Fed Action

In light of the Federal Reserve slashing the Federal Funds Rate and Discount Rate 75 basis points in less than 60 days, I thought I would dispel the myth that mortgage rates are dropping as well. The Federal Reserve acknowledges the need for "liquidity" in the market place. Why? They know that unless banks, wholesale lenders, retail lenders and others have the funds to lend then regardless of what mortgage rates are there is no chance of a housing recovery! The government is trying to give lenders "money to lend". The largest factor behind the "credit crunch" is the fact that lenders had little to no money to lend to qualified borrowers. Typically, wholesale lenders use mortgage lines of credit to fund certain loans and when the "credit crunch" hit these lenders had their lines pulled. Therefore, the Federal Reserve is trying to push money back into the financial market place for lenders to lend, for buyer's to access and the end result would be for the housing inventory to decline thus bring values back in line.

Don't get me wrong mortgage rates are GREAT! However, do not be fooled that The Federal Reserves actions are to ultimately lower mortgage rates. The problem is not that rates are high, they are just the opposite and it's not like there are no homes to choose from again it's quite the opposite as inventory of unsold homes have never been higher. The financial market's have a "credit crunch" and they (Feds) are trying to reverse this. In fact, it's a great time to be a home buyer right now you have a plethora of homes to choose from at discounted prices and unbelievable rates to boot!

Brought to you by Professional Mortgage Group
Your Columbia Missouri Mortgage Broker

Will The Fed Act Again?

Well, the Federal Reserve Committee will meet once again on Wednesday October 31st. What will they do; keep rates unchanged, 1/4 point reduction, 1/2 point reduction? Time will tell but most analyst (80%) are predicting at least a .25% reduction and some think perhaps another half .50% will be taken and needed.

For the first time in a long time the continued housing slump and credit crunch is really making an adverse impact on our overall economic market. Just today Merrill Lynch announced that it would be forced to "write-down" over $7.9B; most of which was due to the housing crisis and the delinquency attached to it. Also, announced today was the "national" existing home sales report which reflected the lowest level in almost 8 years.

Add to the above the dilemma concerning record gas prices, increased unemployment, higher utility costs and this does not make for a healthy economy. It seems even the market is expecting further Federal help has today's 30 year mortgage rates are 6.125% down over .25% from a week ago. However, the problem is not mortgage rates or our nationally high inventory of homes. Rates could be at 3.0% but if buyer's cannot access the money to utilize the rate, what difference does it make! The credit crunch needs to be addressed, loans that could be done 1-2 years ago are now no longer available. Now with that being said, I am not a proponent of opening the flood gates of Sub-Prime and Alt-A products like we saw toward the late 90's. However, there are "tweaks" we can do to our product offerings that I believe will help "qualified" borrowers. For example; stated income loans with some verified assets, good scores and some reserves should be made available again. Also, some sub-prime (i.e. 600+ fico's, full-doc, 95% ltv) there is a need and market for this product. The problem with the above is that investors of these types of loans have gotten burned and pulled out of the market. What is needed to get them back?

Brought to you by Professional Mortgage Group
Your Columbia Missouri Mortgage Broker

How ARM resets are calculated

With all the news out there of the coming deluge of ARM (Adjustable Rate Mortgage) resets on both conforming and non-conforming loans, I thought it might be a good time to explain how a lender comes up with a new payment when an interest rate adjusts.

First, some terms that you should become familiar with:

Index: This is the base rate to which the new adjusted rate will be based upon.

Some common indexes to base rates on are the U.S. Treasury's and the LIBOR. These indexes change as the markets go up and down.

Margin: This is a fixed amount to be added to the index to calculate the new rate.

In your loan documents this is stated as a number (i.e. 3.00% or 2.50%)
to be added to a specific index. It will also state when the index will be examined for purposes of calculating your new rate, usually 30 to 45 days before the adjustment date.

Caps: These refer to the maximum amount a rate can adjust at any one adjustment and over the course of the loan.

