Florida Mortgage Report

Flight Planning Your Retirement (Enroute)

In my previous post on the subject, Flight Planning Your Retirement (Pre-Flight), I discussed how airline pilot's prepare for their flights and how it relates to your own financial "preflight planning".  This post will discuss how pilot's constantly monitor their flight and adjust the plans enroute and how you should be doing the same with your finances.

Now that our airplane has taken off, we know we are far from over.  During the remainder of the flight, pilots must monitor the flight, weather, systems, and more and adjust the plan as necessary.  We hope the flight will be "boring", but we plan for the worst as we go along.  By constantly monitoring and adjusting the plan, we can minimize the effects of any changes.

Now that you have implemented your retirement plan (or any financial plan for that matter), you must also monitor it.  I don't mean every day, but regularly check and make sure you are on course.  The regularity depends on you, but it should be at least once per year and any time there is a "life event", such as new child, marriage, etc.  While you certainly don't want life to be boring, you also want to be prepared for life changing events.

As happens during airline flights on occasion, things do go wrong and we have to adjust our plan accordingly.  The issues are usually minor and don't involve much more than an altitude or speed change.  Sometimes things get more dramatic, which you have likely seen on TV or in the paper.  No matter what, preparation is still key and that means planning ahead for problems along the way.

As you go through life, your financial plan will change also.  Besides normal life events, chances are good that you will encounter some sort of financial crisis.  It may be minor, or it may hit you hard.  Again, planning for those types of events is a huge part of ensuring your financial success.  Hopefully, you will not see your house get destroyed by fire, tornadoes, or hurricanes, but what if it does?  Plan ahead, just in case.

Sometimes pilots have to divert and get the plane on the ground quickly to handle an emergency.  That does not mean it is the end of the flight, though you will likely have a change of airplanes and/or crew.  But once that is completed, your flight will likely continue to its destination.

You may encounter major problems in your financial picture along your journey as well, causing a divert of sorts.  It may require you to change your thinking, re-diversify your investments, or completely rework your plan altogether.  Just be ready to get together with your team and do what is necessary when a major problem hits, and remember that while you may have to delay arrival a bit, you will get their if you plan accordingly.

Now that we are well under way along our route, we have to begin preparations for our arrival.  Yes, more planning is involved, frankly it doesn't end until we have left the aircraft.  As we get closer to the airport, we are setting up for our landing and arrival at our destination.  The next post will cover your financial approach.

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.

Flight Planning Your Retirement (Pre-Flight)

Flight planning and retirement planning are very similar in what it takes to achieve success.  Flying requires excellent planning, modifications to the plan enroute, a proper vehicle, and constant monitoring to ensure we reach our destination.  Retirement planning, will also require proper planning, proper vehicles, modifications to the plan along the way, and regular monitoring to ensure you reach your destination.  In fact, the only real differences are the time it takes and the fact one destination is a location and the other is a financial goal.

There is an old saying about the 3 most useless things in flying, which are:  runway behind you, altitude above you, and fuel left in the truck except when you are on fire.  While those rank high on the list, failure to plan is another, and proper planning will ensure the other 3 don't matter.  The same will hold true in your retirement planning.

Before a pilot even gets out to the airplane, he is already preparing his plan.  Keeping with the airline style flying, we will plan along with several other "team" members.  Our team includes dispatchers, load planners, air traffic controllers, and more.  Most of the time, our team members have the flight plan set up for us when we get to work and we likely agree with the plan to start with (we have a good team at American Airlines). 

When working your retirement plan, you will need a team also.  That team should include financial advisors, insurance agents, mortgage planners, tax advisors, and anyone else that can help you make your destination.  You will work together to develop your specific plan to get you started, ensuring everyone is working together to get you to your destination.

The next step for the pilot is to preflight the airplane and make sure it is ready for its flight.  "Walk-arounds" are down to make sure the vehicle doesn't have any exterior problems, while interior checks are performed as well.  If any issues are found, modifications to the plan are made to ensure safety, including switching aircraft if necessary. 

Your pre-flight retirement planning will cover types of investment vehicles that can help you attain your financial goals and which ones to use.  While flying requires only one vehicle, investments should be diversified for better chances of success.  This could include stocks, bonds, mutual funds, currency exchanges, options, real estate.  Then you can wrap those up into IRAs, 401(k)s, 1031 Exchanges, or other "vehicle" to get you there.  Choose your option wisely and minimize "overlap".

