UNC Professor Supports Obama’s Mortgage Plan

CHAPEL HILL – Mortgages remain one of the most important issues to homeowners and one of our local professors says President Barack Obama’s plan for mortgage reform is a good move.

President Obama recently said that he wants more lenders to offer 30-year mortgages to individuals buying a home.

Director of UNC’s Center for Community Capital and professor and chair of the department of city and regional planning at UNC, Roberto Quercia, explains that 30-year mortgages differ from interest-only mortgages because they allow borrowers to pay less interest and more capital over time.

“It’s a great mortgage instrument for low-to-moderate income families because it allows them to buy a house, and at the same time, pay back the loan and build equity, build wealth, along the way,” Quercia says.

President Obama says he wants these types of loans to be handled by private lenders and move away from federally-chartered private lenders like Fannie May and Freddie Mac. Quercia says that the federal government does not want to be in another situation like in the 2008 financial collapse where Fannie and Freddie’s losses were passed onto taxpayers.

“That issue of private profit, public losses was something President Obama wants to avoid in the future,” Quercia says.

Last year, President Obama also made pushes for more borrowers with more debt than the value of their home, or “underwater” homeowners, to refinance to a better interest rate. In this speech, Quercia says the President made a new proposal, urging lenders not to deny loans to individuals with bad credit scores.

“Somehow, he wants lenders to take into account that if you’ve got a blemish in your credit because of unemployment that was no fault of your own, but because of the bigger, broader crisis, somehow, once that borrower gets a new job, they should be able to refinance,” Quercia says.

Quercia says he thinks the President’s proposals will probably work, but that there weren’t enough details in the speech to know for sure.

“Also, many of those initiatives will require the involvement of Congress, and obviously, the politics of this are such that it is unclear what the ultimate program or initiative will look like,” Quercia says.

President Obama gave his speech in Phoenix, Arizona, where many homes rapidly lost their value in the immediate wake of the housing crisis.


New HARP Revisions (Home Affordable Refinance Program) will work.

If your property (or someones  you know) didn’t qualify for a low rate refinance before,
this is worth checking out right now.

HARP started in 2009 and had less than desired results because of falling home values.
This meant that many people who put down 20% when purchasing were now required
to obtain mortgage insurance or make an additional principal payment to keep their loan
at a 20% equity level.

Thousands of borrowers across the nation did not refinance, even though there was a
significant rate benefit.  The additional monthly mortgage insurance payment wiped out
or reduced the savings enough to say no.

Not so anymore!

The big and welcome changes:

1- Unlimited Loan To Home Value ratio’s. Yes, unlimited.
Unless you refinance to an ARM, and then it’s 105%

2- If you didn’t have mortgage insurance when you purchased
because of a 20% down payment (and not because of a 2nd mortgage),
you will not be required to have MI now.

If you had MI before, you’ll have it again at the same terms.

3- The rates and pricing is to be the same as regular loans.

4- You can refinance investment and vacation homes with HARP also.

5- You can use ANY lender to refinance.

Here are the three main qualifying factors:

1) Your loan must have a securitization date before June 1, 2009.

2) Your loan must be owned either by FNMA or FHLMC.

3) You must be on time with mortgage payments the last 6 months
and 11 or the last 12 months.

There are other “details” to the program, but if you pass these three,
call a lender and find out how much you may be able to save.





For Buyers – Which is better: a price reduction or a rate reduction?

You see it everywhere in the Sunday real estate listings and online – “Price reduced $XYZ$ dollars.”

When I speak with agents, I’m told the price is what begins the conversation and gets buyers to call. Without the right price, the phone does not ring. Agents know.

This does make sense today, but the question for smart buyers is:
Do I want to profit NOW or when I sell this home in X years?

This question is as much of buyer psychology as math.

In this case, let’s say you love the house, and the seller has accepted your offer which is $19,650.00 below her asking price.  You are happy. The sales price reduction will save $82.00 per month in monthly mortgage payment.

