Rick's Straight Talk Blog

Wholesale rates for a 30 year fixed conforming loan are now at 5.25% - the lowest I have ever seen.  The yield on the 10 year Treasury Note has dropped to 2.8% - the lowest since its inception in 1962.

I have watched these rates carefully every day over the past 4 years - and my advice has always been - anything below 6.0% is very good.

Might they go lower?  Sure - anything can happen.  It is also true that there are always market corrections - so don't be surprised if rates shoot back up to 6.0% by Christmas. 

But if you can refinance or purchase with a mortgage in the "low 5s," you will be very happy over the long term.

Very few people can say that.  Don't wait.

Rick Pelleriti
Upfront Mortgage Broker
408-238-2746

After the countless stories about bad loans, and how lenders put their own interests ahead of the consumer, it amazes me that this philosophy still permeates the lending landscape.

Here's just one quick example.  As a mortgage broker, I get many e-mails a day from lenders advertising their rates.  I just got one a few minutes ago which prompted this blog.  This Account Executive (think of "salesperson" for the lender), advertised a higher than wholesale rate, i.e., 6.375%, and published the rebate we, as mortgage brokers, would make if we offered that rate to our customer.

Folks - if you've ever been to my website before, of if you know how I operate, you would know that I would NEVER promote that rate to a customer, without giving choices.

It would be ludicrous for most people to choose 6.375% for a 30 yr. fixed, when the "par," or wholesale rate currently stands at 5.875%. (And with a rebate of $821.

Here are the numbers to prove my point.  For a $417,000 loan, the payment at 6.375% would be $2,601.54.  Yes, you would save the loan origination fee.  Let's assume 1.0%, or in this case, $4,170.00.  Net of the rebate, it would be $3,349.

Now, let's look at this from the borrower who is given the CHOICE of getting a 5.875% rate.  The payment would be $2,466.71.

Yes, you would pay the loan origination fee, (Net amount = $3,349) but you would save $134.83 per month, for 30 years!  The break-even point is 24.8 months.

Wouldn't you rather have that choice?

I know I would.  That's why I'm an Upfront Mortgage Broker.

Seek one out - I can do loans anywhere in California - purchase or refinance.

Rick Pelleriti
Upfront Mortgage Broker
408-238-2746

It seems every day there is earth shattering news about who is going under, who is getting bailed out, how much the Dow went up, how much the Dow went down, etc.

Will the Feds bail Wall Street out?  Will Congress pass the bailout bill?  (As of this writing -- no)  Will there be another vote?  etc. etc. etc.

The experts can't predict what will happen, but I know one thing with 100% certainty.

Interest rates are at historical lows.  Anything under 6.0% is excellent!  Waiting is a recipe for disaster.  Precisely because we don't know what will happen is why you need to lock in in our current low rate environment.

I've already seen it happen.  Clients waited to squeeze out an "extra eighth," and ended up missing the window of opportunity.

Needless to say, these are extraordinary times.  The smart move is to take advantage of the opportunity when it's here.

Sincerely,

Rick Pelleriti
Upfront Mortgage Broker

Call me at 408-238-2746 to explore your situation.

If you read the papers or listen to the news, you'll know that these two huge organizations were recently taken over by the Federal Govt.  They were at risk of going bankrupt, so taxpayer cash has been committed to them if they need it.

This is important because these institutions buy the loans from many lenders, like B of A, Countrywide, Wells Fargo, Chase, etc., etc.

This replenishes the cash these lenders have, so they can continue to make new loans.  Without this "Secondary" market, loans would dry up and that would be disastrous for our economy.

So, the financial markets perceived this move as a good thing, and this meant lower risk all around - and thus caused a significant drop in interest rates.

However, much of this is emotional, and a "knee-jerk" reaction.  This good news euphoria only lasts a short time, as is typically the case.  This goes both ways.  Often, bad news permeates throughout the economy, but its effects are short-lived, and things revert to normal a few days or weeks thereafter.

I already see this happening now.

With this huge drop in interest rates, many folks are coming out of the woodwork to refinance - ncluding my own clients.

I find it amusing that some folks see that rates are the lowest they've been in say, six months, and they'll ask, "Will it go down further?"

Of course, no one can seriously answer that question.  Yes, rates may still drop.  But, human nature is human nature.  If rates drop too much too fast, demand will surge and that will cause a correction in the market place.

It's sort of like a stock whose price is bid up quickly.  Eventually, there will be profit taking, and the stock drops.  Does anyone remember the stock bubble?  Or the housing bubble?

How soon we forget.

My advice is this:  When rates drop a LOT, that means the window is open.  If you like the rate, then act on it.  The window will close, sometimes in a day or two.

Mark my words - it's already happening.  Rate are still excellent - much better than a week ago.  The 30 yr. fixed was 6.25% two weeks ago.  It dipped to 5.375% for maybe one day - and now it's hovering between 5.50% and 5.625%. 

Folks, this window is wide open.  If you wait a few days, you might be sorry.  Some clients of mine eight months ago decided to wait.  Well, it took them 8 months for the window to open again.

