Top Deploy Blog

Agel is pleased to announce the Second Annual Cruise promotion for 2007, open to all team members. This promotion will run from January 1, 2007, to March 31, 2007. Those who qualify according to the rules outlined below will win a vacation cruise with Agel Corporate to take place in the month of May. Exact dates and locations will be revealed shortly.

Enjoy some fun and relaxation with your Agel friends. Come and enjoy live entertainment, casinos and spas - all just a short stroll away. Do everything or do nothing at all.

You don’t need to make dinner reservations. You don’t need to book a hotel. Just qualify for one of the amazing prize levels listed below:

• Level 1 - Personally enroll 20 people at the executive level and win a cruise for two, which includes accommodations in a deluxe balcony suite, $2,000 in airfare and $2,000 in spending cash (to be provided upon boarding the ship).*
• Level 2 - Personally enroll 12 people at the executive level and win a cruise for two, which includes accommodations in an ocean view room and $1,000 in airfare.*
• Level 3 - Personally enroll 7 people at the executive level and win a cruise for one, which includes accommodations in an interior stateroom.*
• Level 4 - Personally enroll 4 people at the executive level and receive a 50 percent discount on a cruise for one, which includes accommodations in an interior stateroom.*

Any executive level enrollment returns will not count toward total enrollment. However, any upgrade from a retailer level enrollment to an executive level enrollment, including retailer level enrollments made prior to January 1, will count toward total enrollments.

Qualifying winners must attend in order to receive their prize. No cash prize will be offered if unable to attend. No substitutions. Team members who do not qualify will have an opportunity to purchase the cruise vacation at a group rate.

The cruise vacation includes: ship accommodations, ocean transportation, most meals, some beverages and most entertainment onboard the ship.

* The cruise vacation price does not include: air transportation (except as noted), transfers (except as noted), optional shore and land excursions, meals and accommodations ashore (except as noted), certain beverages, casino gambling, photographs, gratuities, telephone calls, specialty restaurants onboard certain vessels, purchases from the ship stores, or items of a personal nature such as medical services, laundry, massages, spa treatments, hair styling or manicures.

Must meet all eligibility requirements set in place by the cruise line. i.e. passport, age and boarding documentation. Promotion rules, regulations and prizes may differ for team members outside of the United States. All terms and conditions are subject to change.

Contact Gennadiy@SizzleSponsoring.com with any questions.

Visit http://www.TopDeploy.com

CURRENT EVENTS

With the New Year less than a month old, a lot of New Year’s resolutions have already been broken. One that has not is the Fed’s continuing resolve to curb inflation. The unexpectedly high Jobs Report surprised a lot of traders and revealed that wages increased 4.2% over last year further adding to inflation.

CHINESE NEW YEAR

Abroad, China’s central bank appeared similarly focused on slowing economic expansion and containing inflation when it raised reserve requirements for banks on January 5th. Not far behind, on January 10th, the Bank of England raised interest rates by a quarter percentage point to 5.25% to head off rising inflation amid a boom in the housing market and strong economic growth. As I mentioned last month, dollar-denominated assets have less appeal compared with the looming prospect of higher returns in Europe and elsewhere.

These developments are added fodder for the Fed not lowering rates anytime soon because of the adverse impact on currency exchange rates. The fixed income and equity markets appear to be rethinking their beliefs that the Fed will be lowering interest rates in the first half of this year and may not lower them until the third or fourth quarter, if at all.

THIS ISSUE’S TOPIC: LOAN PRICING DETERMINANTS (PART 2)

FOREWORD: Because of the length of last month’s topic, this is the conclusion of a two-part series that covers the potential 12-17 pricing factors that are involved in answering the question of “What’s your interest rate (for a given loan)?

RATE vs. PRICE

To review: there are two elements that determine an interest rate quote: one is the INTEREST RATE, the other is PRICE. The INTEREST RATE is the prevailing percentage of a sum of money charged for its use.

The PRICE is the amount that one has to pay obtain a particular rate.

Example: The interest rate for a loan of $500,000 is 6%, but the price to obtain this rate may be .5% or $2500. Par pricing is where there no money paid or rebated to obtain a particular rate. New loan officers frequently use the two interchangeably with disastrous results. They make adjustments to rate instead of to the price and vice versa.

