Randy Mitchelson, of Estero, Florida, is a licensed mortgage professional with 15 years experience in financial services.

3)Keep in mind that it is not only banks that have documentation requirements.  For borrowers that need mortgage insurance due to qualifying for a low down payment, mortgage insurance providers will have their own set of documentation requests.  For example, if the borrowers prepare their own taxes, and do not use an accountant or CPA, some mortgage insurance providers will require a documented, independent third party verification that the business is currently operating.

4)Lenders still use verbal verification of employment whereby they phone your business to verify it exists.

1)Personal savings continues to climb as consumers work on reducing their debt and building their rainy day funds.

2)Interest rates remain low and show signs of dropping further.  This allows more homeowners to refinance mortgages and more property purchasers to qualify for financing.  Also, consumers carrying variable rate credit card and home equity debt pay less interest and more principal.

1)Consumer spending is down which makes it difficult for businesses to produce and expand. Retailers are cutting into their margins to move product, resulting in lower profits.

2)We are entering a lame duck period for elected officials as they stop doing their jobs and focus on running their campaigns to retain their jobs.

As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval.  He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.  

He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products.   Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.  

Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY.  He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle’s Angels Foundation Inc.  He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.

Mortgage by Randy

monthly update to our clients, colleagues, family & friends

By: Randy Mitchelson, July 2010

======================================================================================================================== 

In Issue 28 We Touch On:

Bad Credit Mortgages

Strategic Defaults

Lead Paint

Mid month travel has delayed the release of this month’s newsletter, but the extra few days have allowed me to reflect upon a topic that may hit home for some.  One of the reasons that I was inspired to earn my mortgage license was to be able to help people.  Being on the inside of various mortgage lenders throughout my career gave me unique insight into how many good borrowers get railroaded or turned down altogether by banks too big to get out of their own way.  I have enjoyed serving in that role since 2005.  Recently however, I have seen fewer and fewer “good borrowers”.  I have little sympathy for people who create their own avoidable problems and choose to cut corners.  Despite their begging “you have to help me”, they do not deserve the undivided attention of a professional to help them, unless they are willing to help themselves.  It reminds me of a quote that one of my colleagues passed on to me years ago: “Bad planning on your part does not constitute and emergency on my part.” My advice is to make good choices and when in doubt, seek the opinions of trusted advisors (preferably qualified and licensed ones). This applies not only to your finances but to life in general.

The current newsletter and all prior newsletters are archived at the Mortgage by Randy blog. Bookmark it and share with your friends and family.  You can make your own comments and feedback as well.  Time for the news…

Mortgage Market: The Cost Of Bad Choices When Real Estate Financing Is Needed

So many people are shocked when they learn about the costs of getting a mortgage which is specifically designed for people with bad credit that I thought I’d publish a typical scenario in hopes of 1) scaring my good credit readers into doing everything in their power to sustain their positive credit history and 2) forewarn my bad credit readers with some accurate facts so that there should be no surprises if and when you pursue a mortgage.

The first thing to be prepared for with a bad credit mortgage (but not the worst), is the interest rate.  A typical price on a bad credit mortgage is between 10-14%.

The second thing that catches bad credit borrowers by surprise is the loan term.  Bad credit mortgages are designed to be short term sources of financing (to allow you time to rebuild credit and reapply for a traditional loan).  Bad credit loans are usually 2-10 years with a balloon at the end.

The third thing that borrowers must realize is that large down payments are required for purchase of property when you have bad credit.  If it takes 20% down payment for a good credit borrower to qualify for best pricing at a bank, what do you think a bad credit borrower needs?  On a good day, 40%, but it could be more depending upon property type and other conditions.  For borrowers seeking to pull cash out of an existing property, there can be no other mortgages and do not expect to access more than 50% of the value of the property.

The fourth thing, and the most painful, about a bad credit mortgage is the cost to do the loan. You can expect to pay all the normal and customary fees (title work, taxes, processing, etc).  In addition, the fees owed to the broker(s) and lender can easily range from 6-10% of the loan amount.

For bad credit mortgages, it is simply supply and demand. There are very few places to get these types of loans and there is a lot of demand for them so the price is high and the terms are strict.  When there is nowhere else to turn, these loans are a great option, but the borrower should have the mindset and a plan to rebuild their credit and exit the loan within a few years.