It would be a shame if while wanting to squeeze out another .125%, the window closes and they must wait another 8 months.

Rick Pelleriti
Upfront Mortgage Broker

If you've read the papers at all, you know that we are in the middle of a mortgage meltdown, the country's worst housing crisis, the begining of a depression, and the end of civilization as we know it.

Yes, if you dwell on the negative, you can literally convince yourself that the Mayans are right and the end of the world comes in 2012.

Or...you can look on the positive side.

We are correcting for past imbalances.  Nature is perfect.  There are repercussions for every action and thought.  What we were all doing in the housing and mortgage industry was simply unsustainable.  You cannot borrowe forever - you will go broke.  You cannot expect housing prices to increase 10% per year forever.  People cannot afford that, as incomes can't keep up with that torrid pace.

Lenders cannot make 100% stated loans (liar loans) and expect to stay in business.  Greed took over and there will always be a counter balance to that.  Always.

So this correction is needed, it was predictable, and it is good.

The injured zebra may not keep up, so the lion gets a meal.  Not good for the zebra, but good for the starving lion.  Nature is perfect.

It will be tougher to get loans.  Banks have gone under.  Many lenders have ceased making loans, although they may remain open (Wachovia).  Home prices will return to affordable levels.

Only people who can afford them will buy - and lenders will make sure they can, in fact, afford them.

This is good.

If we stick to this new wisdom (not really new, is it?), then we can avoid a future crisis.

I would rather live in that world.

Just my opinion.

Rick Pelleriti
www.upfrontmortgageplanner.com

In the movie 2010, the sequel to 2001: A Space Odyssey, there is a famous quote summarized in the conversation, "Something's going to happen."  What?  "Something wonderful."

I love that movie because I'm going to compare that quote to a technology enhancement from the company "LoanSifter™," and their technology that I use on my home page in the "Today's Rates" table I have there.

Currently, if you click on a loan program, like "5 Yr. ARM Conforming," at the top of the table you will see the best interest rate from amongst all my lenders.  That in itself is a remarkable technological advancement, as it now takes the guesswork out of trying to canvass all your lenders individually to see who has the best rates "this minute."  It's also a great way for borrowers to come to the website whenever they want to see what's the latest and greatest rate for the most popular programs.

However, it's about to get even better.  Not only will it show the best interest rate, it will now show the actual PRICE for that rate.  The price is known as the Yield Spread Premium, or rebate from the lender.  It is also called "points."

Now, for the first time, you, the borrower, can see the best pricing out there directly from the lender's rate sheets, just like I do.  This is "total transparency."  You see what I see.

Say you wanted to avoid a loan origination fee of 1.0% and you were OK with choosing a slightly higher rate.  What would the rate be?  How much higher?  Now you'll know.

Also, say you wanted to purchase a home and wanted to buy down the rate (especially when you want to ask the seller to give you a credit so you can buy down the rate), how much lower can you go and what would it cost?

Now you'll know.

This is indeed great news and I'm proud to be the first one in the country to take advantage of this technological breakthrough from LoanSifter™.

Stay tuned.

Rick Pelleriti
Upfront Mortgage Broker
408-238-2746

"Home of the Free Home Loan."

On my website, I have posted a 10 page "White Paper" comparing a 30 year fixed loan versus a series of 5 Year ARMS.  This White paper also has been posted to a large, national mortgage website.  So, I'm definitely out there with my opinions.

Briefly, I was in favor of the 30 yr. fixed, and I gave all the reasons why.

Now, however, some things have changed, as I wrote that paper several months ago.

I don't think anyone can say that one product is "better" than another, as everyone's situation and goals are unique to them, but let me mention a couple of points that are different now, which might make the 5 yr. ARM more attractive.

The first item is rates.  Back when I wrote the paper, there wasn't much of a gap between the two products, so if they are close, you might as well go with the 30 yr. for the security.

However, as of this writing, wholesale pricing for the 5 yr. is approx. 5.50%, while the comparable rate for the 30 year is 6.25%.  That is significant, especially for loans up in the $700K range.

Second, there was more risk than today when the adjustable rate would "adjust".  For example, if the 5 yr. ARM was going to adjust to the "Index + margin," back then, that rate would be in the mid to high 7% range.  However, now, that rate would be in the high 5% range.  So that's better.

Third, back then, I had not heard of the Cash Reward program.  So, if you had chosen to do a series of 5 yr. ARMS, the refinancing cost would certainly add up.

Now, with the Cash Rewards program, and my "Free Home Loan" program, all your loan costs can be recouped three years later.  So that objection can be overcome also.

So is the 5 yr. loan now the way to go?  There is no clear cut answer.  Certainly it looks more attractive than it did 5 months ago, but the answer is always up to you, the individual borrower and your unique circumstances and goals, and your risk tolerance.

Call me for a free consultation to discuss your situation.

Rick Pelleriti
Upfront Mortgage Broker
408-238-2746

"Home of the Free Home Loan."

There has been a lot of attention lately to FHA loans as a solution for many people's needs for a home loan.  FHA loans can in fact be a solution, but you must know what you're getting into.