Whether adjustments for various determinants correspond to rate or to price are indicated by bold-faced type. NOTE: to maintain a degree of uniformity, the pricing spreads for the following determinants are all from a single lender on the same day. Aside from lenders’ guidelines and Debt To Income (DTI) ratios the following factors will impact the rate and pricing:

To recap: In the previous issue 6 of the 12-17 interest rate determinants were covered. They were: loan amount, LTV, FICO score, occupancy, property type, and loan type. Today’s discussion will focuses on the remaining 11 factors that affect a loan’s interest rate.

DOC TYPE

The basic rule of thumb is that the more documentation you’re willing to provide the less risk that is attached a loan for a lender. Consequently, lenders are willing to discount the price. In ascending order of price would be Full Doc, Stated Income with Verifiable Assets (SIVA) and Stated Income with Stated Assets (SISA), NO RATIO (NORA), NIVA (No Income, Verifiable Assets), NINA (No Income No Assets), and NO DOC. The spread between the different programs is all over the place. Different lenders may offer stated income loans at the same price as full-doc or price them a ¼ - ½ point higher. As the LTV increases, the price of the loan jumps accordingly. For example, there’s no difference between the spread on a NIVA and a NORA at 60% LTV and only a ¼ point bump for a NINA. But with an LTV of 95% the price for the NIVA is ¾ of a point, the NORA is a full point and the NINA 1.875%. For a fuller explanation of the differences in loan doc types, see the May newsletter (or on the web vol. 3 issue 5).

INDEXES

There are several different indexes. Among the most well known and frequently used are the CMT, the LIBOR, the COFI, the MTA, and the COSI. The interest rate spread is often as much as a full point. For example, right now the COFI stands at 4.38%, the MTA, at 4.82% and the LIBOR, at 5.34%. But this is only part of the story, because the indexes with the lowest interest rates usually have higher off-setting margins which negate the difference in the indexes. Incidentally, difference in the indexes is a factor of their volatility. Some are more stable than others. When rates are rising, those with the greatest volatility will spike the most quickly, but when rates are falling they will, likewise, be the quickest to drop. For an in-depth discussion of the various indexes, see the December newsletter (vol. 2, issue 10 on the website).

LENGTH OF FIXED RATE

Normally, the shorter the period that the rate remains fixed, the cheaper it is. Thus a 6 month Libor (where the rate is fixed for 6 months and adjusts based on the LIBOR Index) is apt to command a lower rate than say a 3/1 Treasury (where the rate is fixed for 3 years and adjusts annually based on the CMT (Constant Maturity Treasury Index). The fixed rate periods range as follows: 1 month, 6 month, 1 year,
3 yrs., 5 yrs., 7 yrs., 10 yrs., 15 yrs., and 30 years. Thus, a loan that’s fixed for 30 years would typically command the highest premium. With a normally ordered yield curve one might expect to see an eighth of point spread between the various fixed rate periods. I say “normally”, because in the past few years we’ve had several instances when the yield curve has been inverted, during which time, short term (6 mos. – 3yrs) money at fixed rates has cost more than intermediate term money (5-7 yrs.) and numerous instances where long term (10-30 yrs.) less dear, than 3-5 yr. (short-intermediate term) money.

TERM

A rule of thumb that may be applied here is the shorter the term, the cheaper the rate. The options normally afforded a borrower are: 15, 30, 40 and even 50-year terms. Some lenders also offer 10 year terms based on 15 year pricing (with a .25% adjustment) and 20 year terms based on 30 year pricing (again, with a .25% adjustment downward). With 40+ year terms one can expect to see price bumps ranging from .25% to .625%.

LOCK PERIODS

The range of lock times is between 15-75 days. Lock times come in 15 day increments; the longer the lock, the higher the price. At present, the spread is about 1/16 of a point per 15 day extension.

CASH OUT

If you’re refinancing a property and need cash out (beyond $2,000) you can expect to see a .25% adjustment upward in the price.

