Terry Kilby

With a new political season upon us, lots of banter abounds as to the roll of the federal government and whether the banking industry needs regulation or not.  I for one am thrilled with the new proposed regulations coming out of the Consumer Financial Protection Bureau – even though some trade groups within the mortgage and real estate industries are dead set against it – primary because change is seen as a hassle and has the perception of cutting into the bottom line profits of the various lenders – big and small.  The large banks in particular have found it more profitable to just spend millions on lobbyists to “stack the deck” in their favor rather than take any real interest in helping the average homeowner or investor.

For the past 20+ years, de-regulation has been fashionable and pushed hard by the Wall Street investment banks and commercial FDIC insured depository banks where the large majority of citizens still keep their money.  What the average person does not know or understand is a law which has been on the books since the Great Depression, “The Glass-Steagall Act“, was abolished back in the 1999.  Prior to that, large traditional banks with federally guaranteed insurance (FDIC) were prevented from dabbling in other types of riskier investments – such as those involving insurance products and speculative investments on Wall Street.

Therefore, most of the large banks saw an opportunity to invest in risky real estate “bundles of mortgages” for “weak” buyers as well as insurance products called “derivatives” which only the most sophisticated Wall Street types even understand – all with absolutely NO oversight.  In short, financial institutions took monies that you have in your checking and savings accounts and made highly risky and speculative investments – feeling there was no real risk to them because if the investment went south, the US Federal Government would just bail them out – which is exactly what happened.

One can argue as to whether it was a good idea for the large banks to be bailed out or not.  Personally, I feel that the Bush Administration and then the Obama Administration had no choice but to act – because our entire financial system would have gone under and we would probably be in a DEPRESSION right now instead of a bad recession.  The idea was that some companies are “too big to fail” because by allowing them to do so, it would have a major “snowball” effect – making many other companies go under as well.

However, now that we have dodged the bullet that would have brought our whole system of capitalism down, it is time to change the “rules” so that no one company’s success or failure can have too big of a detrimental impact on the entire system.  If there was more regulation, then if a large bank went “under” due to poor management and too risky of investments, then they could just fold, close their doors, and have those executives who made poor bets or choices would both lose their jobs but lose millions of money invested in the company.  If a company is “too big to fail” then they are “too big to exist” and should be broken up into smaller parts. Instead, we not only bail out the company but do nothing to prevent top executives from profiting mightily from their own poor choices.  Since when do we reward individuals for running a company in the ground?

You see, the way it is now – the financial system is SOCIALISTIC – in that the large banks are allowed to profit from all of the risky investments that they make, but are protected on the downside by the federal government and FDIC insurance – when they fail.  And, if that isn’t enough to make your blood boil, they have basically gotten billions of dollars of zero interest loans from the Federal Reserve for the purpose of stabilizing and helping make loans to small business and homeowners.

What have they done with the money?  NOT use the money for its intended purpose but they have instead invested in government bonds.  Get this:  they are borrowing money from the federal goverment at 0% interest and then loaning the money back to the federal goverment at 1-3%!  There is NO WAY they can lose in that scenario and the BIG LOSER is the American people because the interest that money might have made us or been available for worthwhile infrastructure projects is not available.  And, the banks have just sat on that profit without making it any easier for small business to get loans in order to expand and grow jobs.  We might as well have just written them a check for a few billion of dollars and said – “Here is a gift.  Do whatever you’d like with it, including lining your own pockets as much as you’d like.”

So, I am all for “draining the swamp” in Washington and putting in place some laws and regulations which will allow the consumer to know exactly what is what and preventing large industries from using OUR money to rake in billions at no risk to them – only to us.

Specifically to the mortgage industry, consumers deserve to have some standardization in paperwork amongst different lenders so that they can easily compare one offer to another.  They deserve to have things written in “plain English” so that even someone with an 8th grade education can understand what they are getting into.  They deserve to have loans go only to those people who can truly afford the payments so as to not put us all at risk of devalued housing prices when others have to default.  Though it has helped many get into a house and make money that they wouldn’t have made, it put our entire housing industry in jeopardy which has hurt us all – even if we had no mortgage at all.  We are all interdependent whether we want to be or not – so there needs to be a sense of transparency, honesty, and what’s fair for the average citizen – rather than just “buyer beware.”  We have a government that rightfully so protects us from cars and airplanes which are unsafe.  Why is there such a wrucus over regulations which will correct some of the problems that got us into this mess to begin with?  Why are “payday” loans even allowed to exist?