First - the good news.  You can get into a new home with as little as 3% down, and there are even some creative ways to have the seller provide that small down payment for you - so zero down is still possible.

FHA loans are generally easier to qualify.  For example, you don't need any cash reserves, and your FICO score can be down to 620.

While that is great news for those buyers who have little cash and not very good credit, let's look at what it will cost you.

First, an FHA loan requires a one time Mortgage Insurance Premium of 1.5%.  (Note - FHA, or the Federal Housing Administration, doesn't actually lend the money.  They simply insure the loan - but there are extra costs to provide that insurance).  That 1.5% can be added to the loan amount, but you are still paying an extra $9,000 on a $600,000 loan.

Second, you must pay what is called Monthly Mortgage Insurance, or "MMI."  That is an extra .5% in interest rate that is tacked onto the rate any lender quotes you.  That extra MMI can go away in 5 years.  This is similar to PMI, or Private Mortgage Insurance, on a conventional loan that is above 80%.

So, if an FHA loan simply required the MMI, then I'd say given the easier qualification for an FHA loan, you might be better off going with FHA on a loan above 80% versus a Conventional loan, as the rates are very close to each other, and the Mortgage Insurance is very close to each other.

However, that extra 1.5% Mortgage Insurance Premium has to be weighed against the money you save by putting less money down.

So let's look at an example with 85% conventional financing versus buying that same home with an FHA loan.

 Let's say you want to buy a $700,000 home in my County.  With an 85% loan ($595,000), your interest cost is $195,110.  That's using a rate of 6.75% which includes the Mortgage Insurance.

Let's compare that with an FHA loan for someone who wishes to conserve cash, and only puts 3% down.  So, you are saving upfront cash of 12%, or $84,000.  That sounds good.

What's the total interest cost in this situation?  Here's the math.

The loan balance starts at $689,185.  That's 97% of $700,000 plus the 1.5% MIP.  (We'll ignore the fact that the monthly payment is $611 higher).

The extra interest cost in this situation after 5 years is $35,302.

So, which situation is better?  The answer depends on your circumstances.  Yes, you saved $84,000 up front.  If you were able to invest that at, say, 5% compounded over 5 years, you would have built up a sum of $107,208, or a gain of $23,207.  (Ignoring taxes).

So, on the surface, the FHA loan seems to be much more expensive since the extra cost far exceeds what is gained.

Only you can determine what's right for you, as there may be other benefits by being able to be in that home of your dreams now, versus waiting a long time to save the extra cash.

Feel free to call me for a free consultation to discuss your personal situation.

Rick Pelleriti
Upfront Mortgage Broker
408-238-2746

"Home of the Free Home Loan"

Last August, the loan industry starting seeing early warning signs from lenders, noticing that their guidelines were becoming stricter.  For example, many lenders would provide 100% financing, even with Stated Income loans, up to $1,000,000.  First, they lowered the limit to 95%, then 90%, etc.

It has gotten progressively worse, and lenders to this day continue to tighten guidelines.

However, there was an announcement today by Wells Fargo that at least one guideline has actually gotten more lenient - and that's a very good sign.

Background

Some months ago, lenders recognized that in certain markets (called "Declining Markets,") they would reduce the amount they would lend by 5%.  So, if a lender was willing to lend 90% of a property's value, it really meant 85% in one of these "Declining Markets."  ( By the way, this has been incredibly confusing in the industry.  Most counties in California are in a "Declining Market." )

I always figured that someday, if home prices got low enough, we would no longer be in a "Declining Market."

Well, guess what?  Today Wells Fargo announced that they are eliminating the 5% Declining Market rule, so in effect, they are INCREASING the amount that they will lend for loans in the $417K to $729,750 range.

By no means are we out of the woods yet, but this is a very good sign, so maybe the "tide is turning."

Rick Pelleriti
Upfront Mortgage Broker
"Home of the Free Home Loan"
rick@upfrontmortgageplanner.com

I am so excited about what I'm soon able to provide my clients, I can hardly stand it.

My increasing devotion to state of the art technology will very soon allow you, the borrower, to instantly see the very best wholesale rate, LIVE, right on my website, in real time!  If a lender changes their rate, as they often do during the day, it automatically changes on my website.

For example, if lender "A" has the best rate for a Conforming 30 yr. fixed at 10:AM, but then at noon lender "B" now has the best rate, you will see that new lower rate from lender "B."  Think of it like a stock ticker, the prices change in real time.

This should be a huge advantage to you.  Now you can always know the wholesale rate for the most common loan products instantly, without having to call anyone up.  Of course your ability to qualify will determine whether you can get that rate, but you'll at least know what the optimal rate is for the well-qualified borrower.

If you're shopping for a certain rate, you can always come back to the website and see how close you are.

Now, when you combine all of that with getting a Cash Reward for your loan, which will allow you to recoup all your non-recurring closing costs AND the loan origination fee, (essentially making it a "Free Home Loan") you'll know why I think this is an unbeatable combination.

Try getting that from Bank of America!

Rick Pelleriti
Upfront Mortgage Broker
www.Free-Home-Loans.com

"Home of the Free Home Loan" ™