PREPAYS

They come in increments of 1, 2, 3, & 5 years. The value to the borrower is that your broker may be in a position to offer you a zero point loan, that is, one with no origination fee. Thereby saving you thousands of dollars.

POINTS OR NO POINTS?

Do you want the lowest rate or the lowest price? If you want the lowest rate you’ll opt for the wholesale price, but this will necessitate an origination fee. If you desire the lowest price, you may be able to get a rate only a quarter percent higher that will pay the broker a rebate, thus saving you thousands of dollars in origination fee. If you’re holding time is less than 5 years, it will probably benefit you to go with rebate pricing as opposed to wholesale pricing. (See Prepays above. In certain instances you may be able to get the best of both—a rate at par with no origination fee, if you elect to go with a prepay).

IMPOUNDS

Some lenders offer reductions to borrowers if they have their taxes and insurance impounded because it diminishes the chance of a tax lien (which would affect the lender’s collateral) or lapses in insurance coverage (which would affect the lender’s security). The differential is ordinarily .25% in price.

BUYDOWNS

Interest rates can be bought down either permanently or temporarily. Buy downs are not cheap, however, as a “general rule of thumb,”
a discount point of 1% will lower your fixed interest rate loan .25% and your adjustable interest rate loan .375%. In other words, it would be necessary to pay 1% of the total loan amount in price to lower your rate a ¼ to 3/8 of a percent.

2NDs

With LTVs (Loan To Value) above 80% one has 3 choices: 1 loan with Mortgage Insurance included, a fixed rate 2nd or a variable rate loan like a HELOC (Home Equity Line Of Credit). With an LTV in excess of 80% one can expect one’s price on the 1st to increase anywhere from .25% to 1.5% depending on one’s FICO and LTV.

(Note: as of 2007 the Mortgage Insurance premium becomes fully tax-deductible for borrowers who make less than $100,000 per year.)

IF SOMEONE QUOTES YOU A RATE WITHOUT TAKING THESE 12-17 FACTORS INTO CONSIDERATION, I WOULD STRONGLY QUESTION THEIR CREDIBILITY AND PROFESSIONALISM.

MORTY’S MAILBAG

Q. When we filled out our Loan Application I noticed that below the section labeled Gross Monthly Income there was a designation “Other income”. What are they referring to, part-time or second jobs? What qualifies?

A. There are many other potential sources of income (like Social Security and Disability payments, to name but two) and the use of them for qualifying comes down to a very simple rule. It must be reliable, recurring, and verifiable and extend into the future for at least 3 to 5 years.

Recipients of the newsletter are invited to Ask Morty any real estate or financing questions. The answer to the question will be answered in the next issue for the benefit of all. Questions may be forwarded via mail phone or fax. (See front of issue for phone and fax numbers). Morty’s email address is Morty@MortgageStraightTalk.com.

MORTGAGE MIRTH

Slappy White, the comedian, once observed: “The trouble with unemployment is that the minute you wake up in the morning—you’re on the job!

If you’d care to share one that you’ve heard, please email it to me at rod@mortgagestraightTalk.com .

HAVE YOU HEARD FROM ME, YET?

If not, I’ll be calling to ask you a question or two. Many of you read the newsletter (I know, because I get compliments on it from time to time); others, probably, circular file it. I’ll be contacting you to find out which camp you’re in. I want to know because each issue costs me a $1.50 per copy with printing, paper, and postage. (Those little inkjet and laser cartridges don’t go very far).

The other reason is that I’m looking for ways to improve the newsletter, so if you have any ideas, topics you’d like to see me treat, or features you’d like to see implemented, I’m all ears.

Rod Haase

Associated Brokers, MLI
http://mortgagestraighttalk.com/
rod@mortgagestraightTalk.com
1-866-214-3378 ext.8584

NEXT ISSUE’S TOPIC: TOP TEN MISTAKES BUYERS MAKE WHEN
BUYING A HOME

CURRENT EVENTS

Where are interest rates headed, this year? It seems to be a topic for debate, to be sure. Economic assessments of the current state of the economy, never mind the future, are all over the place. Domestically, they involve monetary policy, employment and inflation and internationally, huge trade imbalances and deteriorating exchange rates.