Some common caps are 1/5 (change a maximum of 1% up or down from the current rate during any one change and a maximum of 5% from the original rate), and the 2/6 (change a maximum of 2% up or down from the current rate during any one change and a maximum of 6% up or down from the original rate).

Let me show you an example:

Original Terms of 3 Year ARM

Loan Rate = 7.00%
Margin = 3.00% over the current LIBOR 45 days prior to change date
Cap = 2/6

*Note: That means that at the time of the loan the LIBOR had to be 4.00%
(7.00%-3.00%=4.00%)

Now let's say three years are almost up. 45 days before the new rate will go into effect the LIBOR is at 5.50%

To calculate the new rate you must add the margin to the index
5.50%(LIBOR) + 3.00%(Margin) = 8.50%

But, what would happen if the index had gone up to 6.50% instead.

6.5%(LIBOR) + 3.00%(Margin) = 9.50%
But that is not the new rate.
The loan had a cap of 2/6 so the most the loan rate could increase would be to 9.00%
(7.00% + 2.00% = 9.00%)

What would the highest rate be that this loan can ever have?

7.00% (original rate) + 6.00% (maximum rate per cap) = 13.00%

The same applies when the index falls. What would the new rate be if the LIBOR fell to 1.50%?

1.50%(LIBOR) + 3.00%(Margin) = 4.50%
Again the caps apply. The most the rate can go down in any one adjustment is 2.00% from the previous rate. So the new rate could not be any less than 5.00%
(7.00%(Current rate) - 2.00%(Margin) = 5.00%).

As you can see the calculation is fairly easy addition or subtraction. Hopefully this has taken some of the mystery out of how your new rate is calculated when you have an ARM.

Any questions or comments are always welcome!

Brought to you by Professional Mortgage Group, Inc. in Columbia, Missouri.

Columbia Missouri Market Statistics Part II

Well, I have done some research and would like to elaborate on some analysis of the July 2007' housing numbers for Columbia Missouri. As per part I of this commentary this blog will be mostly comprised of statistics.

Existing Home Sales July 2007' vs. July 2006'

• Volume: Up $2,992,554 or (4.2%)
• Units Sold: Up 32 units or (7.6%)
• Average Price: Down $11,258 or (3.4%)

New Home Sales July 2007' vs. July 2006'

• Volume: Down $5,033,238 or (23.4%)
• Units Sold: Down 18 units or (17%)
• Average Price: Down $26,872 or (6.7%)

Total Homes Sales July 2007' vs. July 2006'

• Volume: Down $2,040,684 or (2.2%)
• Units Sold: Up 14 units or (2.6%)
• Average Price: Down $16,993 or (4.9%)

What does all of this mean?

Well, to summarize the numbers, it seems existing home sales in Columbia Missouri are holding strong. However, the price of the homes selling is down an average of over $11,000 or 3.4% from a year ago. New construction sales are really suffering. Volume, units sold, and average price are all down an average of 15.7% over last year. This is especially true for the sales price. Can you believe these homes are selling almost $27,000 less than July of 2006'? This shows the eagerness of builders wanting to unload their inventory.

Overall the market is down, but this is somewhat skewed as the majority of our issues lie in the "new construction" area which has simply been over built for the community. With the majority of the homes being over $200,000, there seems to be no "quick fix" to rid us of these problems. Time is the answer. Over time the Columbia market should rebound nicely!

I am sure I speak for most of us in the real estate community, the sooner the better!!

Brought to you by Professional Mortgage Group, Inc.

