Simply The Best Loans

Part of the process of qualifying for a mortgage is the analysis of your debt-to-income ratios. Clients are often confused as to what this means and how these ratios are determined. These ratios are used by underwriters in determining an individual(s) credit worthiness for a mortgage loan. It is important that you and your loan officer work to maintain your financial profile from the time of application until you are cleared to close.

The first or top ratio is the borrower’s monthly housing costs to monthly income. The second or bottom ratio is all of the borrower’s monthly debt to monthly income. Underwriters then compare these ratios to the established guidelines within the industry. For a standard conventional mortgage loan, your ratios should range between 28 to 36. For some expanded programs, ratios can range between 33 to 40.
When you go to apply for a mortgage, your loan officer should not only tell you what your ratios are but give you the maximum ratios allowed for the loan program for which you are applying. Changes in your financial picture, interest rates, etc. can impact your qualifying process. Working with your loan officer to maintain and/or enhance your profile during the processing of your loan ensures a smooth transaction and a succesful close.

A point is one percent (1%) of the mortgage loan amount. The first point that you pay for a mortgage is usually called an origination point. It is sometimes called a brokerage fee or a bank fee. Additional points charged are often to cover costs associated with a particular loan program. Lenders charge different amounts in points for different programs. In general, the more risky the loan is to the lender, the more they charge in points and/or fees.

The points are tax deductible because they are considered interest paid in advance. Any points you pay at closing on a new purchase are tax deductible in the year your purchase the new home. Points paid in a refinance must be deducted over time. For more detailed information on how points are deducted from your taxes, you should consult a tax professional.

If you are a first-time home buyer and talk to a realtor, the first question you may be asked is are you “pre-approved” for a mortgage? Within the industry at this time, a great number of regulators, legislators and other agency folks are taking issue with the terms “pre-approval versus pre-qualified” and it is creating confusion for most consumers.

The definitions are really very simple and, if there were a standard within the industry, there would be less confusion.

To begin with, consumers must understand that each state has it’s own regulatory bodies overseeing things such as industry protoccol and terminology. In Virginia, where I am licensed, the regulators are just now working on establishing statewide guidelines for defining “pre-approved versus pre-qualified” and the definitions they are drafting are what I have used since I began to work in the mortgage business. For definitions like these to be universal, they would have to be mandated on a Federal level .

“Pre-qualified” is when a consumer provides the loan officer with specific information and once verified, the loan officer can give the potential borrower a letter stating the loan type, amount and terms the borrower qualifies to receive from a lender. The information provided must include at a minimum name, address, and social security number. It should also include annual earnings, estimated savings and assets and current rental payment, although in some instances, the loan officer may not get this information during the initial contact which is ususally over the phone.

The loan officer will then pull a tri-merge credit report which provides the credit history of the individual(s) from each of the credit bureaus along with their credit scores. After reviewing the credit report and calculating the debt-to-income ratios based on the income and asset information the individual(s) provides, the loan officer can establish how much the individual(s) qualifies to borrow and the general terms of the loan programs for which they qualify.

“Pre-approval” is by definition, a pre-approved loan qualification. This means the individual(s) has provided all the information for a pre-qualification and the loan officer has submitted it to the lender for pre-approval. This process means the lender has reviewed and/or verified certain information provided by the individual(s) and submitted by the loan officer, usually electronically via Fannie Mae’s Desktop Originator or Freddie Mac’s Loan Processor software programs. The lender then provides the loan officer with a conditional approval, meaning that, if the conditions listed on the approval are met, the lender will underwrite the loan.

While a thorough “pre-qualification” is more than adequate for an individual to feel confident they are qualified to begin shopping for a new home, a “pre-approval” does not automatically guarantee that the loan will close. The most important aspect of a transaction, once in progress, is that the conditions remain the same throughout the entire process. If an individual is pre-approved and, for some reason, the income, asset or credit information should change in the middle of the process, it could result in the loan ultimately being denied, even though the lender initially issued a pre-approval. It’s still conditional until all of those items are met to the lender’s satisfaction.

It is important for anyone shopping for a new home to keep in mind that, once the transction is started, they must do everything possible to ensure that nothing in their circumstances change. Don’t go out and buy a new car, don’t take any of the asset money disclosed out of the bank, and don’t change jobs. If something unfortunate, such as an unexpected job loss occurr, inform your loan officer immediately.

