inmam manipulate us on our emotions. Lets use our heads here. I believe that Donald Trump is on to something. This guys is trying to pull off the biggest real estate deal in New York with the use of emotional blackmail! I guess that is a legal form of terrorism!