At home, the Fed’s primary concern has been inflation—and protecting not only us but future generations, from runaway prices of goods and services. To combat inflation, it has used a measured approach of seventeen consecutive ¼ point stair-step rate hikes over the past 30 months designed to slow economic expansion. The latest jobs report shows an economy operating at nearly full employment. The upshot of this is that with a tight labor market employers are forced to bid up wages to attract new hires, which further exacerbates inflation. Despite this, core inflation has decreased to an annual rate of 2.6%, but still well short of the Fed’s target range of 1-2%. For the Fed, the trick is to slow the economy down, but not so much that it stalls and triggers a recession. In short, the Fed has been trying to fine-tune the economy to achieve a “soft landing”.

But, in early December, when things appeared to be going so well and the prospect of a soft landing looked possible—the dollar dropped sharply against a range of major currencies. Once it fell below the $1.30 exchange rate for the euro, it accelerated. The currency sell-off came as investors weighed a number of issues that complicate the prospects of the United States in the coming months, including a huge trade imbalance with China and a drastically impacted housing market.

The fall further highlighted concerns about softness in the American economy in the coming months as economies abroad continue to expand. The first week in December, the European Central Bank (ECB) raised rates to an almost 4 year high to combat inflation in an effort to slow the growth of member economies in the European Common Union. As the ECB seems committed to tightening rates further this year, dollar-denominated assets have less appeal compared with the looming prospect of higher returns in Europe.

Additionally, China holds almost 1 trillion dollars of foreign exchange reserves—which are mainly ours, in the form of mortgage bonds. Their huge appetite for our bonds has helped keep bond prices high and home loan rates low. Their central bank is looking to diversify the country’s foreign-exchange reserves into other foreign currencies and gold in light of recent developments.

Extremists see the Fed in a no-win situation. One side claims that if the Fed were to raise rates, the real estate market would collapse, the other side says that if it were to lower rates, the dollar would collapse. As with so many things in this life, it rarely comes down to an either/or situation.

This kind of confusion about what’s going on is what typically happens when the economy is at a turning point when an economic expansion is about to turn into a recession (or vice versa). At turning points, the various indicators that usually tell us which way the economic wind is blowing often point in different directions, so that both optimists and pessimists can find data to support their position.

The last time things were this confused was early in 2001, when most economists failed to realize the United States was sliding into a recession. If that sounds ominous, it should: the bond market, which has a pretty good record of forecasting recessions, is pointing toward a serious economic slowdown next year.

By mid-December, the fixed-income markets indicated the Federal Reserve will be cutting rates in the near future because of the threat of too much of an economic decline and that stimulation in the form of rate cuts will be needed to boost a faltering economy. Furthermore, Fed Futures traders priced in a 70% chance of a rate cut at the Federal Open Market Committee’s March meeting and speculated that the dollar’s depreciation would force the Fed to abandon its war on inflation.

Yet, When the (FOMC) met on December 12th, the Fed left rates unchanged for the fourth consecutive time, warning that inflation remained a concern and offered little hope of a rate cut early next year. At the same time, it acknowledged the adverse impact the rate hikes have had on the housing industry which led some to theorize that this was “Fed speak” for setting the stage for the first of a series of rate cuts in the 1st or 2nd quarters of this year.

I would venture to say that a rate cut is inevitable, it just may not arrive until the 2nd or 3rd quarter. With all these different market forces at work it looks to be an interesting year ahead. To quote Betty Davis in “All about Eve:” “Hang on, it’s going to be a bumpy ride!”

THIS ISSUE’S TOPIC: INTEREST RATE DETERMINANTS (PART 1)

FOREWORD: Because of the length of this month’s topic, this is the first of a two-part series.

The most frequently asked questioned by borrowers is “what’s your rate?” They often expect you to quote a rate without their affording you much in the way of pertinent information other than their name. The easy, open ended answer is “I have programs with rates that range from 1% to 12%. Let’s see which one you and your property (or purchase) qualify for”.