Keeping these guidelines in mind as you begin the process of a new home purchase should help reduce the worry and stress of having problems during any part of the transaction.

Gail Liberman and Alan Lavine of the Boston Herald offer the following “Rules of the Road for Bond Prices and Interest Rates”:

Consider these rules when you invest in bonds.

Bond prices and interest rates move in opposite directions. Bond prices fall when interest rates rise and vice verse.

Selling a bond? The longer its maturity, the greater the price change, based on interest rates. When interest rates rise, long-term bonds lose more value than short-term bonds and vice verse.

The lowest-risk bonds, if you hold them to maturity, are U.S. Treasury bonds. Sell them early, however, and their value also fluctuates, based on interest rates.

If interest rates rise by 1 percent, here’s a general idea of how much the value of your bond may drop if you sell it.

A two-year U.S. Treasury bond:-2 percent.

A five-year U.S. Treasury bond: -4.25 percent.

A 10-year U.S. Treasury bond: A little over -7 percent.

A 20-year U.S. Treasury bond: -10 percent.

A 30-year U.S. Treasury bond: -11.5 percent in value.

Keep in mind that the interest your bond pays should offset some of the decline.

Spouses Gail Liberman and Alan Lavine’s latest book is Rags to Retirement (Alpha Books). You can e-mail them at MWliblav@aol.com.

Conundrum is defined as “A paradoxical, insoluble, or difficult problem; a dilemma.”

Since many experts are wondering how short-term rates are going up while long-term rates are continuing to remain at records lows, it’s no surprise that those of us who do not study the economy for a living find it confusing. In researching for a clear, yet concise explanations, CNN.com provided the following:

When short-term yields become higher than long-term yields, it is called an inverted yield curve. An inverted yield curve has preceded the nation’s last two economic recessions.

The Federal Reserve has boosted short-term interest rates nine straight times since last June to 3.25 percent, and the central bank gave little indication that it would pause its monetary tightening campaign when it again raised last week.

Despite those increases, long-term Treasury yields have not risen in kind and are in fact below where they were when the Fed started raising short-term rates last summer.

Fed Chairman Alan Greenspan has called that a conundrum, and economists have struggled to predict whether the Treasury market is set to tumble, which would push yields higher. Bond prices and yields move in opposite directions.

Long-term yields have remained low despite a year of fed fund rate hikes, causing short- and long-term yield levels to move closer together. This is known as a flattening yield curve.

Traders may have held onto bonds in the face of rising short-term rates because they believe the hikes mean the Fed has inflation well in hand. Inflation hurts bonds by eroding the value of the fixed-income investment.

When the yield curve inverted in 2000, two-year yields exceeded 10-year yields by a little more than half a point.

As terrorist bombs struck throughout London on Thursday, the bond market rallied and stocks dropped, yet by Friday, the Dow improved as recent unemployment rates were reported as the lowest they’ve been in 4 years. In the past, an inverted yield curve in the bond market has been followed by economic recession. While there are many factors which could reduce the possibility of recession, John Herrmann, director of economic commentary for Cantor Viewpoint, stated

“Rather than portending recession, a flat curve reflects slow economic growth in Europe and Japan, particularly in relation to stronger U.S. growth, as investors worldwide have been snapping up long-term Treasuries as a flight to quality.

“Links between global economies are stronger now, and the flat curve reflects that,” Herrmann said.

Overall, as market activity fails to follow historic patterns, it is possible new economic trends can be expected as global economic activity continues to show us “it’s a small world, after all.”

Registering, buying and applying on-line has become commonplace. Whether you’ve moved and need to notify the DMV, you are shopping for yourself and/or your family or applying for some type of service or program, you can do it on-line.

Consumers need to be very wary of making on-line applications for loans or getting “free” credit reports from on-line companies. It is very easy for an on-line company to look professional and established, while it’s really just a lure to get your personal information. It’s not worth risking theft of your personal data to get a free copy of your credit report. A complete tri-merge credit report can be obtained from a number of reputable vendors, your bank or mortgage broker for about $15.

As with any other purchase on-line, if you try to get a home mortgage or equity loan, unless you are very savvy about the mortgage process, the loan you end up with may not be what you originally thought you were getting. I have applied for a mortgage on-line and, even with my knowledge of the process, I had to double check and backtrack a number of times to ensure I got the loan program I applied for.

