Mortgage Lender to Answer Questions that You May Have

[VCJIM]

X1Y2Z3,

I feel like I’m talking to a cartesian coordinate system. Or a scrabble board. A twister mat? (did I just date myself?) Anyway, love the name.

In one of your posts, you wrote that you think the fed will lower interest rates to help housing and the economy. However, with other national banks raising rates, this will dramatically lower the desirability of US equities. It looks to me like the fed is stuck between the proverbial rock and hard place, and they’ve made it clear that inflation is the primary concern. Do you have any further thoughts?

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[Anonymous]

Chris Johnston

Irvine single mom

You need to be prepared to wait. Look at your expenses on an after tax basis, once it becomes cheaper or even to buy a home then do it. You exited the market at the exact high, so great move there. The renters vs own is ego. I can tell you this, I would much rather have close to 2 million in the bank like I do, and be renting in Coto De Caza for 2900/month, than have the McMansion I had in Newport Coast and a 6000/month nut on it. (It was that cheap because I bought it in 1998) The people that bought it from me have an over 10k per month nut on it.

The time will come when a good buying spot will develop, and just be ready at that time. Unfortunately, even though your income is not low, it is far from comfortable in today’s OC market.

I have learned over the years, that you have to be patient for the good opportunities in life. They are not there everyday, and that is a fact that most impatient people seeking immediate gratification in everything they do just cannot handle. This is why most people never get ahead.

I am if I had to categorize myself I am an investment advisor, and have my clients in cash right now. Many are getting impatient and want action. Some have gone against my advice and been burned in the last few months, then called for help. I have told them to wait for the fall when good stock buying opportunities will exist. It is the same for RE. Good Opps will present themselves, but not for a few years.

Patience Grasshopper

[powayseller]

irvinesinglemom – Today’s rentals are in the nicest neighborhoods; nobody will ever know you are renting if you live in a rental house vs. a rental apartment. We sold our house, and our family, w 3 kids, is renting for at least 2 years. My kids stayed in the same schools they attended since 2000. We live in a neighborhood with homeowners, and a few renters. How do you know who rents, who owns? You only know if you ask.

One thing I noticed over several moves we had to make within the same city: the kids were practically unaffected by moves that allowed them to stay in the same school. Moving homes was exciting to them, as long as they could stay in the same school. Moves that required changing schools was a little scary.

Home prices are dropping several percentages each month. Your income does not make you wealthy enough to afford a loss of 50% on a $ 800K house. Such a loss could seriously set you back.

Patience, and remember, your childhood moves were difficult because you changed cities and schools, and back then, “rental neighborhoods” were low class and undesireable. Today, investors snapped up rentals in all the best neighborhoods. You can be an closet renter in the best subdivisions, and you can choose to rent in a neighborhood that feeds into the same schools where you eventually want to buy. Then, when you are ready to buy, your son will have the same friends he had in preschoool. That is something my kids have, that I did not, and I wanted to provide for my kids too. I have done so, and with renting, I have provided more financial security for my children.

[SD Realtor]

Sorry about the four postings… My connection was flaky…Irvinesinglemom I am a realtor and I am renting… You know when realtors are renting then that says something!

[mydogsarelazy]

Hi Mortgage Banker,

I want to know about the legal risks of co-signing.

You will remember I have a sister with lots of equity, mediocre credit, income from mulitple sources including a husband she is separated from.

So, let’s say I co-sign on a refi loan for her. What happens if:

– She pays late? (my credit gets dinged, right?)

– She defaults? Specifically I am imagining her home would be foreclosed, but could a bank come after my assests, wages or bank accounts?

I appreciate your advice and any precautions you may have for me.

JS

[Anonymous]

JS,

By co-signing on the loan you are placing your credit at risk. If she has late mortgage payments, then your credit will be affected. If she defaults, then you will have a foreclosure on your credit report. Also, the new debt would appear as a liability on your credit report. Your sister can qualify for a loan on her own. Like I said before, look at her credit report to see if there are ways to improve her score. Because she has so much equity in the home, getting a new loan will not be difficult for her.