Then you read this article, and wonder, “what if I kept the original sales price and used the $19,650.00 to buy the mortgage interest rate lower permanently?”

The short video link below will break down the differences. 

For those who rather read: The $19,650.00 applied to financing gives the net monthly payment effect of having the sales price reduced $73,494.00. Plus, the mortgage payment is reduced $307.00 per month.

That’s a 3:1 leverage of the sellers funds.
Same dollars, different impact -> now or later?

Which would you rather have?
Buyers, let me know your opinion.

Thanks to Masha Halpern of Keller Williams Realty who allowed me to use her listing for this example.


How are Pizza and Mortgages Similar?

If you were eating lunch alone, which would you order, a large pizza or a personal pan pizza?
With a large pizza, you would most likely eat a few slices, and bring the rest home to eat later.
If you opt for a personal pan pizza, you are portion controlled, with no waste and no leftovers.
If you will be in your home less than 10 years, having a fixed rate mortgage could be like ordering
a large pizza for lunch, except you can’t bring home the  additional interest paid from the higher
fixed rate  or keep the “extra years” to use later.
A mortgage rate premium is being paid for the security of a Fixed 30.
Those extra dollars are Un-Recoverable.
Today there are mid-term Adjustable Rate Mortgages that stay fixed for 10 years, as well as 7,
and 5 years. If you move or refinance within a year of the fixed period, you have not overpaid for
security of a Fixed 30 year mortgage.
With fixed rates so low, why would you even consider an Adjustable Rate Mortgage?  
-Because an ARM can help you pay less and save more.
-Because ARM rates are even lower than fixed rates.
-The larger your loan ($300,000.00+) the more dramatic the monthly savings and the
Total Borrowing Cost Savings are over the fixed period.
It’s always an interesting exercise to utilize my Total Cost Analysis and compare a Fixed Rate
and ARM side by side.

When the dollar differences  are in black and white, the most frequent
response is, “Now tell me how an ARM works again.”

The Fixed vs. ARM analysis is a good financial exercise, even if the final decision is a Fixed Rate.
Seeing the differences may allow you or family/friends to save more in the future.

What’s your thought or experiences with Adjustable Rate Mortgages? Leave a comment below.


The answer to most mortgage and tax questions is….

Was just speaking with  Mike Pearl,  CPA and Private Wealth Manager about
mortgage  and tax solutions, positioning, problems, and planning.

As we were speaking about this, Mike make the comment that that the answer
to most mortgage and tax questions is….”It Depends….”

As I thought about this, that response is much more than a cliche or avoiding
of specific information. It is the beginning of deeper analysis.

The answer to most mortgage question depends upon the end result people want to achieve.

For instance, I’m often told “I want the lowest interest rate.” 

Great! The lowest interest depends upon a couple of things–
– are you willing to pay $4,00-$6,500.00 in closing costs for the lowest rate?
– are you willing to accept a mid-term Adjustable Rate Mortgage?

That combination will give the lowest interest mortgage rate on the planet.

At this point, other priorities come to light.

So, with the lowest mortgage rate “it depends….” on what the ultimate end result is for –
“you want the lowest rate so that you have the lowest payment because
you need to build a savings cushion, plan for retirement, need more
cash flow because your children are in private schools or college?”
And the list goes on.

I’m reminded I never wanted a drill for home repairs.
All I wanted was the “hole.”

It works the same way for mortgages.

Do you have a “It depends” or a “drill” story? Tell us about
it in the comments section below.


Let Me Count The Ways You Can Pay Less and Keep More

In a low mortgage rate environment, there are many ways to skin a mortgage
so that you pay less and keep more in your bank account, rather than add to
the big super mega banks profits.

And that, even if you already have a low mortgage rate.
I’ll cover that in the next posts.

Here’s a couple ways to save:

1)  Most people refinance a Fixed 30 to another Fixed 30. That starts the 30 year clock
all over again. In some cases that is fine. Did you know you can reduce your Fixed 30
rate to a shortened term of 25 years? 
The payment is increased slightly and you will
stay even or ahead of your current amortization.