Convenience is a great thing but, sometimes, old-fashioned ways work best. When it comes to your finances, I recommend working with a real live person, not a computer.

This was posted 7/2 on ProtectYourGoodCredit.com. I am posting it here today because over the weekend, there were several more major news reports regarding this increasing threat to Americans. Additional reports and information will follow on ProtectYourGoodCredit.com.

On CNN.com last week, a headline read “FTC chief’s credit card data stolen”. If you read the article, it outlines how Federal Trade Commission chief Deborah Platt Majoras’ personal credit card information was stolen along with 1.4 million other’s from a company database. Majoras received a letter from DSW notifying her of the theft last week.

The security breach of the Ohio-based company occurred in March, however, consumers were not notified until after the attorney general of Ohio filed a suit to force the retailer to contact it’s compromised customers. Customers located within 25 different states were affected. The article also includes the following statistics on identity theft:

Nearly 10 million people fall victim to identity theft annually, costing consumers $5 billion in out-of-pocket losses and businesses $48 billion, according to the FTC.

So my question is, if the FTC and other agencies are collecting and recording the data necessary to provide these statistics, WHY has this been allowed to continue and what is it going to take for Congress to finally take action?

And what is Congress spending it’s time doing? Battling back and forth over whether or not the next Supreme Court justice appointee is going to be pro- or anti-abortion. They are trying to legislate morality and/or prohibit individual choice while the American people continue to be financially raped and pilladged by creditors who are selling them out for profit!

That’s right, with the next election campaign cycles for the Presidency (in 2008) and Congress (in 2006), already underway, our elected officials are spinning into partisan, single-minded focus on yet another political nomination, while 10 million Americans are being devastated or placed at risk by the failure of credit information brokers exercising due diligence in the protection of our personal identity information.

Until this threat is acknowledged as serious to our well-being as a nation and our elected officials are compelled to take action, that number will continue to increase.

Dear Readers:

If you are interested in more information regarding my recent posts on identity theft issues, please visit ProtectYourGoodCredit.com.

I am taking a break posting on this site over the holiday weekend and remembering those Americans who have given so much for us to be able to celebrate our freedom each year.

Wishing you a safe and happy 4th of July,
Darlene

Yesterday’s Washington Post included an article “Have You Been Stolen?’ in which the numerous recent security breaches of personal data by several large national creditors are outlined in detail. In several of my recent posts, I also noted these breaches and pointed out that this is an increasingly significant threat nationwide.

The Post’s article refers to “legislative fixes already in place. Federal law requires financial institutions to safeguard personal data. Several state legislatures have passed laws requiring that potential victims be notified if their information is compromised, and other states are following.”

What the American public should infer after reading that is these breaches are not new. They have been occurring for years and the public is only being made aware of it now due to new state legislation. What has the federal government been doing to protect us?

Apparently not much! As I noted before, your medical records are carefully safeguarded as a result of federal HIPAA regulations. Medical history protection is nice, but thieves and scammers can’t steal your identity and ruin your finances and/or credit with medical history……….but they most certainly can with your personal data.

Additionally, the threat, once you’ve been compromised, NEVER goes away! It could be years before a thief decides to use your identity to perpetrate a crime. After all, with the sheer volume of identities compromised, it may take time for the thieves to get around to you. However, the financial, credit and legal ramifications of having your identity used to commit fraud, steal or some other crime are HUGE!

If the custodians of our medical records can be charged serious fines for failure to protect our records, wouldn’t it only make sense for the same or stronger penalties to apply to your personal identity records?

We must also keep in mind that these creditors, while they carelessly compromise our data, also allow access to it for profit. When they’re not losing it or failing to protect it, they’re selling it………..and as long as they make money on it, they will continue to do so!

Until it hurts creditors who are careless with our data financially and they are forced to absorb the responsibility for their actions, then for most of us, it’s only a matter of time before we find ourselves victims of identity theft.

If would like some guidelines for protecting yourself from identity theft under current regulations, please download a copy of my free report. (Click on the following link www.protectyourgoodcredit.com, then click on Free stuff under Pages on the right-hand side of the column, and follow the instructions.)

Once our governing bodies begin to address this problem with new legislation and regulations, I will update the report accordingly.