Archive for May, 2007

Federal Reserve: Inflation Remains “Uncomfortably High”

David Kosmecki | May 31, 2007 in Uncategorized | Comments (0)

Non-farms payroll, PCE and unemployment data make Friday a dangerous day to float a mortgage rate

Tomorrow, the fireworks begin. Or, continue, depending on your point of view.

After a span of several weeks in which mortgage rates have steadily increased, markets are gearing up for a heavy day of data that could confirm the worst fears of investors everywhere: the U.S. economy is not slowing down.

The Fed’s May meeting minutes showed that it is concerned about inflation, too.

Despite “more favorable” readings, inflation remained “uncomfortably high” and is following neither a downward trend, nor an upward trend.

Reported today, year-over-year inflation data is running at its highest rate in 16 years.

Overall, this makes it less likely that the Fed will lower the Fed Funds Rate rate in the near future.

If you are currently floating your interest rate, get in and get locked. Because there is already an upside bias on rates, it won’t take “hot” numbers to move interest rates higher — it will only take average numbers to do it.

Pay Off Your Mortgage In 1/3 The Time With The Same Payment

David Kosmecki | May 30, 2007 in Uncategorized | Comments (0)


1. What makes the loan pay off sooner?

The main performance driver is the fact that you direct-deposit all your income into this loan, driving down your principal balance dramatically. Interest is based on your daily balance. Even if you spend most of your income during the month, your daily balance will be less when compared to a traditional loan, and you save interest. This leaves more of your income available for principal, accelerating the buildup of equity with no change to your spending habits. Naturally, the more positive cash flow you have, the faster your loan paydown will accelerate.

2. If I pay off early, will I lose my tax deduction?

Yes, and this is good, because you've eliminated your interest burden. We believe that 'interest is not in your best interest.' Paying $3 in interest to get approximately $1 in tax deductions is not a good long-term strategy, so getting rid of your mortgage quickly is prudent. And, of course, while you're still paying down your balance, the interest you do pay IS deductible (see your tax advisor).

3. The loan is based on the LIBOR index - why is the margin slightly higher than other loans, and what if rates go up even higher?

Here is where we're changing the way mortgages are viewed. It's no longer about the rate. It's about how many dollars of interest you pay on a lower principal balance. With this loan, your principal balance is continually forced down by your direct deposits, and this can offset the effect of higher rates because you're paying interest on a lower balance. This effect actually compounds as time goes on. The best way to observe this is to use the Interactive Simulator, which can be found at You'll see why the slightly higher margin on this loan, which is required due to its highly transactional nature, can have such a minimal effect on the overall payoff timing.

4. What is the payment?

Again, we're changing the way mortgages work. Every time you make a direct deposit of your payroll, or add funds from another account, you're in effect making a payment. Then at the end of each monthly statement period, interest is charged based on your daily principal balance. If you have available credit, we simply add it to your principal balance.

5. Who is the ideal customer for this loan?

The CMG Home Ownership Accelerator is ideally suited for responsible homeowners with positive cash flow, who understand that parking their cash against their loan balance can earn them a higher effective return than in a low-interest checking or savings account.

Are You Eligible To Get Rid Of Your PMI Payments?

David Kosmecki | in Uncategorized | Comments (0)

Once your home LTV is 78%, you can petition to have PMI removed

If you’re currently paying Private Mortgage Insurance (PMI) and have been for several years, it may be time to petition your lender to have the PMI payment removed.

Waiting for it to drop off 'automatically' may mean you will be stuck with the higher payments for at least five to ten years from your original purchase date.

PMI protects lenders from homeowners that stop making payments on homes with small amounts of equity. It’s an insurance policy that is “cashed in” if the homeowners defaults.

However, federal law allows homeowners to request the cancellation of PMI if their loan-to-value (LTV) drops below 75 or 80% based on the new or the original appraised value, depending upon your exact circumstances.

Usually, you need to have been paying on the loan for at least two years, except in cases where you have made major improvements to your home.

An example of 80% LTV is a home that is worth $100,000 on which $80,000 is owed to mortgage lenders.