Your Columbia, Missouri Mortgage Broker

Helpful Links

The whole purpose for Professional Mortgage Group, Inc. to publish this blog on www.pmg-inc.net is to provide useful information to visitors. Each day we provide valuable information and insight into the current market in Columbia, MO and sometimes Nationwide. It has been quite awhile since we did a refresher on some of the valuable websites out there that can be of assistance to you. I will just give a quick rundown of several sites that may be useful to you.

www.pmg-inc.net - Our website of course!
www.google.com - You can find anything on this powerful search engine.
www.gocolumbiamo.com - The City of Columbia website.
www.missouri.edu - The University of Missouri
www.zillow.com - Real Estate Valuations
www.bankrate.com - Rate and Lending comparison site.
www.realtor.com - Search for home for sale.
www.fanniemae.com - They are the largest buyer of securitized mortgage paper.
www.freddiemac.com - Another large buyer of mortgage paper.
www.bloomberg.com/markets/rates - Check Mortgage and Bond rates.
www.countrywide.com - Large Nationwide Lender
www.wellsfargo.com - Large Nationwide Lender
www.bankofamerica.com - Large Nationwide Lender and Bank with local branches.
www.realestatebook.com - Another site for home listings.
www.boonebank.com - Boone County National Bank Website. Largest local bank.
www.fnb-columbia.com - First National Bank. Another large local bank.
www.pisinspections.com - Local Respected Home Inspector.
www.myfico.com - Information about credit scores.
www.annualcreditreport.com - Obtain a free credit report once a year.


Here are some links to Local Real Estate Companies

Re-max Boone Realty
House of Brokers
Plaza Real Estate Services
Central Missouri Real Estate LLC
Weichert Realtors (First Tier)
3D Realty
Reece and Nichols
Gaslight Properties
Century 21 Advantage

These are several links to browse for information.
PMG hopes this information can be useful to you.

If you have a link that you think should be on this list, please post a comment and we can add it.

Brought to you by:
Professional Mortgage Group, Inc.
"Your Columbia, MO Mortgage Broker"

The Industry Professionals

We all know that there are many of mortgage companies to choose from in Columbia. What does Professional Mortgage Group offer that the competition does not?

One thing is true about our competition and that is they do not care about your business!! Ask yourself when the last time your mortgage broker helped you sell a home? That is why we are different.

1.

We are committed to helping you develop your business.

2. We help you establish that you are a professional who only works with other professionals.

3. Our marketing materials promote you and your listings and educate your clients on how a

real estate transaction works.

4. We help your clients set realistic expectations from day one so there are no surprises along

the way.

5. We meet your closing deadlines.

6. We provide you with 24/7 access to your client’s underwriting status on our secure website.

7. We link to your website on our Partners page to direct traffic to your listings.

If you want to work with the "Industry Professionals" call us today!!

Check out our website for other happy clients at http://www.pmg-inc.net/.

Brought to you by Professional Mortgage Group Columbia Missouri.

573-777-1198

Homeowner's Insurance. What Coverage's are Worth Buying?

I'm sure we all can remember the process we went through to buy our first home. It was an exciting time for me, but I bet we can all agree that securing an insurance policy on our new home was not a memorable occasion! Actually, nothing about insurance is exciting. In a perfect world you buy a good policy, pay over time, and never have to use it. To most people this is a big waste of money! Deep down we really know this isn't the case. Insurance is very critical to your family's financial well-being. We all take for granted that if we lost everything, "the insurance company will pay for it". Just imagine the family that doesn't have this luxury. They just lost a $150,000 home and all of their belongings! What a nightmare! All because they let their policy lapse! The reason that I feel strongly about this is because I was an insurance agent for 5 years. I saw how having or not having insurance affected many people. I have compiled a few tips and coverage explanations to look for when looking for your home insurance policy.

Dwelling with Expanded Replacement Cost- If every insurance agent and computer property evaluator was perfect, we wouldn't need this endorsement. However, we know this isn't the case. When writing an insurance policy some agents do better than others in estimating how much to insure your home. You do not want to be held to the amount they come up with. Many times people only look at price and not what their home is actually being covered for. Poor agents will also cut coverage to get the premium to look good and land a sale. This can really put a customer in a world of hurt. Just look at the fires in California. $700,000 homes were burnt to the ground and they were only insured for $500,000. That is a $200,000 burden left up to the customer. With expanded replacement cost, the policy will pay up to 120-125% of your homes value. This gives you an extra cushion in the event your home was under insured! (Keep in mind it only pays out if you need it).

