Florida Mortgage Report

Tomorrow is the Last Day at This Domain

I still see many of you subscribing to this feed and/or commenting on this blog.  This post is a reminder that the Florida Mortgage Report will not be located at www.floridamortgagedaily.com after tomorrow.  I will be moving my Florida Mortgage Daily (mortgage market updates) blog to this domain March 1, or shortly thereafter.

That being said, this blog is currently hosted under Typepad, so the blog will remain here for nearly a year, though no comments will be accepted (stopped 2/15/08) and the blog will not be updated any longer.  To follow my writings, please jump over to www.flmortgagereport.com and while there, don't forget to subscribe to that feed to stay up to date.

This will ensure lively discussions continue on the "hot topics" such as Money Merge Accounts and other mortgage acceleration strategies, as well as current events.  All prior posts are over there already (and some new ones), so if you liked a post (or even linked to one), check out the same post (and link to it) over at the new location, www.flmortgagereport.com. 

There are two main reasons for the change that I mentioned before in case you are wondering.  Number one is the change to WordPress to add more flexibility and control.  Since I rely on feedback from you, you can have an effect on how the site looks and its functionality.  I want it to be a very user interactive site and WordPress allows that more easily.  Number two is that I wanted to match domain names to the blog titles.  It was rather awkward, as you can imagine, say the Florida Mortgage Report was at www.floridamortgagedaily.com then turning around and saying Florida Mortgage Daily didn't have its own domain.

So, once again, please go over and visit www.flmortgagereport.com and subscribe to its feed to continue staying up to date on the Florida Mortgage Report.  If you want to see mortgage market commentary, keep www.floridamortgagedaily.com bookmarked and return in March when I have that blog up and running on this domain.  You can also check out my contributions over at Lenderama and Agent Genius.

Why Are Americans Afraid of ARMs?

Despite all of the media blasting Adjustable rate Mortgages (ARMs), and the fear of foreclosure if you don't refinance, ARMs may actually be a better deal for you, especially now that mortgage rates are headed higher again.

That's right, I will be the first to tell you if an ARM is better for you and that you shouldn't refinance (unless of course it is your best interests overall).  With LIBOR and CMT down, what most prime ARMs are based on, the fully indexed rates may be even lower than the recent lows on the 30-year fixed.  And guess what, those indexes will likely go at least a little lower in the near future.

So why are so many switching to fixed rates right now.  In fact, Freddie Mac reported yesterday that 92 percent of Americans with 1-year ARMs refinanced to a fixed rate, and 89 percent of those with hybrid ARMs did the same during the 4th quarter of 2007.  So, they were rushing to refinance from an ARM to a fixed at a time when their ARMs could be going lower.  Make sense?

Of course, fear of where they will be next year or beyond can drive people to the wrong decisions.  The media, your friends, neighbors, family, even Gene Simmons will probably tell you you need to refinance and get a fixed rate mortgage instead.  So, it begs to question whose advice your going to follow.

Don't count on most mortgage professionals either, as most are hurting financially themselves and may put their interests above yours.  There are several I would highly endorse, such as Brian Brady, Rhonda Porter, and a few others who have shown their ethics to be above all others.  Even financial planners sometimes miss the mark. 

The best way to ensure your financial success, including getting the best mortgage product for your overall financial situation is to do your research and work with a team of professionals that can guide you properly.

Economy Gets Stimulated: So Are You Excited?

President Bush signed into law the economic stimulus package we have all heard about.  Even the IRS said today that they will begin mailing checks in May for those who filed 2007 taxes, so make sure you file this last year if you haven't been.  It is "free" money after all, right?

Are you excited to get your money and rush out and spend it?  Are you excited that you can turn your jumbo loan rates into a new conforming loan (limited time offer, contact me for application), maybe even take some equity out so you can rush out and stimulate the economy even further?

I don't know about you, but my money is not going to be spent, rather I will invest it wisely, that way it will actually mean something in the future.

So, what changes occurred that Floridians should know about?