Personal Credit: Impact Of Strategic Defaults On Future Mortgage Qualification

A new financial term has been invented. A “strategic default” is defined as an action by a mortgagor to deliberately allow their mortgaged property to enter foreclosure despite having the financial means of keeping the mortgage current. Some property owners that have good jobs and good income and good credit, but fell victim to buying at the market peak, are opting to walk away from an underwater property and try to purchase a new one at today’s much lower prices. The moral debate behind a strategic default is a topic for another time.  Lenders are getting wise to this game and adjusting the borrower credit requirements to qualify for a new mortgage.

Each lender can set its own rules but borrowers with derogatory foreclosure or pre-foreclosure events in their credit history can typically expect to run into the following challenges when trying to get approved for a new mortgage:

-Unless the foreclosure was the result of documented extenuating circumstances (a nonrecurring event beyond the borrower’s control, such as a divorce, illness, job layoff, etc.), borrowers should expect to be required to meet a 7-year waiting period.

-Borrowers will be limited to the lesser of 90% LTV or max product eligibility

-Purchase of principal residence only

-Limited or no cash-out on refinances

-Credit scores of at least 680 will be expected.

Even if extenuating circumstances apply, the rules are strict. Minimum credit scores of 620 (with minimal record of late payments), for example, will apply, and the waiting period is likely to be 3 years.

Walking away from a contract with a lender may seem like a good way to save money, but knowing all the downstream risks is important.  Getting into a new mortgage, no matter how good your credit and income are will take several years so plan on either 1) renting during the waiting period or 2) coming to the table with a significant down payment (40% or more) and plenty of reserves in the bank to qualify for a specialty mortgage on a new property.

Economy & Financial Insights: Low Interest Rates May Persist Into 2011

Unemployment remains high. We are digging out of a big hole of job losses. State and federal taxes are being increased on small businesses which curtails their hiring.  Economists estimate that our country must create 300,000 jobs a month for five years to get us back to where we were in 2007! This is not realistic.

The trend in inflation is down. Mid-term elections are on the horizon which will partially serve as a referendum on Obama-era policies like health care and government ownership of private industry (auto, mortgage, insurance, banking, etc.). As a result, the Federal Reserve has little reason to begin raising interest rates.  We seem to be in a prolonged “wait and see” period.  Use this time wisely to pay down debt before rates reverse and lock in low rates on mortgage, auto and credit card loans.

Question of the Month: What Should I Know Before Buying An Older Home?

Buying an older home and modernizing it can be a rewarding project, but if you need mortgage financing there are special considerations to factor before signing a contract.  For example, homes built prior to 1978 will be required by some lenders to have a lead paint inspection by an approved appraiser. Another thing to check ahead of time is if the property will be insurable.  Some insurance companies have rules based on the age of the home and the type of construction.  No insurance, no mortgage.  Or the insurance might be so expensive that you can’t afford the mortgage.  Too many times, eager buyers sign a sales contract and commit earnest money to a deal before doing their homework on a property.  Consult with professionals before taking a leap of faith.

Giving Back: Supporting Our Communities – We Surpassed $1,000 In Savings For College

Do what 9 million Americans and I have done - join Upromise, a rewards company that gives you money for education when you shop online, buy groceries, travel, even fill your gas tank. With hundreds of participating partners, Upromise helps people like us pay for future college costs or eligible student loans. Our account is now at $1,017.83 which will be gifted to our niece and nephew when they go to college.  In this economy, who couldn't use a little extra help? Joining is free and takes just a few minutes. If you want more information, send me a note.

Need volunteers? Do you have a fundraising event upcoming?   Do you have a personal web site where you are raising donations for your cause?  Submit the information to randy@mortgagebyrandy.com by the 5^th day of each month and we will do our best to include your information in the next issue.

After a hot, hot trip to Williamsburg, Virginia, it’s almost time for my visit to New York City for a trade show, but not before I catch a Rays game in St. Petersburg and enjoy a long weekend at Disney.

Randy

Mortgage by Randy newsletter, Copyright 2010 Randy Mitchelson.  All Rights Reserved.

Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson.  Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.