The remaining portion of a pilot's pre-flight is to ensure adequate fuel to get there, have an alternate (or two), and more to deal with problems that may arise enroute.  We also get a clearance for departing, get in position and go.  Thus, we have done the best we can to ensure a safe completion of that flight at our destination.

The final preparation of your retirement plan will be to bring it all together and implement it.  No investment ever pays off if you don't put any money into it, so get your plan together, make sure it looks good, and get it going.

Now, that we are on our way, the next part of the series will cover handling problems enroute and making adjustments along the way.

Florida Cities Take 6 of the Top 25 Spots in Foreclosure Stats With Miami in Front

RealtyTrac released their year-end 2007 Metropolitan Foreclosure Report, and while not on top, Miami was leading the state, passing by Ft. Lauderdale.  Back in November, the rankings were different, with Ft. Lauderdale leading the state and ranking 4th in the nation.

The foreclosure rate for the total US came in at 1.033% of households, with the foreclosure rate of the top 100 metro areas coming in at 1.382%.  Detroit led the nation with a rate of 4.918%, fueled by economic chaos in that area.  The remaining top 5 were (in order):  Stockton, CA (4.866%), Las Vegas/Paradise, NV (4.228%), Riverside/San Bernardino, CA (3.826%), and Sacramento, CA (3.189%).

As far as Florida goes, South Florida still leads the pack and 6 Florida cities made the top 25 rankings.  Here is a breakdown of the Sunshine State:

Rank	Metro Area	Foreclosure Rate
8	Miami, FL	2.724
10	Ft. Lauderdale, FL	2.632
20	Orlando, FL	1.932
21	Palm Beach, FL	1.924
23	Tampa/St. Petersburg/Clearwater, FL	1.908
24	Sarasota/Bradenton/Venice, FL	1.840
27	Jacksonville, FL	1.748

As you can see, all the major metro areas in Florida made the top 30.  What does that mean to you?  Great news if you are a buyer, especially an investor.  Bad news for Florida homeowners as the rates will keep pressure on the declining home prices.

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.

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!

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.

Should You Really Change Your ARM?

Everyone still seems to think that changing your ARM (adjustable rate mortgage) to a fixed rate mortgage is in your best interests.  But is it really?  I have talked about this before, but people still contact me wanting to get their ARM changed when their ARM isn't really broken.  In fact, many of those ARM holders that contact me would actually be paying for a higher rate on a fixed mortgage than if they simply let their ARM adjust.

The media and most mortgage professionals are not going to tell you that.  Why?  They can make a killing during this "lull" by having you feed off the negativity that currently surrounds ARMs.  Heck, I could be doing the same thing, but I have found that most ARM holders that have come to me for guidance are better off in their ARM than converting to a fixed rate product.

There are of course some concerns, some of which are valid.  The primary concerns are the effects of the tightening access to credit.  Will the borrower likely qualify when they need to switch down the road?  Will they be able to afford to refinance later?  Will their home value drop significantly preventing a viable refinance?  The list goes on.

Whether or not you should be converting your ARM to a fixed rate mortgage depends on a lot of variables, but you shouldn't rush into a refinance, especially with indexes on their way lower.  Take a look at the chart below which highlights some ARM indices and the Fed Funds Rate and how they are all headed lower right now. 

In fact, if you let your LIBOR ARM adjust right now, your fully indexed rate will be below 6%, roughly where 30-year fixed rates are right now and those LIBOR rates will likely drop significantly after the next Fed rate cut.  Keep in mind that the Fed's decision does not directly affect mortgage interest rates, but it does have an impact on the indices that ARMs are based on.

Just How Are Homeowners Affected by Changing Mortgage Guidelines

I have been asked this exact question several times but never bothered to make a post as the demand for this answer had not been very high.  Ironically, as I was reading my feeds which came in last night, Dan Green over at the Mortgage Reports had done a video presentation on this exact subject.  So, instead of reading, watch this video as I think he does a pretty good job explaining in black and white (with shades of gray).

Of course, if you still have questions or want to know how it affects you personally, please feel free to contact me.