It’s like a savings account you don’t have to think about. I had a rental property on a
Fixed 25 year loan, and it is amazing how  small changes can make big differences
in loan balance reduction.

This is especially powerful if you have had your current mortgage for less than 5 years. 
There is not a break for a lower interest rate for a Fixed 25. it is the same rate as a Fixed 30.

2)  Reduce your Fixed 15 to a Fixed 10 year mortgage.  I’ve been surprised how significant
this is in interest savings, even with clients that are 6-9 years into their loan. It doesn’t work
for all Fixed 15 year mortgages, but the numbers are worth crunching.  Depending upon your
loan size, you may also be able to do a “no cost” refinance.

3) Reduce Fixed 30 to a Fixed 20. Right now it’s easy to do this with a “No Cost” refi. Payments
may increase but total savings are dramatic, especially if you will be in your home
another 5-10 years.

4)  Did you know that most Adjustable Rate Mortgages (ARMs)  can be amortized for 10, 15, 20, or 25 years?  If you combine the low ARM rates with a shorter term, you will have even faster mortgage pay down.

Why would you consider an ARM rather than a Fixed?  If you knew you were going to be moving in “X” amount of years.

5) If your end result is to lower your monthly payments, you can also switch to a mid-term ARM.
They are ridiculously low right now and in most cases you can have low to no closing costs.

Since mortgage rates have been so low for so long, it’s easy to be lulled into thinking they will stay that
way for ever, and miss opportunites to keep more dollars in your bank account.

With the right strategy, you can take advantage of low rates now, and lower rates again at the
next drop.  But you have to plan ahead.

Do you have questions or a real life scenario to analyze? Let me know in the box below.


That wasn't an earthquake, it was…

… the chapelboro real estate market and
mortgage rates hitting rock bottom.

Time to buy or refi.

PS- Hope you profited from the brief rate
drop last week.


What’s the difference between Mortgage Pre-Qualified and Mortgage Pre-Approved

The purpose of a Mortgage Pre- Qualification or Mortgage Pre Approval is to re-assure the home seller that the buyer is qualified to purchase their home and that the deal won’t go down at the last minute.
These terms can be confusing to both home buyers and sellers.  Here’s what they mean and the differences:
A “Mortgage Pre-Qualification” is an analysis of a borrower’s ability to purchase (or refinance) by a mortgage loan officer. Income, funds for down payment and closing costs, monthly debts and credit scores are documented with W2’s, pay stubs, or tax returns, bank statements, and a 3 bureau mortgage credit report.
A complete mortgage application is not required.
This is based upon the mortgage loan officer’s review, analysis, and experience. It will give the borrower an idea of their maximum sales price, loan amount, monthly payments, and cash needed to close.
It is not a guarantee.
A “Mortgage Pre-Approval” takes the above documentation plus a completed mortgage application and is run thru the mortgage agencies  Automated Underwriting Systems (AUS).   
A mortgage pre-approval can be done on the borrower(s) before a property is selected or on both the borrowers and the property after it is selected.
When this is complete an “eligible” or “ineligible” will be given. If an eligible, the documentation required will be listed. If “ineligible” the reasons will be given. It will also tell if a full interior and exterior appraisal is needed or a “drive by” appraisal with no value given.
The often forgotten point, is that this approval is “subject to” final review by a “human” underwriter.
A Mortgage Pre Approval is a step closer to loan approval, but still not a guarantee.
Here’s Why:
1)      The AUS approval is based upon the information input by the mortgage loan officer.  This input is based upon the information supplied by the applicant. If there is a mis-entry  or incomplete information, the AUS finding will be void and “re-run” with corrected information that could change the findings.
2)      Though the government agencies have their guidelines of what they will accept, EACH lender has their specific underwriting guidelines which may be more stringent.  A lender may not accept a risk that the agency is willing to. These are called lender “over lays”
3)       Finally, a human underwriter must review all documentation, AUS findings, the IRS tax transcripts, lender overlays, and the appraisal.
 Additional “conditions” and documentation can be requested from the borrower, appraiser, or lender. When the “conditions” have been gathered, reviewed, and signed off on, the loan is approved.  Not until then.
A Mortgage Approval is when a human underwriter has signed off on the borrower(s) and property.
Can you obtain a mortgage approval instead of a “pre-approval” when looking for your next home? It may happen, but, the human underwriter will look at “pre-approvals” after they have handled all purchases and refinance transactions. So, it will be low on the priority list.
Can a “mortgage approval” be reversed? YES!
Prior to closing, a verbal employment verification is done. Some people have actually quit jobs or changed careers while in the home purchase process. Not smart.
A updated credit report may be run the day before or day of closing to determine if there are any new debts since application that would impact the borrower’s ability to qualify and repay the loan. If so, the closing will be stopped.
How should  Chapel Hill home buyers and sellers consider an AUS pre- approval? They should realize they have passed the first step in the mortgage process, and that other conditions may appear after the human underwriter has reviewed the file.
Finally, the purchase is not complete until all loan documents have been signed, the closing attorney has received funds from the lender, the attorney has recorded the transaction at the courthouse, and the “keys are in hand.”
Then you are approved and “closed.”