________________________________________________________________________________________________________________________________________

You have permission to publish this article electronically or in print as long as the following is included:

Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with over 15 years experience in financial services.  Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.

As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval.  He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.

He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products.   Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.

Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY.  He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle’s Angels Foundation Inc.  He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.

Mortgage by Randy
monthly update to our clients, colleagues, family & friends
By: Randy Mitchelson, June 2010
======================================================================================================================= 
In Issue 27 We Touch On:
Congress Chokes Consumers
Credit Freezes
Screwed And Glued

Summer is here.  One way I can tell is by watching the gathering thunderstorms outside my office window each day.  If lightning is your type of excitement, book a room at Hotel Mitchelson for a few nights and enjoy the show. The daily storms are symbolic of current economic events and government action.  Just when you think it can’t get any crazier, it does.  This issue includes some disturbing updates about the mortgage industry and our government actions to “help” revive the economy.

The current newsletter and all prior newsletters are archived at the Mortgage by Randy blog. Bookmark it and share with your friends and family.  You can make your own comments and feedback as well.  Time for the news…

Mortgage Market: Congress Choking Consumer Choice
The onslaught of legislation to regulate the financial services industry continues.  The pendulum has swung so far in the opposite direction of reasonableness that it is becoming comical.  Separate bills passed by both the House and Senate are currently in the reconciliation process. One of the most egregious elements of both bills is that consumers will no longer have the option of paying some closing costs up front and some through the interest rate.

Under existing law, consumers have the option of rolling some closing costs into the interest rate and paying some up front instead of the all or nothing approach taken by the House and Senate bills. Consumers have enjoyed the existing options when they want to balance their rate with their ability to pay some closing costs up front.

Many times a borrower does not have enough cash up front for closing costs and fees.  In this situation, they can choose a higher interest rate, which will allow them to roll closing costs and originator fees into the rate.  Many times loan programs require residual cash after the closing in order for a consumer to qualify for that particular program.  For example, some loan programs insist that the borrower still have at least three months of mortgage payments in the bank after closing.  Under the current rules, the consumer can utilize some of their cash at the closing table and pay for other costs in the rate.  The proposed law takes this option away from the consumer.

Consumers should be able to finance closing costs and origination fees as they deem appropriate for their individual circumstances (i.e. cash available at closing, length of time planning to remain in home, refinance, etc.).  Having a one size fits all rule has no logical basis and hurts consumer choice.

Personal Credit: What Is A Credit Freeze? Another Tool To Help Protect Your Identity
A credit freeze locks down all your credit information.  This action prevents the credit bureaus from releasing your credit report to new creditors.  Each state has different laws about placing credit freezes. To learn about the rules where you live, do an Internet search like "Florida credit freeze law" (just insert the state where you live).

Some states allow anyone to place a freeze but others just allow people experiencing identity theft issues to do it.   When you provide an Identity Theft Report (form available on FTC website), the cost of a credit freeze should be free, but again, each state is different.  Worse case, it may cost about $10.

Important Tips About Credit Freezes
-consumers can temporarily lift a credit freeze, but depending on your state law, the credit bureaus may have up to three days to do this
-a credit freeze does not impact your credit score
-consumers using a credit freeze are still eligible to receive one free annual credit report
-if you place a credit freeze you may still use a credit monitoring service
-companies you already do business with (mortgage, credit card, etc.) will still have access to your credit report despite the freeze

Economy & Financial Insights: Massive Government Spending Leading To Fork In The Road
In recent issues of this newsletter, focus has been placed on the events in Greece.  However, massive government spending in virtually all developed countries is creating the risk of a multitude of Greece-like situations. It is the philosophy of many government officials that the reduction in consumer spending (due to job losses, switch in mindset to pay down credit card and other debt and overall conservativeness) should be offset by government spending.

It has been a long time since we have experienced double digit unemployment.  In addition, the unemployment numbers we hear about in the news are false.  Clinton era adjustments to the formula for unemployment result in the figures being understated.  Things are worse than we are lead to believe. Although people are spending a little more these days, it is not enough to offset the huge amounts of government spending.  Our recovery is lukewarm at best.