What borrowers often fail to realize is the complexity of coming up with a VALID quote because not only do the rates change daily, and occasionally, multiple times in the same day, but that each lender may have 20-50 different loan programs. On top of this, Associated Brokers, my parent company is approved with over 100 different lenders. So, if you do the math, there are literally thousands of different programs. Each program has 10-15 different parameters that influence the pricing.

What most brokers do (if pressed by a borrower for a number on the spot) is quote from the one or two lenders they use most often. Some don’t bother qualifying the borrower by running their credit—they simply quote them the “A Paper” rates and assume that the borrower has a 680 mid-FICO or above. Obviously, this can present problems down the road.

RATE vs. PRICE

There are two elements that determine a rate quote: one is the INTEREST RATE, the other is PRICE. The INTEREST RATE is the prevailing percentage of a sum of money charged for its use. The PRICE is the amount that one has to pay obtain a particular rate. Example: The interest rate for a loan of $500,000 is 6%, but the price to obtain this rate may be .5% or $2500. Par pricing is where there no money paid or rebated to obtain a particular rate. New loan officers frequently use the two interchangeably with disastrous results. They make adjustments to rate instead of to the price and vice versa.

Adjustments for the various determinants whether they are to rate or to price are indicated by bold-faced type. NOTE: to maintain a degree of uniformity, the pricing spreads for the following determinants are all from a single lender on the same day. Aside from lenders’ guidelines and Debt To Income (DTI) ratios the following factors will impact the rate and pricing:

Loan Amount

Lenders’ base interest rates are determined by the size of the loan. There are three categories: Conforming (under $417,000), Non-Conforming a.k.a. Jumbo ($417,001 to 1.5 million) or Super Jumbo ($1.5 million plus). The smaller loan amounts, typically, have base interest rates that are lower by .25% to .375%.

LTV

With a lower LTV (Loan To Value) classification, there is a reduced risk of default for the lender and consequently, the pricing to be had is better. The range varies with the LTV. The best pricing will usually be at LTVs of 60% or less.

MID-FICO SCORE(S)

Your mid-FICO score is another prime determinant of price. Notice that I said mid-FICO, not the high score, not the low, but the middle score in a tri-merged credit report. If there is a co-borrower or spouse on the loan, the lender will almost always go with the lower mid-score of the two borrowers on the theory that “a chain is only as strong as its weakest link” and so too, with the likelihood of a default on a loan. There are a few lenders (usually sub-prime), however, that will go with the higher wage-earner or will go with a blended FICO score (the average of the borrower’s and co-borrower’s mid-FICO scores).

OCCUPANCY

Financing for one’s Primary Residence will be more attractively priced than for a 2ND Home or an Investment Property (a.k.a. Non-Owner Occupied). The reason for this is that an owner is far less apt to default on the payments on their principal abode than a 2nd home or an investment property. Lenders have correlated the risk on investment property to be generally a full 1 percent higher in price over a primary residence. A 2nd home would likely necessitate an adjustment of only .125% in price.

TYPE OF PROPERTY

Differing types of property affect the price of a loan. The reason being is in the event of a default certain kinds of property offer better collateral or are easier for a lender to market than others. An SFR (single family residence) or a PUD (planned unit development) is better collateral than say a CONDO because the land beneath the dwelling is owned outright as opposed to a condo whereby only the unit is owned outright and the land owned in partnership with the other condominium owners. Lenders are also reticent in lending on condo projects where fewer than 50 or 60% of the units have been sold.

LOAN TYPE

Depending on what a borrower is trying to accomplish the type of loan will have a direct effect on the rate as different loan types have different rates. For example, if a low payment is desired the ideal vehicle may be an interest only type of loan, if the borrower is looking to shorten one’s pay-off time he may opt for a Home Equity Accelerator Loan or a 15-year term, and if maximizing one’s cash flow is a priority he or she may want to consider an option ARM with a 1% start rate. All of these programs have different prices and interest rates associated with them, respectively.

Conclusion of Interest Rate Determinants (Part II) in Next Issue

IF SOMEONE QUOTES YOU A RATE WITHOUT TAKING THESE FACTORS INTO CONSIDERATION, I WOULD STRONGLY QUESTION THEIR CREDIBILITY AND PROFESSIONALISM.