Well, you may qualify for up to $1,800 rebate, or more.  That's pretty cool, even if the rebate is only $300.  So, you need to decide what you "should" do with that money and not just blow it.

Conforming loan limits have been temporarily increased.  That means you may qualify for refinancing your high jumbo rates for a lower "conforming" rate.  I would be happy to help you determine if this is truly in your best interests, as it may not be in reality.

I am not going to get into the nitty-gritty details here as the post would just drag on.  If you want to know more on how the stimulus package can benefit you, especially as it pertains to your mortgage, contact me and I will be happy to assist you.

Did You Have Your ARM Fixed By a Real Mortgage Professional?

If you are like the multitudes that rushed to convert your ARM (Adjustable Rate Mortgage) to a fixed rate mortgage, following the media's advice and not listening to true mortgage professionals, I'll bet you are wishing you hadn't wasted your money.  Fixed rate mortgages are still hovering in the mid-5s if you don't pay points and those ARMs, even when fully indexed are dropping below the mid-5s at this point and probably will fall further.

Now, if you are sought out the help of a true mortgage professional, they would have advised you not to fix your ARM if it wasn't broke.  Now, thousands, if not millions, of Americans have gone and wasted money seeking a general mortgage practitioner instead of seeking a specialist.  The end result is wasting money fixing something that wasn't broken in the first place.

Take a look at this chart to see what I am talking about, and what I have been for a while...

As you can see, there are clear advantages of keeping your ARM, especially if it is tied to LIBOR.  The chart above shows the 30-year rates and the fully indexed 6-month LIBOR rates (including the standard 2.25% margin).  I even threw in the Fed Funds Rate to show the correlation to the Fed's decisions and your LIBOR ARM.  (Keep in mind that pricing on new ARMs are not effected directly by the Fed's actions, but rather on market forces like normal mortgage rates).

As you can see, if you kept your ARM the entire time, there were times when your rate would have been significantly below those of the 30-year fixed, while the times when your rate would have exceeded the 30-year, it was not very significant and short lived as well.  ARMs are not really as bad as people think, that is the bottom line.  And rushing to get your ARM fixed right now may prove more costly over time than you could possibly think.

Now, there are reasons why you would want to convert your ARM to a fixed rate mortgage, but you need to seek a true mortgage professional that will put your best interests above his/her own and that is very hard to find these days.

Fed Slashes Rate .50%: Mortgage Bonds Throats Slashed Also?

The Fed made their decision and went as most people expected even though their decision may not be the right one.  In another apparent attempt to keep the stock market content, the Fed chose to cut the Fed Funds Rate by another 50bp (.50%) bringing the rate down to 3.00%, fueling speculation of the rate dropping as low as 1.25%.

Before I get into the potential problems, let's look at the potential benefits...

• HELOCs may see a drop in their rates over the next month or two.
• Credit Cards may see drops in their rates over the next month or so.
• ARM holders should rethink their desire to switch to a fixed rate mortgage if their rates are indexed to LIBOR, and possibly other indexes as well.
• "Special financing" deals will likely continue as money is even cheaper.

Certainly some good can come of this, but remember that mortgage rates are not driven by this change directly and, in fact, will likely move higher on this news.  So, let's take a look at the potential problems...

• Mortgage Rates may tick higher (not lower)
• Inflation may grow uncontrollably
• Continued devaluation of the US Dollar = less real wealth for Americans (and foreigners with currencies pegged to the dollar)
• Stagflation environment (slowing economy with rising inflation) - inflation may actually help the cooling of the economy creating larger problems

As you can see, there are some potential problems as well, some big ones at that.  Since no one has a crystal ball, only time will tell, but the first test of their decision comes tomorrow with their favorite gauge on inflation, the PCE report. 

Did the Fed get fooled again?  What is your take?

Hold on Tight Folks, We Are Going for a Ride

As I have mentioned repeatedly (too many times to link), the roller coaster ride of mortgage rates will get pretty wild this week with a slew of news coming through and today is the beginning.