[Daniel]

Dear X1Y2Y3,

Thanks for all your answers, it’s been very helpful to us all. I have a question on a more technical note: what are the typical margins of the standard ARMs and 30-year fixed mortgages over their respective benchmarks?

Let me take a concrete example: say we have the perfect borrower (high FICO, high assets, full doc, etc) in the perfect loan (conforming, very low LTV, etc). Say the borrower wants a 30-year fixed. I believe the benchmark for that is the 10-year Treasury. So the mortgage rate would be the 10-year yield (about 5% now) plus a margin. What is historically that margin? 1.5-2.0%? Same question for ARMs (say 1-year ARMs). The benchmarks must be either the 6-month or 2-year Treasury, I assume. And what would the margin historically be?

Thanks very much for taking your time to answer our questions.
Daniel

PS: I forgot about the possibility of “buying down” the rate. Let’s say our borrower doesn’t go overboard with that, and just pays the typical closing costs.

[X1Y2Z3]

PowaySeller,

Here are the answers to your previous quesionts:

1) ARM resets will be an issue. I disagree with the person who said that a large group of people will get 25-50% pay raises before the ARM adjusts. Number 1, there are very few people who become doctors each year, a bit more become lawyers and engineers. Secondly most of them have enormous debt from school. Here is a quote that I pulled from an article yesterday, “A look at the economy today reveals that in real terms, hourly and weekly wages are slightly down since the beginning of the recovery in November 2001, and real median family incomes dropped each of the first three years since 2001.” Doesn’t look like a lot of people are getting large raises these days. In fact, I would argue that the people who have done well recently are real estate agents, lenders, appraisers, builders, etc. not because they are brain surgeons but because they were in the right place at the right time. As housing goes, so goes the economy.

2) Almost no one thinks about where their ARM might end up. I mentioned before that the easiest sell for a lender is to say, “oh you will either move or refinance before your ARM adjusts. This is a load of hogwash, but everyone wants to believe it. 1) If rates have gone up, how is the person going to refinance? 2) If the real estate market is falling how will the person sell their house without taking a beating? People hear what they want to believe.

3) Ok, my company sells the loans to wall street in MBS (mortgage backed securities. Many people invest in MBS, in fact, you and I could if we had an investment in a mutual fund that invests in mortgage securities. I believe that both China and Japan have been heavy buyers of MBSs which has helped to keep rates somewhat artificially low. I do believe the risk has been underestimated in these securities and someone will pay the price. Also, on a tangent, I believe that the credit scoring models are a huge potential issue because they have never been tested in a downcycle. Who is to say that people with 700 credit scores will be able to service their debt in a recession? The credit scores are looking at past data that does not include a real estate downturn.

[X1Y2Z3]

irvinesinglemom,

You are in a great financial position. I’m not going to tell you exactly how mjuch you can qualify for since that can change dramatically depending on interest rates and available loan products. However, you have good cash, nice savings and no debt. You won’t believe how few people are in that position. I originated probabaly close to 1,000 or more loans and most people have no cash, lots of debt and average credit scores. It always blew me away to see the financial profiles of people. And the interesting thing is that the highest earners, in many cases are no better off that the average earner becasue they ramp up their spending with their income.

I do think you might want to wait and see how this market shakes out before buying. If you really want to buy, you should, however, you must know going in that home values may go down for years. Also, I would stop going to open houses because its only going to get you excited about buying. I have seen too many people get caught up in the whirlwind of buying and then later regretting it. Take your time, think about your goals, and hope for bargains. I think you will find patience is a virtue and people with patience will be rewarded in the coming real estate cycle.

[X1Y2Z3]

mydogsarelazy,

You received good advice from a previous posting. Do not co-sign unless you absolutely trust the person will pay on time. Your credit is at risk. And the odds are that you will not know if the person you signed for is paying their bills on time.

[X1Y2Z3]

Daniel,

Honestly I have never paid much attention to the 30 year fixed rate margin over the 10 year t-bond. And I never paid any attention to the 1 year ARM since I originated maybe 1 or 2 out of 1,000+ loans. You have a good question, unfortunately, I don’t know the answer. The margin may change due to inflation expectations, market conditions, profitability, etc.

[Author]

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