Archive for the ‘Finance & Mortgage’ Category:

This is a bit of a departure from my usual format as I normally don’t paste articles in their entirety but since this was emailed to me and all the sources are cited, here it is. Two different views of the risk to Portland real estate because of subprime issues. I searched Oregonlive.com for both articles with no result:

“Mortgage Meltdown: A subprime disaster area or use of subprime facts?
Gerard C.S. Mildner
Sunday Oregonian, August 12, 2007

Perhaps like me, you were alarmed by Angela Martin’s op-ed article about impending problems in Oregon’s housing market (“Subprime Disaster Heading for Oregon,” 8/5/2007). The alarm turns out to be misplaced, as there is no evidence that Oregon suffers any greater risk than the rest of the country of a housing market collapse due to subprime loans. In fact, borrowing and lending practices in Oregon are surprisingly conservative. (more…)

From the “I heard it so it must be true” file, I was under the impression that Oregon mortgage rates were usually lower than the national average. I did a search on www.bankrate.com for a 30 year mortgage, zero points, 20% down. I used the APR as the rate as that should allow for the most equal comparison of loans (correct me if I am wrong). (more…)

I found this article on subprime lending interesting. It defines a lot of the terms that we hear. Note that the link at the bottom of the article discloses his relationship with the lending industry. There are also more definitions there.

In a different news article on subprime, AIG has agreed with regulators to talk to their clients regarding the loans they received from the bank. Washington Mutual has already had a similar conversation with the Feds. Also in the article: (more…)

This is a very common trick used by a large majority of lenders and brokers out there. Instead of being straight-forward, and saying “Mr/Mrs Borrower, I am charging you 1% of your loan amount as an Origination Fee”, they will try and hide their profits from you by breaking them into “junk fees”.

They give them cute names, like “broker fee”, “application fee”, “administration fee”, “processing fee” and so on. Don’t get me wrong, sometimes some of these fees are valid. You can almost always expect a reasonable processing fee on your loan. However, I have heard people brag about how their broker didn’t charge them any “points or loan origination fees” on their loan, but when I looked at their Good Faith Estimate, I could see why. The lender was making $4,700 on miscellaneous junk fees! (more…)

Mortgage rates around the country fell this week, with rates on 30-year mortgages sinking to their lowest level in 10 months.

Freddie Mac, the mortgage company, reported Wednesday that 30-year, fixed-rate mortgages averaged 6.18 percent for the week ending Nov. 22. That’s down from 6.24 percent last week and was the lowest rate since the week ending Jan. 26, when 30-year mortgage rates averaged 6.12 percent.  Locally rates have been bouncing between 5.625% and 5.75% for a 30 year fixed mortgage with one discount point.  Typically you have to drop your rate 1% to make it worthwhile to refinance.

It marked the second week in a row that mortgage rates dropped, a development that economists attributed to easing inflation pressures. Inflation is calming down amid stabilizing energy prices, slower overall economic activity and the housing slump. (more…)

The whole country has enjoyed years of historically low interest rates. That’s been great for real estate and even better for Portland real estate. Market factors have typically allowed Portlanders to get lower interest rates than the national average.

For the first time in 18 meetings, the Federal Reserve held interest rates at their current level. The rise of rates has a much bigger impact on short term loans. In real estate, this means Home Equity Lines of credit (HELOCs) feel the brunt of each Fed hike. Long term rates (30 year mortgages) are not as substantial to the hikes which mean we have seen adjustable rate mortgages increase faster than fixed and they are no longer the great bargain they once were. (more…)

Inevitably, I field this question during just about every loan application, backyard BBQ, and even in my dreams. 

So what’s the buzz around “Interest-only” loans?  Are they good?  Bad?  Are they going to cause the “real estate bubble” to pop?

The answer is……it depends.  Let’s take a closer look at what interest-only loans are. 

Under traditional programs a borrower’s monthly payment remains fixed.  A portion of that payment is applied to the interest charge determined by the remaining balance and interest rate.  The rest of the payment is applied to paying back the loan.  Over time, the proportion of each payment that goes towards paying back the principal increases.

With interest-only payment programs a borrower is only required to pay the interest portion of the monthly payment.  This keeps the monthly payment lower  but delays repayment of the loan. (more…)

Since the middle of 2004, the Fed has raised short-term interest rates by 1.75% from historic lows yet during this time period mortgage interest rates have actually declined.  Likewise, in the past when the Fed has lowered interest rates, mortgage rates have actually risen.  This phenomenon is strange but true…

But how does this work and why? Although it may seem counter-intuitive at first, it really does make perfect sense.

First, put yourself in the position of a mortgage bondholder… like the mortgage lender. If you lend the money, you receive interest over time. If that were a mortgage, it could be a full 30 years worth of repayments and interest. Let’s say you were going to be receiving $1,000 per month for the entire 30-year term. At first, that $1,000 may be a very fair return, as you calculate what you can do with that money every month. But over time, inflation requires that you spend more money to purchase the very same goods and services that you can purchase today for less. That same $1,000 just doesn’t go as far in future years as it does today. This eats away at the value of a long-term fixed instrument like a bond or a mortgage, and explains why inflation is the main enemy of bonds. Because bond investors are very aware of this, they will require a higher rate of return or interest on their investment to compensate them, if they feel that inflation will be increasing.

In today’s improving economic environment, inflation is expected to be on the rise. In response, interest rates on long-term bonds, like mortgages, have moved markedly higher in expectation of this. Interestingly, the increase in mortgage rates during the first half of the year has occurred without any movement by the Fed, and some mistakenly think that this is anticipation of a Fed rate hike. Not true. Reality is that bond rates are simply pricing in the expectation of higher inflation over time. (more…)