This morning's ADP report came in strong and that may weigh on the Fed decision later today as they certainly have to be wondering if another rate cut is a smart move, especially after being a little embarrassed last week with an emergency cut to minimize a financial meltdown created by a "rogue trader".

Why?  The ADP, while not a very accurate predictor, is a good gauge as to how the Jobs Jamboree this Friday will turn out.  As strong as it was, the jobs news is expected to beat expectations now and that spells bad news for mortgage rates.

The good news in that report is that it is time for the Fed to rethink their decision due out this afternoon.  They may very well decide not to cut rates or only cut 25bp on the heels of the ADP report.  That would be good for bonds as it will likely destroy the stock market like last month.

Tomorrow continues the ride with the release of the Personal Consumption Expenditures Index (PCE).  Since this is the Fed's favorite gauge of inflation, and since it has been ticking higher lately, it will likely move the markets with its release.  It may also leave the Fed embarrassed again.  Remember that they said inflation would remain a non-issue so long as the public kept faith in them and that faith is dwindling.

Then, of course, is the Friday Jobs Jamboree, where a whole plague of data will hit the airwaves showing what's happening on the job front and, more importantly, the concerns surrounding wage-based inflation.

As you can see, make sure your seatbelts are fastened because this ride could be a rough one, or even a freefall for mortgage bonds.  See you on the other side!

Florida Property Tax Reform Amendment - Update

As I mentioned earlier today, Floridians may be setting history today with their voting.  Property Tax has been a huge issue with property owners and real estate professionals alike and the controversial amendment was up for vote today as Amendment 1. 

As I mentioned earlier, everyone I encountered and asked how they would vote stated they just wanted something since the state government has not been able to come up with a better plan.  It appears that the amendment will pass with over 70% voting for at this time, showing government officials that Floridians are tired of waiting for nothing and are simply happy getting something, even if it isn't anything close to what they wanted.

So, hopefully this will send a clear message to Tallahassee that more reform is still needed and that Floridians faith in the government providing a genuine solution is lacking.

Investors Rethinking Potential for Another Rate Cut

After the Fed did an emergency rate cut last week as the worldwide financial markets collapsed (mistakenly?), traders began expecting another rate cut coming from the Fed this Wednesday.  Once they realized the turmoil was created by a "rogue trader", their thoughts began to change.

Now traders are becoming increasingly skeptical about another rate cut and the markets are again reacting based on emotions, rather than logic.  With a huge plate of economic data coming this week, emotions will probably swing wildly with potentially drastic "mood swings."  If you don't have a stomach for volatility, get out, which means lock your rates and forget it.

Interestingly enough, the Fed's favorite gauge of inflation will actually come one day AFTER the Fed makes their next decision.  That presents two problems.  One, if the Fed doesn't cut rates, or not enough to satisfy the stock traders, we will likely see the repeat of last month's selloff (bonds and mortgage rates win).  Additionally, it may become very apparent that the Fed made a mistake the very next day with the release of the PCE data.

With the markets already moving lower with the expectation of little or nothing along the rate cut path, the Feds are under pressure to appease the markets or fight inflation.  Past moves suggest they will appease the markets and let inflation run amuck.

For those who can handle the volatility, you can try floating to see if there is a chance to win as the overall trend is still for lower mortgage rates.  However, expect a rollercoaster ride and one that may not end happily if you do.  Be ready to lock in a moment's notice and don't let greed get you.

Is Home Equity Safe? (Originally Published in 2006)

(This is another article written back in 2006 when interest rates were higher, originally posted on my AR blog)

Would it be better to have $400,000 in Home Equity or $400,000 in a safe, conservative investment account? Many Florida and Gulf Coast homeowners no longer need to pause and think about it, they can easily answer that question now.

One of the least publicized lessons from hurricanes Katrina, Rita, and Wilma taught us concerns personal finance and the best way to own your home. Most Americans strive to pay down or pay off their mortgages. However, those that followed this advice were worst hit when the hurricanes arrived, including Senator Trent Lott.