An Immigration Story-> (still) The Land of Opportunity

On my TV, news and reality shows about immigrants are about illegal’s. 
They cast a poor reflection on all immigrants. 

I must reach way back to remember the stories from my
Grandma Mary Cahill Cronshey Kohn, who told me about her great
grandparents coming from Sweden. My Dad’s family
emigrated from Ireland.   

For a moment I wonder what it would be like as an immigrant today.

So on Sunday, Chapel Hill Realtor Claire Billingsley called me saying she has
clients who need to be mortgage pre-approved today or Monday (July 4th), as
they all work during the week.

More importantly, both interpreters were available this weekend.
So we met the morning of the 4th.

After our application….
I was impressed.
Maybe moved.
Certainly admiring.
Let me explain.

Asian Immigrants.

Mom and Dad, both working.
Three working daughters.
One working son.
Two younger children at home.
The daughters speak some English, and
liked the practice and communication when we met.
The FAMILY saved for down
payment and closing costs.
With more than enough left over.
Their income is “family income.”
All members.  
They all have Green Cards.
They all have Social Security Cards.

From my desk, they are a very together family.

I was curious about them.
After the mortgage application I asked the Father how
long they have been in the USA?

After the interpreter asked the question he looked at
me and said “ 2007.”

And all faces in the room lighted up with big smiles.
And I think I saw gratitude.
And pride being in America.

Then one said “from Thailand.”

I remember reading about the refugee path from Asian countries, to Thailand,
and eventually the USA. Documentaries are made about these journeys.
Was it Angelina Jolie who visited one of the refugee camps in Thailand?

So, less than 3.5 years in the USA, and they are buying their first home.
They all have jobs.
They are independent.
No local or fed government assistance.

Though I can’t confirm, I bet they are not caught up in the daily barrage
of bad economic news.  (OK, the language barrier may have something to do with that.)

They are too busy making their dream come true.

They didn’t ask about:
First Time Home Tax Credits.
Or, down payment assistance.
Or, special loan programs for immigrants.
Or, low income housing.

They came to the USA for a better life of their own making.
And for opportunity that is nowhere else.
For their family.
For themselves.
No excuses.
They just did it.

I believe this is the people and attitude that makes the USA a
leading destination around the world. 

And what makes America great.



What To Know About The NEW NC Real Estate Contract

The NC Real Estate purchase contract changed in 2011.

One of the key components is the “due diligence date” that can significantly impact the closing, sellers, and buyers.

Watch as Debbie Earp and Robin Mullis of The Earp Group discuss the pro’s and con’s and what you must know about the new contract before you buy or sell.