NEW LAW FOR 2007

Congress has enacted a new law for 2007 that allows Private Mortgage Insurance (PMI) premiums to be tax-deductible. By doing so, it is often cheaper and obviates the need for a 2nd mortgage in many cases.

MORTY’S MAILBAG

Q. Please explain to me what constitutes the difference in lenders eyes between a primary residence and a 2nd home. I’ve been told it’s the distance thing but this doesn’t make sense because I know of instances where such couldn’t be the case. Also, can you have a 2nd home, if you don’t have a first home?

A. For most lenders it is as you put it “a distance thing”, wherein the 2nd home needs to be more than 60-65 miles distant from one’s primary residence. There are exceptions where the 2nd home is in a resort or vacation destination. An example of an exception might be one where the principal residence was in the city and one had a 2nd home at the beach or a ski resort, even though it may be within a 60-65 mile radius of one’s principal residence.

Judging from your question, I interpret your question to mean “Can one have a 2nd home if they don’t own their primary residence?” The answer is yes. Their primary residence might be a rental here in California and own a 2nd home in another state, for example.

Recipients of the newsletter are invited to Ask Morty any real estate or financing questions. The answer to the question will be answered in the next issue for the benefit of all. Questions may be forwarded via mail phone or fax. (See front of issue for phone and fax numbers). Morty’s email address is Morty@MortgageStraightTalk.com.

MORTGAGE MIRTH

Although I enjoy their company probably more than any other profession’s, almost everyone has had a bad experience with an attorney at some time or other, thus we have this month’s offering:

Q. Why do they bury attorneys 12 feet under?

A. Because -deep, deep down they’re really good people!
If you’d care to share one that you’ve heard, please email it to me or call:

Rod Haase

Associated Brokers, MLI
http://mortgagestraighttalk.com/
rod@mortgagestraightTalk.com
1-866-214-3378 ext.8584

NEXT ISSUE’S TOPIC: LOAN PRICING DETERMINANTS (PART 2)

• Do you always use the peephole before answering the door?
• Do your doors have deadbolts and metal plates?
• Are your windows and doors locked at all times?
• Have you installed supplementary locks on all windows and sliding glass doors?
• Is your garage locked?
• Have you ensured that no spare keys are hidden outside the premises?
• Did you change the locks when you moved in?
• Have you ensured your key ring does not have your address on it?
• Have you marked your valuable possessions with unique, irremovable identifiers?
• Can your doors and windows be seen from the street or by your neighbors?
• Do you have a security system?
• If you are going away for an extended period, have you informed your neighbors?
• Do you have motion-detector lights around the property?
• Are your tools and ladders put away where a thief could not find and use them?

Joscelin Magana
KELLER WILLIAMS REALTY
1-866-214-3378 ext.6200

His name was Fleming and he was a poor Scottish farmer. One day, while trying to make a living for his family, he heard a cry for help coming from a nearby bog. He dropped his tools and ran to the bog. There, mired to his waist in black muck, was a terrified boy, screaming and struggling to free himself. Farmer Fleming saved the lad from what could have been a slow and terrifying death.

The next day, a fancy carriage pulled up to the farmer’s sparse surroundings. An elegantly dressed nobleman stepped out and introduced himself as the father of the boy he had saved. I want to repay you,” said the nobleman. “You saved my son’s life.”

“No, I can’t accept payment for what I did,” the farmer replied, waving off the offer.

At that moment, the farmer’s own son came to the door of the family hovel. “Is that your son?” the nobleman asked. “Yes,” the farmer replied proudly.

“I’ll make you a deal. Let me take him and give him a good education. If the lad is anything like his father, he’ll grow to be a man you can be proud of.” And that he did.

In time, the farmer’s son graduated from St. Mary’s Hospital Medical School in London and went on to become known throughout the world as the noted Sir Alexander Fleming, the discoverer of penicillin.

Years afterward, the nobleman’s son was stricken with pneumonia. What saved him? Penicillin.

The name of the nobleman? Lord Randolph Churchill. His son’s name? Sir Winston Churchill.

As someone once said, what goes around comes around. Work like you don’t need the money. Love like you’ve never been hurt. Dance like nobody’s watching.