Continuation along the current course of deficit spending will lead to demands for higher interest rates from the countries that purchase our debt.  We face two difficult choices.  On one hand we can raise taxes to eat into this elephant.  This at least keeps us in control of our fiscal situation.  On the other hand we can roll the dice and see how long we can play until the demands for higher interest rates surface.  If we reach that point, we are at the mercy of those that purchase our debt.  The domino effect of higher interest rates is ugly.  Just ask a baby boomer what their mortgage rate was back in the late 70s and early 80s. Our credit card debt, mortgages, car loans will all cost more and it will be more painful for businesses to invest in their growth. Think about which lesser evil you would rather live through.

Question of the Month: How Are Some Lenders Redefining Screwed Ands Glued?
Screwed and glued. Traditionally, that is the catchy term that has been used by real estate agents, mortgage brokers and appraisers to describe what elements in a house are included in a sale. Anything that is fastened (i.e., screwed or glued) is assumed to be included in sales contract unless otherwise specifically stipulated.

New rules from some lenders are changing the “screwed and glued” guideline. For example some lenders are now claiming that curtains and blinds are not considered fixtures even if the curtains or blinds are built-in or custom for the windows in the property. If the curtains or blinds are not in the contract, then the assumption is they are NOT conveying and nothing further needs to be done.

If the curtains and blinds are included in the contract, then they are treated as personal property. If the appraiser does not include the value of the personal property on the appraisal or is unwilling to provide a value, or determines that the personal property is of no value, an underwriter must determine the reasonableness of assigning no value to the personal property. Custom window treatments can cost thousands of dollars so homeowners should be sure that the value is included in their appraisal.

Giving Back: Supporting Our Communities – 2010 Mitchelson Scholarship Winner Announced
The 2010 winner of the Larry Mitchelson Fine Arts Award is Alexis Semeraro.  Alexis will be attending the Rochester Institute of Technology and will pursue a career in film animation.  Her goal is work for Disney.  The award includes a $1,000 scholarship, funded by the generous tax deductible donations of the Foundation’s supporters.  To learn more about the Foundation and see a history of scholarship winners, and to make a financial gift, visit www.mitchelsonartscholarship.com . We look forward to following Alexis’ progress through school and beyond.

Need volunteers? Do you have a fundraising event upcoming?   Do you have a personal web site where you are raising donations for your cause?  Submit the information to randy@mortgagebyrandy.com by the 5th day of each month and we will do our best to include your information in the next issue.

Next stop is Williamsburg, Virginia for family reunion and some historical site seeing.  Enjoy a safe Fourth of July holiday.

Randy
____________________________________________________________________________________________
Mortgage by Randy newsletter, Copyright 2010 Randy Mitchelson.  All Rights Reserved.

Randy Mitchelson is a licensed mortgage professional. All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Randy Mitchelson.  Recommendations may change and readers are urged to check with their financial advisors before making any decisions. Opinions expressed in these reports may change without prior notice. Mitchelson can be reached at 239-851-6738.
____________________________________________________________________________________________
You have permission to publish this article electronically or in print as long as the following is included:

Randy Mitchelson, of Estero, Florida, is a business professional, entrepreneur and author with over 15 years experience in financial services.  Mitchelson has served in leadership roles for Global & Fortune 500 firms like Bank of America, KeyBank and CIBC.

As a member of National Association of Mortgage Brokers, Randy has earned the Lending Integrity Seal of Approval.  He educates both individuals and groups about credit scoring by conducting personalized credit report reviews, action plans and one on one consultations. He is author of the free monthly newsletter, Mortgage by Randy as well as the Daily Dollar newsletter. A licensed mortgage professional, Mitchelson also founded Trinity Home Financing, LLC.

He is owner of Estero, Florida based National Web Leads, LLC, an internet lead generation service matching consumers with lenders for auto, cash advance and other financial products.   Through its network of partners, National Web Leads delivers innovative Web 2.0 performance marketing solutions to advertisers and affiliate marketers.

Mitchelson earned his BS and MBA at Rensselaer Polytechnic Institute in Troy, NY.  He is a founding member and Finance Chairman of the Southwest Florida Regional Technology Partnership Inc. and Vice President for the Michelle’s Angels Foundation Inc.  He is married to Susan, a Pharmacy Supervisor in the Lee Memorial Health System in Fort Myers, Florida.