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Pegasus Financial Real Estate Blog
Spring is in the air!
why some of us are sneezing. I love spring, but I do suffer
occasionally from allergies that tend to ruin the mood. Itís time to
play in the dirt, plant things, trim others, and remove anything in
the yard that died recently. I know Lowes and Home Depot love
spring. Lots of seed and fertilizer to sell. I am definitely
looking forward to some really good strawberries and tomatoes.
truth passes through three stages. First it is ridiculed, second it
is violently opposed, and third... It is accepted as
self-evident. Arthur Schopenhauer
this was just his way of saying we are slow to wake upÖ.
The instruction manual for the VW
Beetle was loaded with stupid instructions. It's been awhile since I
read the manual, but the one I remember most clearly is: ďDo not
travel with water or objects in the flower vase in the dashboard.Ē
I was signing the receipt for my
credit card purchase when the clerk noticed I had never signed my
name on the back of the credit card. She informed me that she could
not complete the transaction unless the card was signed. When I
asked why, she explained that it was necessary to compare the
signature I had just signed on the receipt. So I signed the credit
card in front of her. She carefully compared the signature to the
one I had just signed on the receipt. As luck would have it, they
Home Equity Lines of Credit.
Should you be
concerned about yours?
Many of these
loans are ticking bombs, especially if they are a large part of your
debt structure. They are always good to have in case of emergency,
but they may not be a great long term solution because of their
variable nature. They are usually based upon the prime rate, which
is a short term interest rate which can be volatile. Right now the
rate is absolutely awesome. However in the early going the minimum
payment is often interest only, so you are not reducing the level of
debt.. Eventually these loans amortize and must be paid off,
usually in 10 to 15 years. Couple that with increasing interest
rates, and that payment could triple. If you owe $10,000 or even
$50,000 that might not hurt too much, but many people have credit
lines of hundreds of thousands of dollars. If this is you perhaps
you should consider refinancing now while rates are low, even if
you payment goes up. Youíll be glad later. You never know how
long these rates are going to last.
Prosperity is only an instrument to be used, not a deity to be
worshipped. Calvin Coolidge
rates: Reprieve or time bomb?
mortgages have their place. There are not as many of them around as
there once was. There are a lot of adjustable rate mortgages still
in play, including some pretty dangerous ones. Right now they are
saving some people because the indexes are so low. This especially
applies to some of the old Option ARMS. You know, the ones that
would get bigger because most people would make the minimum payment
that wouldnít even cover the interest. Most of these have reached
the point at which they are no longer negatively amortizing, but the
rates are down so low that they wouldnít go negative anyway. Most
of these loans are based upon indices that will not adjust rapidly
when rates do go up, but when they do reach their peak they may
double or triple your payment eventually. They donít go down quickly
when rate improve either.
Feel free to call me if you have
questions, and donít be afraid to pull out your Note and read
What to do?ÖIf
you have one of these beasts there are things you may be able to
do. You may be able to refinance now while rates are low to get rid
of it. You may be able to talk to the lender about safeguards or
fixing in the rate. I have not seen lenders real exited about doing
this, because they donít have to, but itís worth a shot.
One thing you
can do without permission is to take advantage of the low rate while
you have it. This means either paying down on the balance while the
rate and payment are low so you wonít have as much to deal with when
it does go up, or setting the extra money aside so you will have the
money available to pay down when the payment does go up. The rate
on some of these adjustable mortgages is sometimes so low that you
can take the money and invest it at a higher return than what the
bank is charging you, and make money on the deal. Whatever you
do, donít make it nothing. Failing to plan is planning to fail.
Rates will go back up. They always do. If you have prepared
you will fare much better than if you didnít.
information on how credit
is evaluated, or for how and where to dispute erroneous credit,
visit our website at
www.PegasusFinancial.net. There are links to the 3 major
credit reporting bureaus, and lots of helpful information.
The New TILA 2011
On of the problems
with laws governing our industry is that they are trying to
substitute rules for ethical conduct. While rules and regs provide
guidance and set a method of enforcement, it is my belief that they
are no substitute for ethics and ethical behavior. Rules and
regulations are necessary in our industry, but sometimes you can get
too much of a good thing. There are times in which they actually
inhibit behavior that is beneficial to the very people the
purportedly are protecting.
financial reform bill reaches into this arena. I donít feel it is
beneficial for the Federal government to micro-manage the financial
industry with provisions that handcuff us to the point that it
creates more injustice than it prevents.
At least that is my
take on what it does to loan originators. It doesnít severely limit
how much we charge, but it does limit our ability to modify terms to
be competitive or to right wrongs that may occur within the context
of an individual transaction. We have been prohibited from reaching
into our pockets to pay for things that may come up during the
course of a transaction on order to facilitate the equitable
The banks institute
adjustments based upon loan amount, :LTV, and credit score in
addition to charging a flat administrative fee on every loan to keep
them both competitive and profitable. However, under the provisions
of the Dodd-Frank bill we as originators are not allowed to do this.
