The 3/27 had a few basic traits:
1. A fixed, 3-year “starter rate”
2. Every six months thereafter, the mortgage rate changed
3. The formula by which it changed was (4.999 percent + the 6-month LIBOR rate)

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

For homeowners with adjusting sub-prime loans, there is some (relative) good news out there.

Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.

This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.

Adjustments of any size can strain a household budget, though, so if you’re a sub-prime borrower and your pending adjustment will cause financial strife, be proactive — talk to your lender before you miss a payment.

Lenders are often more willing to talk with “current” borrowers than with delinquent ones.

(Image courtesy: Washington Post)

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The Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent this afternoon, as expected.
In its press release, the Federal Reserve noted the co-existence of inflation and recession.

On inflation, the Fed said that energy and food prices are contributing to an “elevated state” of inflation, but that it expects price pressures to ease “later this year and next year”.

On the topic of recession, the Fed seemed a bit more concerned.

Overall, markets reacted favorably to the press release; both stocks and mortgage rates showed signs of improvement in the statement’s wake.

Source
Parsing the Fed Statement
The Wall Street Journal Online
June 25, 2008
http://online.wsj.com/internal/mdc/info-fedparse0806.html

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1. Principal on a mortgage
2. Interest on a mortgage
3. Taxes on the real estate owned
4. Insurance for the real estate owned

Collectively, these payments are known by the acronym PITI but don’t let it fool you — a homeowner’s monthly expenses are still called PITI even if one or more of the elements doesn’t apply.

For example, a homeowner with an interest only mortgage does not pay principal each month.

Additionally, condo owners typically don’t pay homeowners insurance — they pay a monthly assessment and/or maintenance fees to an association instead.

But regardless for what it stands, determining a comfortable PITI should be every homeowner’s starting point when looking for a new home.  PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it’s a lot easier to compare homes and their related expenses.

It’s certainly better than asking the bank “how much home can I afford” — all that’s going to tell you is the P and the I.  As a homeowner, you need to know all four.

PITI is most commonly pronounced pee-eye-tee-eye.

(Image courtesy: Contractor-Books.com)

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PMI provides a cash payment to lenders in the event of a homeowner defaults.

But because PMI policies are designed for high LTV loans only, they usually contain cancellation options for when home equity percentages reach 20 percent or more.

In other words, PMI can be temporary.

There is a caveat, however: Lenders will not automatically remove mortgage insurance when LTV falls below 80 percent — the onus is on the homeowner to initiate a formal request.

Earlier this decade — when home values were soaring — many PMI-paying homeowners recognized their equity growth and successfully petitioned out from PMI.

Many other homeowners, however, forgot.

So today, as home values stagnate or depress in different U.S. markets, homeowners eligible for cancellation may find that both their home equity and their right to cancel have vanished.

PMI helps makes high LTV loans possible, but there’s no reason to pay it longer than necessary. If your current mortgage requires PMI payments and your loan-to-value lurks below 80 percent, contact your mortgage lender to start the PMI cancellation process.

Or, if you’re unsure about your home’s value and the 80 percent threshold, call or email me anytime and I can help you connect with somebody to give you the answers you need.

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TLO Objectives:

• Transaction speed
• Taking applications
• Measuring units and outcomes

MP Objectives:

• Relationship value
• Delivering valued advice to earn a trusted relationship
• Measuring margin and key performance indicators

So when you are ready to purchase your first home, investment property, or even refinance your existing loan, really consider using an MP. Just like you have a doctor, dentist, or accountant; you should have a mortgage planner. Use the knowledge of a mortgage planner for any future issues with your mortgage, budget, investing, or any other financial related topics.

Your biggest financial liability other than your family will always be your home mortgage, so ask your self who do you really want to handle your loan: someone who is just looking to take an application and move on to his next client (TLO), or someone who you can trust, build relationship, and give you his or hers expertise in your specific home loan scenario (MP)!

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As responsible investors, realtors and homeowners, we owe it to ourselves to not only be aware, but also understand the meaning behind such headlines. And who better to have it explained to you than your own, qualified Mortgage Planner, who with proper information and insight, is these days considered to be as invaluable as anti-virus software for your desktop computer.

The past methods of mortgage brokers simply quoting rate, payment, and closing costs are now long gone. These days, the status and volatility of today’s housing market lends necessity towards working with knowledgeable professionals.

Individuals who not only specialize in getting your loan to the closing table unaltered from any initial terms, but who also can interpret and identify why mortgage rates have consistently risen within days of each of the last five Fed Note rate cuts.

Your alternatives: you could have one of the Baldwin’s show up to your house with a set of steak knives and a swinging pair of metallic spheres, and unknowingly let them fast-talk you into negative amortization loan. Sure, they’re good looking and they make us laugh, but in times like these, we don’t need actors consulting us on what APR is: We want the real deal.

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