Senator Lott was living the “American Dream” by owning his home outright. Like many Americans do, he considered it his retirement nest egg, which accounted for half his net worth. When hurricane Katrina completed its destruction, the Senator’s home, and his nest egg, were wiped out. He estimates he lost the $400,000 he built up in home equity, and he’s still fighting with the insurance company to pay claims so his loss doesn’t grow any higher. The reason is many insurers are balking at paying claims citing that the damages were the result of floods, not hurricane winds.

Senator Lott was not the only politician that was affected. The Mayor from Port Arthur, TX had his house burned down in the aftermath of hurricane Rita. His comment was “the sad thing is we just paid off our house.” Even when those affected by the storms do settle with the insurance companies, it will take a long time to rebuild or repair there homes and be in position to take out their equity.

As the victims of these hurricanes found out, home equity is not as safe as they originally thought. It can be wiped out completely in a short period of time. The Senator and Mayor would have been better off if they had separated their homes’ equity and placed it in a safe, conservative bank account prior to the storms. In fact, all homeowners are better suited to keep as little cash in their homes as possible, and instead allow their home’s equity to build up in a safe side investment account.

Those homeowners that had separated their home’s equity prior to the hurricanes were able to get back on their feet much quicker. The reason is they had cash available to them and were not dependent upon the insurance companies to decide whether their damage is covered. This is a good example of how cash is king and the ones with cash hold all the cards. In Senator Lott’s case, if he had the $400,000 in an investment account, he would have many more options and more leverage while dealing with the loss of his home. Instead, the insurance company is in control and he is dependent upon them to replace his cash.

With another busy hurricane season forecasted, will there be more disasters? How many people affected will have their homes paid off and lose their nest egg? How many will reposition their equity into a safe investment account and be prepared?

With mortgage rates being around 6.5% today (about 4.7% after tax savings), it’s relatively easy to realize a higher rate of return in a conservative investment account. In addition to increasing safety and liquidity, a higher rate of return can be achieved and allow your money to grow and compound also! For more information on strategic mortgage planning concepts, contact Robert D. Ashby, CMPS at (954) 432-3450 or visit www.solidrockmortgage.com. As Florida’s first Certified Mortgage Planning Specialist, he can verify if it makes sense which mortgage solution is best for a particular family to better protect their home equity, increase their liquidity, and build their wealth.

Don’t Pay Off That Mortgage, It Could Be the Biggest Mistake!

(This is a repost of an article I wrote back in 2006, even before I started blogging)

Paying additional principal toward your mortgage, or even getting a bi-weekly mortgage program, could be detrimental to your financial health?

That’s right. In most cases, instead of paying extra principal, there may be a better way to pay that mortgage off and experience financial freedom faster. “The truth is, you may never want to pay off your mortgage,” says Robert D. Ashby, President of Solid Rock Mortgage Corporation.

Mr. Ashby continues, “Why? Your home’s equity is not a safe investment. Equity has no rate of return and has no liquidity. You cannot access your equity without qualifying for a mortgage of some kind, which requires you to pay fees, and borrow your equity on the banks’ terms, plus you must prove you can qualify.” This is especially true in cases of job loss or some other financial crisis.

Additionally, by taking the money normally put toward extra principal and investing them in other safe investment vehicles, families can increase their liquidity, and realistically be able to pay off their mortgages faster. Families may even want to take out a new loan or refinance their current loan to increase safety, liquidity, and rate of return.

The majority of Americans carry huge credit card balances with high interest rates and most do not have enough money in savings to tide them over in a financial emergency. For this reason, refinancing or taking out a new loan may be even more beneficial for them by increasing their cash flow, which can then be invested to create a college savings plan, vacation plan, or even increase their retirement plan.

There are several strategies for the homeowner to consider that can allow them to experience financial freedom sooner than trying to pay off their mortgage as quickly as possible. Obviously, these strategies will not be advisable to everyone, so seeking the guidance of a Certified Mortgage Planning Specialist to find out which strategy is the best is a wise decision.

For more information regarding these concepts, contact Robert D. Ashby, Certified Mortgage Planning Specialist, at (954) 432-3450 or visit www.solidrockmortgage.com.