This may be why the bill received support from mortgage giants such
as B of A and Wells, and was opposed by mortgage Brokers and
My question is why the need to get so
involved with the compensation of individual loan originators and
their clients? Some conspiracy theorists have suggested that the
intent was to make it more difficult for small firms to compete and
force the bulk of them out of business. My feeling is that it was
very likely a concern of the lobbyists who participated in the
creation of the legislation. Several lawsuits challenging this
aspect of the bill are pending.
Visit us on
Those great rates
5/1, 7/1 and 3/1 ARMS
One of the loan programs getting
attention again is the hybrid ARM or fixed adjustable rate mortgage.
You know the ones that are fixed for 3,5 7, or 10 years initially,
and then adjust after that. They also may have an interest-only
period at the front end to keep the payment even lower.
These are situational loans, so if
you decide to get one make sure it fits your personal situation. If
you are going to definitely have a house less than 10
years they may be something you should consider because they can
save you thousands. Just be careful about the definitely part.
Rates are incredibly low now, but may not be down the road.
Refinancing may not be an option when you need to do it. You may
have difficulty with the equity on income requirements down the
road, or interest rates may be too high to be affordable. To be
honest, most of the 30 year loans I have gotten in my life would
have been better served with a 5 year, but I didnít know that at the
time, and I would have hated to have that particular decision to
move or refinance made for me. Iíd be happy to discuss your options
with you if you think a loan at 3% for 5 years makes sense for you.
Of course, they donít end at the end of the fixed period, the just
become adjustable. There are also caps that keep the rate from
going through the roof. Bu if your just making it a 3% it wonít be
any easier at 8% if the rates happen to go that high down the road.
It takes effort, more than most of us have time for, but if you want
to understand the world we live in it is of the utmost importance.
Loan Modifications have
helped a lot of people, but continue to take along time to get, and
generally damage your credit, at least for the short term. This is
because frequently people stop paying their payments, often to get
the attention of the lender. It is true that if you are making your
payments on time they will not give you much credence, even if you
are borrowing the money to make those payments. Keep in mind that
if you are not successful in getting the modification that not
making you payments may lead to you losing your home, damaging your
credit even further in the process. Lenders are in the business to
make money, and if you arenít paying them they arenít making money
and they have every right to take action. Also remember that if you
are granted a loan modification the arrearages will be worked into
the loan rather than forgiven. The late fees are generally waived if
your modification is approved.
There is a formula that they use to
qualify you for the modification. Generally your housing expense
should end up being around 31% of your take home income, and your
expenses canít exceed 100% of your take home income. In other
words, you can be disqualified for making either too much or too
little. If you make too much and can afford your payments you are
not going to be approved. If you do not make enough to cover your
expenses you will also likely not get approved because a
modification will just delay the inevitable. Often candidates for
loan mods are people who suffered lost or reduced income, but have
either become re-employed or jus had their income curtailed enough
that they couldnít make a high payment, but can make a lower one.
There is usually a trial period after the initial approval in which
the reduced payments must be made on time or the modification is
cancelled. Unfortunately a lot of people who get modifications have
not kept their end of the bargain.
If you do get a loan modification, be sure you keep on top of things and stay current with your payments.
The rates are usually very, very good, and you likely will never
ever be able to refinance at a lower rate. It is a gift that should
be appreciated. Also, since your credit is often damaged, getting
back into the housing market will be difficult.
I am still a big believer in the temporary loan mod, given quickly once
documentation is reviewed. Since it is temporary any error can be
corrected. I have seen too many times in which a borrower does not
make payments for an extended period. Better to have a borrower make
a reduced payment than none at all. Loan modifications take so long
that it costs the banks money , not to mention the borrower.
It may be better for the lender
to take a reduced payment for a few years to keep the borrower in
the home, and hope that the economy turns the corner.
I remember when I was young
that I used to get out of bed and get ready to go in a very short
time. I never understood why it took people so long to wake up and
get going. I am sure I drove my parents, and everybody else nuts.
I now understand what it is like to awaken slowly. I am not fully
conscious until the second cup of coffee, and sometimes that is
questionable. Iíd like to think I am more even-keel about things,
but I think thatís only on good days. My advice to the younger
generation as almost never well taken (Imagine that!) The donít
really want to hear that they should take care of their teeth and
their backs, stop smoking & arguing and start exercising. Sorta
like we work, donít you think?ÖExcept for the smoking part. Tried it
once, hated it, done with it. By the way, if you let you kids take a
puff of an unfiltered cigarette at age 8 you might have the same
Interest Rate Indices
Federal Funds Rate
6 month LIBOR
(London Interbank Offered Rate)
Never confuse movement with action.
Nobody believes the official spokesman, but everybody trusts an
Ė Ron Nesen
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Pegasus Financial Real Estate Blog