Inflation Protection - Most good policies have this. This adjusts your policy each year for inflation. I am sure you have seen your $150,000 insurance policy jump to $154,500 in its second year. This increase is due to inflation protection. This is needed because it will cost more to re-build your home in the years to come than it will today.

Other Structures - This is coverage for any detached structures. If you don't have any, it will stay at 10% of your dwelling amount. If you have more detached structures to cover than the 10% allowed, you will want to make sure it is increased.

Personal Property Replacement Cost - We all know what this is, but believe it or not there are still policies out there that have limited replacement cost or actual cash value! Stay away from these. Full replacement cost is the only way to go! Also look at the amount you are covered for. Some companies cover 75% of your dwelling amount. Others offer less. Just get the most bang for your buck!

Loss of use - If you are unable to live in your home due to a loss, your policy will pay for the expenses you incur while living elsewhere until your home is repaired. Some policies cap the amount here. Make sure you feel the limit is sufficient. Good policies will state "Actual Loss"

Liability - The minimum amount is $100,000. This is too low. $300,000 is the minimum you should have. You can of course have more. If you have an umbrella policy you can keep your liability at $100,000, but if not make sure it is increased. There are too many sue happy people out there and you want to be protected!

Medical Payments - This is not like your car insurance med-pay. This is only for others on your property. Not many people go with more than $1000. Just make sure your liability is high and you should be fine. Make people file suit if they are on YOUR property and try to collect money off of your policy!

Deductible - Your deductible is up to you. Go with an amount that makes you feel comfortable. $1000 is most popular today and makes the most sense. This reduces your premium and will also help ward off small piddly claims that will raise your rates. What good is a $500 deductible if you claim something that is $700? You save $200 and your rate goes up $20 a month. Then if you would happen to have a 2nd loss, you would have 2 claims and are in danger of non-renewal or a huge rate hike!

Earthquake Endorsement - Some people have this and others don't. Make your own decision,but realize that if your home is damaged due to an earthquake or earth movement, you are out of luck! This isn't too expensive so weigh the pros and cons. Earthquake deductibles are typically 10% or so. This equates to $15,000 on a $150,000 home. This may also factor into your decision.

Water or Sewer Backup Endorsement - This is something many people think is included in a policy and it is not! Water damage is covered, but not sewer! Your can purchase specified amounts of protection. Be sure to look into this and ask your agent.

Identity Theft Endorsement - This is a newer item, but is gaining in popularity. If someone steals your identity and causes you harm, it can cost some time and money to clean things up. This will pay for it and provide a representative to help facilitate the process!

Scheduling Items - The most common item to schedule is jewelry. Your policy has low limits for specific items. You will want to schedule valuable or priceless items. This is a quick summary of the parts of a home insurance policy. Keep all of these points in mind when deciding who you are using and what coverages to include. Just remember you are buying piece of mind and financial security when you pick your coverages. Don't focus solely on price and find an agent that will work hard for you. I hope this helps.

Here are a few links to some of the larger insurance companies.
State Farm Insurance - http://www.statefarm.com/
Liberty Mutual Insurance - http://www.libertymutual.com/
Allstate - http://www.allstate.com/
Shelter Insurance - http://www.shelterinsurance.com/
American Family Insurance- http://www.amfam.com/
Farmers Insurance - http://www.farmersagent.com/emiller2/

Your comments are welcomed!

Brought to you by:
Professional Mortgage Group Inc.
"Your Columbia, MO Mortgage Broker"

Cash-Out Refinance

During the tough economic times of today many more Americans are tapping their home's equity, what's left of it, to try and obtain some sort of cash relief. Whether that is paying off credit cards, personal loans, auto loans or even cash to put in some sort of savings account. Americans are feeling the pinch of both the slumping housing market and rising commodity items like fuel, utilities and groceries. I thought I would shed some light on things you need to know should you be one of the thousands facing this dilemma.