I urge each of you to look at all states and all citizens as members of your own family.  You generally want what’s best for each child and would never say “I’m going to teach Johnny to cross the street safely but not going to teach Susie the same skill.”  We are all one big American family and need to look out for each other – rather than JUST focus on our own personal pocketbook.  Otherwise, we might as well be 50 different countries and everyone left to totally fend for ourselves.  Personal responsibility – yes!  Having to live in a society where there are financial “landmines” all over with companies who just want to take advantage of everyone but the most informed – NO.  How can anyone really justify letting the “fox guard the henhouse” and do nothing to stop rampant fraud?  There are reasons we got into this financial mess as a country.  I just can’t figure out why there is opposition to making changes so that it never happens again.

As we see the value of our homes, our stock and investment accounts and savings dwindle in this economy, many Americans, particularly older Americans, are worried about their financial future and whether there will be sufficient resources for them to live on in the future (and perhaps now).

The national news is full of reports about how well many of the large banks are doing financially after having been bailed out by our government.  Some Americans are outraged at what they see as greed on the part of the big banks (and other corporations) as exhibited by larger than ever executive compensation and the institution of new fees by some – such as Bank of America’s new $5 fee on accounts with debit cards. This has caused a flood of bank customers to seek out smaller banks and credit unions which do not charge what the person sees as excessive fees, but sometimes the smaller institutions have their own problems and issues.

Regardless of whether you feel that banks are greedy or whether you are happy that the banks are doing well because you want the banking system to be strong and profitable, the one thing we probably all agree on is the desire that our bank will follow  banking rules and regulations so that no undue risks are taken with our money.  While deposits (up to a limit) are FDIC insured, or backed by the federal goverment, if a bank fails and the FDIC insurance must kick in to make “whole” deposit customers, those government funds are paid by all of us.  Therefore, if we are to all try to be good citizens and look out for the common good (novel idea isn’t it?) then we should make sure that the bank we are dealing with is financially stable.

If you click here, you will be taken to an unofficial report which shows which banks in the US have, or have had, some issues.  They are alphabetically sorted by bank name, but you can sort them by state by clicking on an arrow at the top of the column to find all the banks within a particular state which is having some issues.  Also, you will find a link to a legal filing which shows what type of action has been taken by that bank.  I am not saying that you should automatically pull any monies you have out of these banks but do think you might want to investigate the situation more and make your own informed decision about the safety of your bank.

The moment has come that I, and many others, have dreaded – the announcement that Steve Jobs has died.  This was no ordinary man and I thought I’d reflect on how Steve has made my life better.

Back in the early 1980′s, I was teaching elementary special education in Oregon.  I knew absolutely nothing about personal computers and was a bit resistent to learning as I didn’t see much value in them – other than playing some games.  Our school purchased a couple of Apple II’s and the main user in the school was the school librarian and a few kids playing math games.

Then, in the late 1980′s, I was hired part-time to do some work for a private individual and she wanted me to use this new machine, called the Macintosh.  I remember like it was yesterday being told that I didn’t have to hit “return” at the end of the line.  I became so enthralled with the Mac, that I immediately bought one and started into the world where computers could really help me do some things easier and other things I wasn’t able to do at all before.  Within a year or two, I wound up going to work for a computer retail store in their education division.  I sold and set up Apple IIgs and Macintosh labs in the public schools of southwest Washington state.  This is where my love of Apple really took off and I started being a mini-geek.

When I jumped into mortgage lending in 1994, the business world was highly attached to  PC’s  so I had to adapt to a non-Mac computer world so my connection to Apple was more limited.  But then, someone gave me an Ipod because she thought it might make it easier and more fun to have some fast music to listen to at the gym – and that started my revival in music and reconnection to Apple.

By this time, I was hooked and easily moved to the Iphone as soon as my cell phone contract was out.  I’m on my second Iphone and am ready to go buy an Ipad, even though I already have a laptop and PC at home and at work.

Thanks Steve for expanding my world and helping me grow more professionally and get more joy out of life personally. Your main gift was to think about how our lives could be for fun and more productive, create a way for that to happen, and then teach us about the possibilities we hadn’t even imagined.  You defined “coolness” for a generation – and made Apple products wanted all around the world – showing the best of what our country could do with technology.

If only we could clone you, put you in the White House, and give you the resources and cooperation that is sorely missing in Washington today.  I bet you would use your creativity and  innovation to come up with solutions to today’s problems and in ways we can’t even imagine – but you could.

Loan officers are in a position to get the best interest rates possible.  How? Loan officers know where rates are every day – and sometimes every hour in a volatile market. It’s no different than realtors knowing first the best houses and best deals on houses or the clerk at Bed, Bath, and Beyond knowing when the sheets are first going on sale.  But, being able to snag an awesome interest rate can save you tens of thousands of dollars over the years – a pretty big perk.

