Due to the volatility in the market and the recent attention the mortgage industry has tendered, we would like to help explain in a summed up version, of how we arrived at the current market.

In the late 90’s, the dot com bubble burst which left many investors looking for other investment opportunities.  Investors began buying properties and flipping them after only a few months and seeing some nice returns.

Then 9/11 came and the market took a nose dive.  The Fed needed to step in, and it did.  They staved off a recession by lowering key rates.  Ultimately the Fed Funds rate bottomed out at 1%.  This lead to the lowest mortgage rates in 40+ years.  With rates low and home values rising, the mortgage industry exploded. 

Borrowing money was so cheap that lenders wanted their money in other vehicles, preferably not minimal interest earning bank accounts.  The risk of inflation grew.  As America recovered from 9/11 and the economy seemed more secure, the Fed began to raise rates. 

Banks were anxious to maintain their existing lending volume, and a pricing war between the lending institutions ensued for the next 2+ years.  By the end of 2006 the Fed had raised rates 17 times.  As the cost for banks to borrow money increased, consumer rates remained mostly stagnant as the pricing war continued.  As quarterly earnings continued to yield losses for the major banks, rates finally began to rise, as these lending institutions focused on profitability as opposed to volume.  Not being able to keep running at a loss, the banks then turned to easing their credit requirements as a means to increase lending volume.

Stated Income loans to 100% of a home’s value, “no doc” loans, and 100% financing for borrowers with 580 credit scores are all aggresive loans that were part of this “ease” in qualifying borrowers for a mortgage.  Foreclosures have increased substantially and 118 mortgage lenders and counting have gone out of business.  Two European banks have closed their doors and at least 11 hedge funds have ceased lending operations.  The bottom line right now is that money is available to borrowers, but the guidelines to qualify have tightened. 

We want to assure you that we are here for the long term.  Choice Finance® is a well managed and financially sound institution.  We still have 100% financing programs available, and very low rates.  We believe it is our responsibility to keep you informed of the market conditions and we will do our best to continue to do so.

Take 5 minutes and stop a huge amount of junk mail for the next 5 years.

You can stop from receiving unsolicited offers of credit and insurance for the next five years.  Think of all the paper you will stop from being wasted on you!  This will also decrease your risk of exposure to Identitly Theft.

Choice Finance® will never authorize the sale of your personal information without your permission.  Unfortunately, we can’t stop the credit bureaus from selling your information.  This unacceptable act is what leads to your countless solicitations in your mailbox.

Go to www.optoutprescreen.com and sign-up online.

If you missed our last issue, you can also sign-up online for the Do Not Call Registry.

Join the Do Not Call registry by going to www.donotcall.gov, so you can stop the phone harassment.   

1. How soon will I notice a reduction in calls?

   After you register, your phone number will show up on the registry by the next day.  Telemarketers have up to 31 days to get your phone number and remove it from their call lists.

2. Can I take my number off the National Do Not Call Registry?

   If you’re feeling lonely, yes, you can delete your phone number by calling toll-free 888-382-1222 from the telephone number you want to delete.  Your # will then be removed from the Registry by the next day.  Telemarketers have up to 31 days to add your number back to their call lists.

3. If I registered by phone, will I receive a confirmation?

     No, but you can verify that your number is on the registry online at www.donotcall.gov or by calling the registry’s toll-free number 888-382-1222.  Follow the prompts and verify that your number is on the registry.

You probably either have an Adjustable Rate Mortgage (ARM) or know someone who does.  Over the last few years, many consumers chose an ARM in lieu of a fixed rate, because short term interest rates were so low, which made them hard to resist.Are you a homeowner currently in an ARM who is concerned if you will be able to handle the payment increase when your loan re-sets?  Whether you choose to get another ARM loan or a fixed rate product, odds are that these rates are much lower than what your current loan will adjust to.  Another potential issue… you may find out your home is not appreciating like it was a few years ago.  In fact, it may have gone down slightly.  This can be a huge hurdle for you to qualify for a refinance, and that’s why we strongly recommend doing something sooner rather than later.  Who knows what your value will be down the road…

Many ARM programs, particularly those with an option ARM, offer the ability to make interest-only payments or payments that are less than the full amount due each month.  If you only made the minimum payment on these, your loan balance will remain the same and can actually increase with each minimum payment you make if you’re in an Option ARM product.

What does this mean to me? If you closed on an ARM with Choice Finance®  or another lender and your interest rate is scheduled to re-set in the next 12 months, you will probably see a significant payment increase. 

Your credit score is a 620 and your wife’s fico score is a 643.  If your score falls during your application process, there is the possibility you will not be able to refinance into a favorable program.

My advice is:

• Don’t apply for new credit of any kind.  Applications for new credit drop your score.
• Do not run your balances on credit cards any higher than what they are currently. Even if you make every payment on time, credit scores can drop if balances go up.
• Don’t miss any scheduled payments.  This is the biggest one to watch.

Real Prop. § 14-104. Recordation, transfer taxes; sharing; first-time home buyers

(a) In this section, “first-time Maryland home buyer” means an individual who has never owned in the State residential real property that has been the individual’s principal residence.
(b) Except as provided in subsection (c) of this section, in every written or oral agreement for the sale or other disposition of property, it is presumed in the absence of a contrary provision in the agreement or the law, that the parties to the agreement intended that the cost of any recordation tax or any State or local transfer tax shall be shared equally between the grantor and grantee. This section does not apply to mortgages or deeds of trust.

