You can buy a house and you can get a mortgage

Here is what we have been able to do in the mortgage world lately:

• More and more lenders are making appraisals easier.  We are able to use AXIS appraisals, which are based in the Bay Area (fewer Fresno- and Martinez-based appraisers doing appraisals in San Francisco).
 
• We have a lender that will do 90% loans to $979,750!!  That means we can do a purchase of a $1,088,000 home with 10% down.
 
• Rates are still low.
 
• Lenders are still lending on live-work lofts.
 
• Lenders are still doing recent condo-conversions (TICs to condo).
 
• We have lenders that will still fund in the name of an LLC or corporation.
 
• We have two banks that will underwrite and approve a borrower based upon his/her assets and derive an analytical income for qualifying for the loan versus using income derived from tax returns.  This is like a stated-income loan for those with lots of liquid assets.
 
• We have banks that will allow for a community second mortgage or an employer second mortgage, such as the SF Mayor’s Office of Housing program or Kaiser employee loans.
 
• Most condos can be FHA approved by sending in FHA approval packages to the California office or HUD.  Turn-around time is 2-4 weeks.

The rest of the market?  Just as tedious as it’s ever been.  If you have to get a mortgage, hang in there.  The paperwork is oppressive and the conditions are often silly, but it will happen. Call us if you need some help.

What to eliminate from 31 ideas and what to add

There’s an older article that refers to 31 ideas. I see no reason to replicate it.  Check it out.  There are some great suggestions.

 
Here’s what I would not do (or at least be wary of):

• Make an extra mortgage payment.  This is only worthwhile if you’ve sat down with your financial planner and decided this is actually in your best interests.  It likely isn’t.

• Increase your student loan payment.  Again, only worthwhile if you’ve considered the interest rate, whether you can deduct the interest, and whether it makes sense in your overall financial plan.  Remember, paying off debts is not the same as accumulating assets.

• Seeking a lower interest credit card.  Initiating new credit can bring down your credit score, so if you’re planning to buy a house, this could be a bad idea.  Otherwise, it’s a great idea.

• Be careful about shopping for new home and auto policies.  Make sure that you’re not losing “seniority” at your insurer that you would be giving up should you change companies.

 
Here’s what I applaud and highly recommend:

• Set an automated payment toward your debt.  In this, I’m thinking about the minimum monthly payments.  Make sure those are paid automatically.  Now, you might always pay more or pay them off, but I can’t tell you how many clients thought they were paying ABC Bank for their mortgage but sent the payment to the credit card division and didn’t catch the mistake until they were 30 days late.  Yikes.

• Check your credit report.

• Reread your estate planning documents. Make sure you still agree with them.

• Walk a loved one through your affairs. 

 
Here’s what I would add:

• Call your mortgage broker and see if you can do better on your residential loans.

• See the comment near “Investments and Retirement” about checking out your medical report file from the nationwide consumer reporting agencies.  Like checking your credit report, you may discover mistakes that are causing you money.

• Consider buying long-term care insurance.

 
If we can help you with any of these items or with a referral, please call.

As home loans get harder to obtain, the number of renters increases, and so will rent

Come October 2011, buyers’ purchasing power is will reduce even further:

• The FNMA (Fannie Mae) loan limit will be reduced from $729,000 to $625,500, pushing more buyers into jumbo loans for which there are fewer lenders and consolidators.

• Jumbo loans require 6-12 months of reserves, which is more than FNMA requires.

• Interest rates will likely rise, making qualifying for a loan even harder.

• Mortgage insurance for FHA loans will increase by 30% in April 2011.

• Credit scores are on the decline.

• As home equity has vanished, buyers who want bigger homes will not have the equity from the sale of their current home to put toward the new purchase, which will likely require a 30% down payment.

What does this means?  More people staying in their homes, more people unable to qualify for a loan, more people renting instead of buying.  This is all true before we get to the conversation of the recurring suggestions in Congress that the mortgage interest deduction should be reduced or eliminated.  There are times when it’s good to be a landlord. This is one of them.  And, yes, we do investment property loans, too.  Give us a call.