You see, interest rates are impacted by what’s going on in the economy in general, world events, and what’s happening that day on the stock and bond markets.  In a volatile market, snagging the best deal may be a task that must be done in minutes – rather than days.  When an interest rate is locked, it must have a corresponding property address, loan amount, credit score, loan type etc. and the lender must be in a position to turn in a loan file very quickly because lenders are now mandated to act on the loan file within a short period of time.  That means that when interest rates are at the very lowest, you may have a hard time getting your loan officer even on the phone, let alone get a quote, get the application filled out and the documentation gathered.  In order to get the best deal for yourself, do this: (1) have your loan officer work up some numbers when you are first thinking you might want to refinance; (2) if the current deal is not saving you the amount of money you would like, determine when you would like the loan officer to give you a call, or when the interest rate gets to what level; (3) either apply to get pre-approved and just float until just the right moment or have all of your documentation together and ready to go quickly when the rate has gotten where you would like it to be.

Keep in mind it is all about supply and demand.  When rates are high,  demand is down.  When rates are at the lowest levels they have been since 1951 (as they are today), then everyone in the lending industry is working feverishly to keep up with doing quotes, taking applications, gathering paperwork, putting loan files together, locking loans – not to mention all of the work that processors, underwriters, and loan doc drawers do behind the scenes.  I literally remember a few years ago when the mortgage bank I was working for, rented a few hotel rooms next door to the bank because the employees were literally working all night to fund a flurry of loans that needed to close at the end of the month.  People would go take naps and then go back to work.

It will be like that around 30 days from now due to the high volume of new loan starts this week.  In order for you to be able to grab an interest rate at or below 4%, I will be working all weekend to complete quotes and take loan applications for borrowers who own real estate in Oregon.  Feel free to give me a call at 503-577-2894 if you think you may benefit.  Remember, you don’t always have to have equity in your property.

Regardless of whether the stock market or the housing market are up or down, in any economy, some people are benefited and some people are hurt.  Most of us have been hurt by falling stock and housing prices which impact our retirement accounts and our ability to refinance our homes into lower interest rates.  When housing prices fall, many people wind up owing more on their home than it is worth.  This means that they can’t sell their homes, and if they can, they would have no equity with which to buy another home.  These folks are like prisoners in their own homes, unless they take a drastic step to try and negotiate a short sale or let their home go into foreclosure.

Those people who have been impacted the most, are people who have lost their jobs and can’t find another one.  For the unemployed needing work, the past few years have felt more like a depression rather than a recession.  Even seniors who are retired and own their home outright have been hurt.  Most of them live off the interest they receive from their certificates of deposit and savings account.  With these interest rates floating down around 1%, the income generated for retirees to live off of has gone down significantly.

But, it is not all bad.  Housing prices have taken a big hit over the past few years so anyone who hasn’t owned a home before or someone wanting to buy investment property is feeling like a “kid in a candy store” – with their pick  of good to great deals – especially in those areas which have been hardest hit and where there have been many foreclosures.  People who have wanted to pick up investment property or a second or retirement home have also benefited greatly.

I heard on the radio today that interest rates on 30 year fixed loans haven’t been this low since 1951.  With 30 year fixed interest rates around 3.875%, after taking the tax deduction for interest paid on a primary home, the cost of borrowing is more like 2%.  So, not only are the houses discounted, but the cost to finance them are discounted as well.  Properties for people to rent are also in demand which makes it a great time to be a real estate investor.

So, all is not gloom and doom.  The key to benefiting from any economy is to try and find a way to buy things when they are discounted – whether stocks or houses, and to try and sell things when the prices are at their highest.  That means that it is about as good as it ever gets in terms of buying real estate.  For more information on this topic, check out “Three Reasons to LOVE the Slowdown.”

Whenever one buys a home which is financed, they must purchase homeowner’s insurance and I get asked about this all the time as a mortgage banker. As a general service to my loan clients specifically, and the general real estate community, here is some helpful information about which insurance companies to avoid (for all types of insurance) and which ones to consider (for home and auto insurance).

Ones to avoid – it doesn’t matter how low the premium is on an insurance policy (regardless of the type of insurance) if any of the following happens: (1) the company quickly raises their rates after you have purchased the policy; (2) the company goes bankrupt because it was not financially sound or had too many losses; or (3) the company has a reputation of not paying claims which are totally valid.

Click here for a 29 page report called the “10 Worst Insurance Companies in America” published by the American Association of Justice. It covers all types of insurance (auto, health, homeowner’s, disability, life etc.).

