The Mortgage Manifesto

The PLAN is More Important Than the RATE

So, I am reading about how the U.S. savings rate improved to minus 0.8% from minus 1.2% last month and find this fact very disconcerting.

Every day I advise people on their largest asset (their home)and largest debt (the mortgage attached to it) and find that our industry has put so much attention on rate that so many people take off on a search for the lowest rate in a mindset of debt elimination that they neglect savings and wealth accumulation.

Rate shopping has not brought us the best results, as shown by the negative savings rate in America.  Contrast that to the 25% savings rate in China.

Today's financial lives make proper mortgage planning a crucial linchpin of a solid financial plan.  Don't make the mistake that so many others do and focus solely on rate.  Yes, sometimes it might cost a little for for the advice of a professional but you will find the long term costs so much more when you let your decisions be handled by an amateur.

Brett Grendahl

http://www.BrettGrendahl.com

Ah, the Unfortunate Topic of Fraud

Wow!  What a crazy week.  Not only am I at my highest production level in over a year but there were two situations that I think you will find illuminating to the current state of mortgage finance.

Both of these situations relate directly to my last post.

The first one relates to a recent client that chose to obtain their financing via another lending source.  The interesting thing is that the lender is one of the major names in the marketplace.  They will be underwriting this loan as though the property is a second home while in fact, they know perfectly well it is truely a non-owner occupied property.  The number one area of fraud in the industry is where the borrower is purchasing an investment property but declaring that it will be a second home.  This is PREDATORY BORROWING to a tee!

The second situation is where some recent clients found themselves in a purchase agreement with a seller whose townhome complex has declining sales prices during the past three years.  This fact forced us to decline the loan based on an unacceptable property.  I've been told by them that another lender is obtaining another appraisal and they don't expect to run into this issue.  Interesting!  I didn't know it was possible for a subjective viewpoint on the irrefutable fact that the sales in the complex are reflecting declining sales prices.  That is similar to saying that one plus one does not equal two!

These two situations should be a warning to others.  The misrepresentation of these facts is not a petty crime.  Due to the involvement of bank wire transfers over state lines to fund these loans this falls into the land of wire fraud and banking fraud.  Guess who comes knocking on your doors when they catch up to these acts, the Federales that's who!

Unfortunately, I think is only one of many posts to come about such rampant fraud across the entire United States real estate marketplace.  This fraud ranges from borrowers, appraisers, loan originators, title companies, and Realtors alike.

Now, more than ever, you should be placing your trust in a seasoned mortgage planning professional. 

Brett Grendahl

www.BrettGrendahl.com

It's the People, not the Programs!

You just can't escape all the media circus about the meltdown of the subprime mortgage market and predatory lending.  Some of this is warranted as the greed from home buyers and home lenders alike fueled some crazy lending.  "One Day out of Bankruptcy loans" was some of the marketing we'd receive from some of the subprime lenders.  Would you borrow hundreds of thousands of your dollars to someone that just got out of bankruptcy one day ago?

I've also seen major abuses and fraud from the following:  borrowers, mortgage companies, appraisers, and title companies.  The exposure that is being brought to these practices is likely to continue with some big names taking the stage.  What you think about some long-standing names in these industries will be changing.  Remember when Enron was Wall Street's darling?  Not so anymore huh?  The same will be said of some real estate heavyweights when the dust settles.

What has me concerned today though is when the corrective actions go to far and stray from the objective at hand.  Last night I finished reading proposed legislation from the Minnesota House of Representatives that will make ALL Stated Income, No Documentation, and Negative Amortization loans illegal in our state.  This concerns me a ton.

The problems we are witness to today is not the fault of the LOAN PROGRAM, but of the application of it.  Fault the borrower, loan officer, and lender alike maybe but not the program itself.  It is similar to the debate of "guns don't kill people, people kill people."

In my mortgage planning practice I never advise someone to use a particular loan program unless they know the "why" behind why we are using it.  Each loan program, when put into application for the purpose it was designed, does not cause problems.  When borrower's flat-out lie about their income or loan originators don't fully explain the program parameters, or lenders relax guidelines to subprime borrowers (who by definition are less worthy credit risks) then you see the problems that appear today.

By eliminating these loan programs the government will effectively take away financing options for strong credit, self-employed borrowers.  These folks are a vibrant part of our local economy with money to spend and demonstrated repayment traits.

The goal should be to stop abuse not limit choices.  That's my two-cents.

Brett Grendahl

www.BrettGrendahl.com

Tax Free MI May Be Fleeting

Earlier this year American homeowners were given some great news from the halls of Congress as a bill that made mortgage insurance (MI) premiums tax deductible for households with Adjusted Gross Income of $110,000 or less.

Throw in rising rates on second mortgages and the decision to finance a home purchase with two mortgages or one with MI has become a whole new equation.  For many, paying the MI is now the better program selection.

While this new tax relief is great news it is important to note that the current bill is only effective for the 2007 tax year.  This relief might vanish in 2008.

This issue highlights the ever-increasing importance of mortgage planning.  Your choices of financing programs has never been greater.  The advice of a trusted advisor is paramount in making the decisions that protect your financial security, cash liquidity, and maximize your wealth creation.

Don't make the mistake of shopping for a mortgage solely based on rate.  Using that as your core decision making process will lead to choices that might limit your financial future.  These decisions relate to your largest financial asset and largest financial debt.  Don't rely on the advice of someone who only take orders, place your security in the hands of a seasoned professional.

If you'd like my mortgage planning questionnaire, just email me at brettg (at) tidalwavecapital.com.