Diversify strategies and build in flexibility

Evening out the swings in income and work-flow in business takes practice, patience, strategy, and intentionality.  Business owners should always be marketing, even when they’re busy.  They should either do it themselves or delegate it to an employee. Business owners should always be “working” on the business they brought in (again, either themselves or by employees). This evens out income and it evens out work-flow.  It takes time to make this the culture of one’s work day and one’s business. Then, on top of that, there’s the hard decisions of how much to set aside in boom times for leaner years.  Is the money best saved or reinvested in the business? All these challenges are on-going in business. Been there, done that, still doing it. The balance and the planning have to be intentional.

The same is true for your portfolio.  We use a platform that allows our clients to take advantage of the brain trust of those with PhDs and master’s degrees to determine how their money should be invested based on their philosophy(ies) and willingness to take risk.  Notice I used “philosophy(ies).”  This platform allows my clients to employ different money managers with different philosophies all at the same time. Because, let’s face it, the market is going to do what the market is going to do, and every money manager has an opinion about what you should do as a result, from “buy and hold” to “stay in cash and actively manage investments for positive returns.”  Just as in business, as in portfolios – sometimes there are tough decisions to make along the way, but if one builds in different strategies and provides flexibility for money to grow, chances increase that one will reach investment goals that serve their lives. When the time comes to make changes, changes can be made easily and with unbiased advice.

While I can’t help you directly with the business decisions, I can refer you to people who can.  And if you want to talk portfolios, please give me a call.

Getting scarce loans will now be scarier

Kathleen Pender, in the San Francisco Chronicle, wrote last Sunday that “tougher rules mean loans could become more scare (sic), more expensive or both.” I just had to love the typo.  Scary, scarce, and costly – just what the consumer wants in a mortgage, just what the consumer needs to have confidence in the lending industry.  Uh, I don’t think so.

Here’s what’s happening: 

• • FHA mortgage insurance premiums are going up to bolster FHA’s capital reserves.  This could mean an extra $63/month on a $300K loan.
   
• • Loan limits for FHA and Fannie and Freddie loans will drop to $625,500 on October 1.
   
• • Fannie/Freddie fees to lenders will increase, a fee that will be passed along to consumers.  On a $300K loan, this would amount to $750 to $1500.
   
• • Starting April 1, either the lender can pay a set fee to the broker for brokering the loan or consumers can pay the broker directly, but not both. If consumers couldn’t understand compensation or comparing lenders and loans before, they aren’t going to have it any easier.  And anyone with a loan amount of $300K or less will likely be less well-served going forward. They often need the most help.
   
• • Lenders who securitize loans will have to retain a 5% interest in the portfolio they securitize. That means less money to lend.
   
• • As always, the wealthy don’t have to participate:  There are lenders out there now who will lend money to a borrower who is willing to put money into an account with this lender equal to the loan amount, and not require the borrower to make a mortgage payment. For 10 years.  So, if you’re wealthy and your income is lousy due to the economy, but you have the assets, the rules don’t apply to you.  This is the epitome of the saying, “lenders only lend to those who don’t need the money.”  We’ve come full circle. 

 

Until the secondary mortgage market improves for lenders willing to do loans that are not sold to Fannie and Freddie, the number of loans available and the ease of finding them is going to get worse. If you want a good loan, you might think about getting it now.

A better economy usually means higher rates

Remember, this is a blog—oversimplification will prevail.

Lesson #1:  Rates are driven by the mortgage-backed securities (MBS) market.  MBSs are more similar to bonds than stocks.  Money managers who have to produce returns for their clients invest in stocks (more risky but higher returns) and bonds (less risky but lower returns).  When money managers think companies will produce higher stock returns, they invest in stocks. When the economy shows signs of improvement, company stock prices tend to rise.  So, said another way, when the economy shows signs of improvement, that generally means stock prices will rise, which will cause money to flow to stocks and not bonds (or MBSs).