Click here for an 18 page report put out by the Oregon Dept. of Insurance entitled “2011 Report for Oregon Insurance Complaints.”  The Oregon Insurance Division website is chock full of important consumer information on all types of insurance. There web address is: http://insurance.oregon.gov/index.html

So where should you go for your insurance? Consumer Reports is the best non-biased source of that information that I am aware of. Consumer Reports analyzes each company in their report on issues such as whether there were a lot of issues on their policies with claims, the amount they were willing to pay on claims, and whether they had problems with delaying payments for a long time.

Click here for the Consumer Reports ratings of homeowner’s insurance companies

Click here for the Consumer Reports ratings of auto insurance companies

If you find this information helpful, please (1) forward it on to family, friends and clients who may benefit from knowing about the best and the worst companies and (2) follow me on Twitter or on my Facebook Fanpage or on Linkedin so that you continue to get other helpful information in the future.

I hear people all the time state that lenders don’t want to lend
money anymore. Here’s the truth:

1) the crazy days of people being able to buy a home with no down payment, terrible credit, and little or no income is OVER.

2) it is now like the good old days of 1994 when I first got into the mortgage industry – you must have a down payment – unless you qualify for a Veteran’s Administration (VA)  loan or you want to live in a rural area.

3) the lowest down payment which will work for most people is either 3% down for a conventional loan or 3.5% down for an FHA loan.

4) you must be able to prove your income with paystubs, W-2′s, and tax returns and not have more than around 40-45% of your gross income (before taxes) go toward debt (the total of the mortgage after the purchase orrefinance, minimum payments on any credit cards or car/student loans).

5) you must have at least so-so credit – generally a credit score of at least 620 but there are a few exceptions which will allow for lower scores; 680 would be okay credit; 720 or higher is really good credit; 750 or higher is truly superb credit.

So, if you have a source of income that is sufficient to make the payments comfortably each month with the debt you have, you have a down payment, and your credit is not completely trashed – then you CAN buy a home.

The federal government has made many changes to the lending and real estate industry over the past few years which has and will continue to make the system more honest – from fraudulent buyers, realtors, appraisers,  and lenders. This hurts some people who were trying to buy beyond their means or commit fraud but it should also help to stabilize the industry and prevent some defaults in the future.

In spite of some changes that have made it harder to get a loan, the Obama Administration has also instituted some loan programs which make it EASIER to get a loan than before. Now, you can sometimes refinance your home even with NO EQUITY. That means that you may be able to take advantage of the current historically low rates even if you owe more on your home than it is
worth! In addition, you would not have to have private mortgage insurance and the loan programs can be used also for second homes and rental properties.  For some homeowners, this can make the difference in them being able to keep their home.

As with most things in life, the “devil is in the details” so mass generalizations as to whether you would qualify or whether it’s almost impossible to get a loan generally do not apply. The good news is that it would take only a few minutes of your time to have an experienced loan officer determine whether you can take advantage of the incredible rates in the high 3′s and low 4% range.

 

 

 

 

Just when we thought that rates couldn’t get any lower, interest rates approach record lows! For the past few years, rates on a 30 yr. fixed conforming loan have been fluctuating in the  5% range.  Due to the volatility in the stock market over the past few weeks and investors looking for safety, interest rates have fallen into the low 4% range. Also, due to lower housing prices and a large number of foreclosures available along with low rates, the affordability of homes is also at record levels.  Real estate investors and those people wanting to pick up a bargain on a second home are snapping up some great deals.  Also, those people who have interest rates over 5% are also refinancing in high numbers.

 

Brooksley Born of the Commodity Futures Trading Commission tried to warn top government officials that our country’s economy soundness was in danger due to the explosion of the private and totally unregulated derivitive’s market. At the time (1990′s), Alan Greenspan (the Fed. Chairman), Robert Rubin (the Treasury Secretary), Larry Summers (asst. Treasurer Secretary) and Arthur Levitt (SEC Chair) all fought both her ideas and her personally saying that the financial markets not only didn’t need any regulation but that regulation would be detrimental. Unfortunately, her worst fears played out causing the largest financial crisis since the Great Depression. It’s not only sad that nothing was done at the time but that very little regulation is still being placed on the financial markets – leaving anyone who owns a stock or a mutual fund or a retirement account at risk of even more drastic downturns. Check out this Frontline show about what happened. http://www.pbs.org/wgbh/pages/frontline/warning/view/

The new Consumer Finance Bureau is trying to get feedback from the general public and the real estate and lending communities as to which layout is the easiest to understand for lenders to communicate with borrowers about a loan that they are considering. If you click on the following link, you will be able to give your own opinion. http://www.consumerfinance.gov/knowbeforeyouowe/