First, conforming loans (those backed by Fannie and Freddie) typically only allow for a loan-to-value of 95% cash out. This means should you have a home that appraised for $100,000 the maximum loan you can receive, if you are taking cash out, is $95,000 or 95% of the homes value. This typically can be structured as one loan or two (80% first/15% second) for those of you who do not want to pay PMI (Private Mortgage Insurance).

Second, as a precautionary matter you need to make sure that the appraised value is "realistic". The last thing you want is to go and try to sell your residence in a couple of years and find out you owe more on your home than what you can sell it for; otherwise known as over-leveraged or negative equity. I have seen this way too many times over the years, mostly because of "shady" lending practices in connection with an over-valued appraisal. Be sure you deal with a lender who looks out for your best interests!

Third, you may be able to work the timing of the transaction that will allow you the benefit of skipping two mortgage payments. Many clients really like this perk as it frees up "extra" cash flow that they would ordinarily be without. Imagine consolidating credit cards and other personal loans saving $900.00 a month and pocketing $2,000 cash while at the same time remaining in a financially stable position on your home. Believe or not it can and does happen everyday!

Fourth, and perhaps the most important, the entire process normally takes only approximately two weeks to complete. No long waiting period or constant questioning going back and forth. The entire refinance process has become very streamlined and efficient.

Brought to you by Professional Mortgage Group, Inc.

Your Columbia Missouri Mortgage Broker

New Home Sales News

First the bad news: New home sales have hit a 7 year low last month. This is not great but was not totally unexpected given the current state of real estate.

There is some good news out there that bodes well for the future of the market, however. First, the yield curve is steepening indicating less of a risk of a recession. Next, lenders are going through with some big mergers and acquisitions which is another positive sign for the economy in general. And finally, the Federal Reserve reported that there are no outstanding loans to lenders at the discount window.

These three things are positive because they show that the Fed's moves have helped the market finally start digesting the bad subprime situation, recession isn't as big a worry to increase the housing problem, and if people are still employed they will eventually get around to buying real estate again. So, today was a good day as far as news goes.

Your comments are always welcome!

Brought to you by Professional Mortgage Group, Inc. in Columbia, Missouri.

Market News

I have had several discussions with people lately regarding the market and the recent rate cuts the FED made. Many thought rates would immediately drop when news hit the wire that the FED cut the Federal Funds rate and discount rate. Well this obviously that not happened and people are wondering why! Keep in mind the rates that were cut are ones that affect the mortgage market, but are not directly the rates offered to customers. It will take a little time to see what actually happens and we can only hope more will be done.

On another note, new reports came out today regarding the August market and in summary here is what was reported:

1. Existing home sales fell for the sixth month in a row and are now at a 5 year low!
2. Inventories rose to an 18 year high!
3. Home prices in 10 major cities are falling at the fastest rate in 16 years!
4. Sales of existing homes in the Mid-West fell 5.2%.

They did note that mortgages have become a little more affordable and available than they were in the worst days of August. This means that the coming months numbers could fair a little better. Apparently numerous sales contracts fell through in August due to the mortgage market turmoil and guideline changes.

On the local front an article ran in the Columbia Tribune covering local building permits.

According to county records, permits for single-family homes rose from 331 in 2002 to a peak of 378 in 2004. By 2006, however, the number had fallen to 232. Mid-year permit numbers are down in the county about 30 percent compared with last year.

City records reflect similar trends, with a peak of 1,239 single-family home permits in 2005 dipping to 675 last year

This shows that builders and lenders are pulling back, but as you can see the surplus of homes on the market must be taken care of before things return to normal.

You can read more about these 2 topics at
http://www.marketwatch.com/news/story/glut-unsold-homes-rises-18-year/story.aspx?guid=%7BC02E6F86%2D2D23%2D4D45%2DA83D%2DBF973D6432B9%7D

and

http://www.showmenews.com/2007/Sep/20070925News002.asp

Brought to you by:
Professional Mortgage Group, Inc.
"Your Columbia, MO Mortgage Broker"