(c)(1) The entire amount of recordation tax and local transfer tax shall be paid by the seller of improved, residential real property that is sold to a first-time Maryland home buyer who will occupy the property as a principal residence, unless there is an express agreement between the parties to the agreement that the recordation tax and local transfer tax will not be paid entirely by the seller.(2) The entire amount of State transfer tax shall be paid by the seller of improved, residential real property that is sold to a first-time Maryland home buyer who will occupy the property as a principal residence.(3) This subsection does not apply to tax sales of property under Title 14, Subtitle 8 of the Tax-Property Article.(4) If there are two or more grantees, this subsection does not apply unless each grantee is a first-time Maryland home buyer or a co-maker or guarantor of a purchase money mortgage or purchase money deed of trust as defined in § 12-108(i) of the Tax-Property Article for the property and the co-maker or guarantor will not occupy the residence as the co-maker’s or guarantor’s principal residence.(5) Paragraphs (1) and (2) of this subsection apply only if each grantee or anagent of the grantee provides a statement that is signed under oath by the grantee or agent of the grantee stating that:(i) 1. The grantee is a first-time Maryland home buyer as defined under subsection (a) of this section; and

2. The residence will be occupied by the grantee as the grantee’s principal residence; or(ii) 1. The grantee is a co-maker or guarantor of a purchase money mortgage or purchase money deed of trust as defined in § 12-108(i) of the Tax-Property Article for the property; and

2. The grantee will not occupy the residence as the co-maker’s or guarantor’s principal residence.(6) A statement under paragraph (5) of this subsection by an agent of a grantee shall state that the statement:(i) Is based on a diligent inquiry made by the agent with respect to the facts set forth in the statement; and(ii) Is true to the best of the knowledge, information, and belief of the agent.

Question
What are first time home buyers’ obligations in terms of transfer taxes in the state of Maryland?

Response
My understanding is that your .25% is waived and the sellers portion had to be paid by the seller if not stipulated otherwise in the contract.  The State is giving you a waiver of taxes therefore the seller is unable to put their side of the obligation on you, a first time MD homebuyer as traditionally transfers are split 50/50…the section of the code you have below suggest you will have to pay the sellers portion of the transfer though.  Your contract with the builder probably states that it is the buyers’ obligation to pay all transfer taxes.  The code below says the seller pays their portion “unless there is an express agreement between the parties to the agreement that the recordation tax and local transfer tax will not be paid entirely by the seller.” 

I’m not an attorney or title agent but it would seem to me that if this clause is present in your contract, and I’m pretty sure it is, you will still have to pay the .25% normally allocated to the seller.  I know a Loan Officer that used to work for — Mortgage which is owned by — Homes.  He says that in the contracts, the .25% is paid by the buyer out of the closing allowance given by the seller.  Hope this helps you!

Question
Can you please tell me more about the zero down option on the mortgage loan program?  which types are they, what kind of credit score does it allow for?

Answer
There is a lot of information regarding “zero down” mortgage programs. There are some great programs backed by Fannie Mae and Freddie Mac (these are the 2 government backed giants that control the industry) with great interest rates and credit requirements that don’t have to be sterling. Unfortunately, the poorer your credit score, the fewer options you have.

I’ll give you an example: a borrower could have a 650 credit score and qualify for a “zero down” program backed by Fannie and Freddie. The rate would be approximately 6.5%.

However, here’s another example: a borrower could have a credit score of 580 and no longer qualify for Fannie and Freddie but would be able to obtain 100% financing with well respected, publicly traded (NYSE or NASDAQ) companies. But the rate would be higher.

Be careful of one last item. Don’t let companies fool you with “zero down” vs “no closing costs”. They aren’t the same. Closing costs are things like taxes, lawyer’s fees, appraisal fees… Zero down refers to the amount of the loan itself. Sometimes, you can get seller’s to pay for your closing costs and there are many options available.

Hi Mitch,
Thanks for your note.  I hope you enjoyed the holidays as well.  Our holidays were nice but hectic and with all the family obligations, we were not able to sit down together and discuss finances.  However, we plan to find time this weekend to talk about our loans and I’m sure we will have more questions for you then.  One thing that might help now is more numbers from you.  What are are the current rates?  If we pay points, how would that affect the rate and when would we break even?  Also for the 2nd mortgage, if it is only 63k now, maybe we should consider refinancing it into another 5/1.  Can you give me a current estimate on that?  I’m thinking that it may be worthwhile to get a lower rate and try to pay the bulk of it off in 5 years if we can. 
Thanks,
Sheila

Hi Sheila..
Excellent questions…
Let’s talk about the 1^st …With 1 point today ($6400), your fixed rate would be 6.625%….0 point rate is 7%…The difference in the Principal and Interest payment is $160 per month. That being said… It will take 40 months to break even. If you were to do a 5 year Arm on your $63,000 2^nd..rate gets better by 1 point to 6.99%….This is a small loan but it would still save you around $44 per month.
Please let me know if you have any other questions.
Have a great weekend !Thanks 
Mitch C. Jacobs