Lesson #2:  When bond prices decrease, mortgage interest rates worsen.  A bond’s price and its yield are inversely related. That means that when the bond price goes down, the yield goes up (and vice-versa).  Mortgage interest rates track with the yield.  So, as bond prices go down, the yield goes up, mortgage interest rates go up.  The price of a bond will go down when there’s less demand for it.  If money flows to stocks, that means it moves away from bonds.  As bonds are in lower demand, the price will drop, and the yield will increase.  Remember, mortgage interest rates track to the yield.  To review: the less demand for bonds (or MBSs), the lower the price, the higher the yield, the higher mortgage interest rates will go.

The Million Dollar Question: Will the economy improve that much this year?  This is where my crystal ball gets fuzzy.  I think the nightmare of the financial crisis of 2008 is over.  We’re stabilizing.  High unemployment is a problem, and I see it getting slightly better.  I’m a believer that the consumer tends to drive the economy and if they have money to spend, the economy picks up.  I’m a believer that until we start to support the small business person, who employs most of the people in this country, unemployment will remain stagnant and the recovery will be sluggish.  The Fed’s quantitative easing (QE2) and the financial stability of the European countries are the wildcards here.  Given all that, I’m predicting that the economy has a good year and rates will increase a bit to 5.5% on the 30-year.

And by the way, let me put this back into perspective for you.  5.5% is still historically pretty doggone good.  So, if you’ve been “left out” of this past year’s refinance opportunities, this will still be a great year to get it done.  Give us a call.

Choose a planner that put his/her attention on tax planning

Remember my beliefs.  The first one is that retirement savings and planning depends on you, you, and you (as opposed to the government, your employer, and you).  The second one is that you’ve got to keep your eye on market volatility, inflation/deflation (even if only medical expenses inflation), and TAXES.  Taxes could potentially be your biggest expense in retirement.  If you’re not diversifying your investments to provide tax-free income in retirement, you’re missing out on an opportunity to save on that expense and therefore have more money to spend in retirement.

Here are the Cliff Notes (remember Cliff Notes?):

1. As investors accumulate retirement assets, they should put money in three buckets: one that’s tax-deferred, one that is tax-free, and one that is taxable for savings and investments outside tax-advantaged accounts.
    
2. Investors often can stretch their retirement dollars further if they have the flexibility to manage distributions in a tax-efficient way.  This is a process that must begin in the accumulation phase.
    
3. Directing money to tax-free accounts can be the most challenging and needs to start early.
    
4. In the example given, because the couple was able to draw money from a variety of sources, the couple had $120K in retirement income and was able to keep an effective 7.7% tax rate and also realized these potential benefits: they will qualify for lower Medicare Part B premiums, potentially qualify for the lower capital gains tax, and improve their ability to deduct health insurance and/or long-term care premiums.
    
5. If cash is king, flexibility is queen:  A tax-diversified retirement portfolio gives investors more flexibility to deal with unknowns like changing tax rates and the potential means testing for Social Security and Medicare benefits. 

See, I’m not the only one who says these things.

I’m not saying you shouldn’t have dreams and goals.  What I’m saying is that the chances that you’ll success in achieving those dreams and goals will increase if you don’t take action in January.  Set whatever wishes, goals, and dreams you want for 2011.  Write them down. Put them in a box somewhere where you’ll see it no sooner than February 2nd.  Then, go back to your long winter’s nap.  In February or March, open these notes up, and start sowing the seeds that will make those dreams come true this year.  In the Northern Hemisphere, in this time of the year, it is hard to grow anything.  It’s dark. It’s cold.  We just crossed over the longest night of the year (winter solstice, December 21st).

All things grow better in light and warmth.  Your resolutions do, too.  And it takes the pressure off during a season when you don’t need more.  Enjoy the nap.

This decision – heck, any decision – has been much anticipated so that people could do their end-of-the-year planning.  The good news is that it also comes with some direction about the estate tax so we can all move forward with estate tax planning as well.

What should you do?

You have probably been talking to your accountant about this contingency, and now you need to act.  If this means shifting income from this year to next, taking more expenses this year, converting an IRA to a Roth, etc., you now need to make all that happen before the end of the year.   (As if you didn’t have enough to do already.)