If you are paying PMI and think you are eligible to have it removed, contact your mortgage lender and ask them about their procedure to remove PMI.

The lender may require that you have your home appraised (at your expense) and that may cost anywhere from $200 to $400 — but if your petition is successful, the cost of an appraisal is much less expensive than the ongoing monthly cost of PMI.

The Week In Review (May 29, 2007) : What To Watch For

David Kosmecki | May 29, 2007 in Uncategorized | Comments (0)

Mortgage rates continued their climb higher last week as markets dealt with contradictory data about the health of the housing and the economy.

New Home Sales registered its biggest gain in 14 years while Existing Home Sales reached a 4-year low; and purchases of “big-ticket” items such as computers, appliances and furniture unexpectedly jumped while the inventory of homes for sale rose to 8.4 months.

It’s enough to confuse even the most experienced investor.

As a result of the data, traders postponed their expectation for a Fed Funds Rate decrease and that helped push mortgage rates higher on the whole.

This week should provide little relief from mortgage rate volatility.

Tuesday’s Consumer Confidence will reveal how consumers are feeling in the face of record-high gas prices and Wednesday’s FOMC Minutes will unmask the inner discussions of the Fed’s meeting earlier this month. Both can have a moderate impact on mortgage rates.

Friday, however, is the big day — we’ll get three major reports:

  • Personal Consumption Expenditures: The Fed’s preferred inflation gauge
  • Personal Income and Outlays : A look at American savings and spending habits
  • Non-Farm Payrolls: May’s jobs report, including unemployment

All three releases on the same day, and into a nervous market, give this the potential for an Economic Perfect Storm. Expect extreme rate volatility heading into, and through, Friday.

Why You Should Re-Pre-Qualify Yourself Today

David Kosmecki | May 24, 2007 in Uncategorized | Comments (0)

Mortgage rates are surging and your prequalification letter may no longer be valid

If you’re in the process of buying a home and are working without a rate lock, take notice: over the past two weeks, mortgage rates have spiked to their highest levels since November 2006.

Your actual mortgage payment will be higher than you originally anticipated.

Depending on your preferred mortgage product, rates have increased by as much as one-half of one percent.

Mortgage experts expect the surge to continue over the next 30 days, at a minimum.

If your mortgage pre-approval is dated prior to May 9, call your lender and ask him to re-run it using today’s rates and market conditions. If you don’t have a pre-approval yet, today would be a good day to get one.

One Method To Reduce The Amount Of Sub-Prime ARM Foreclosures

David Kosmecki | May 22, 2007 in Uncategorized | Comments (0)

The graphic at right comes from The Wall Street Journal and it illustrates something that we all intrinsically know: Sub-Prime ARMs foreclose at a faster pace than all other home loan types.

When adjustable rate mortgages reach the end of their “fixed rate” period, some homeowners are unprepared for the upward-adjusting mortgage payments and that can lead to payment shock.

It doesn’t mean that sub-prime mortgages are bad for all homeowners, however.

A little known fact: Nearly all sub-prime ARMs carry an initial fixed period of 24 months or more. This means that the sub-prime borrower has at least two years to make financial adjustments that include:

  1. Paying collections, charge-offs and other delinquent accounts
  2. Making timely payments on loans, credit cards, and open charge accounts
  3. Reduce his monthly debt load with systematic payments to creditors

All of these actions help the homeowner ascend from sub-prime borrower status and into the realm of “prime” loans. It’s the responsibility of the loan officer to help guide the way.

A trusted loan officer will help a sub-prime borrower to develop a financial plan and will hold them accountable. Then, as the borrower’s status changes from “sub-prime” to “prime” because of better credit scores and payment history, the loan officer will remortgage the borrower out of his sub-prime loans and into a new, more favorable (fixed-rate, perhaps?) loan.

For borrowers who follow “the plan”, their sub-prime loan will never adjust –they’ll get rid of the loan before that two year period ends.

This is a terrific method for reducing sub-prime ARMs in foreclosure — improve a homeowner’s credit rating so they can leave the sub-prime world on their own accord and before their payment ever has a chance to change.

The Week In Review (May 21, 2007) : What To Watch For

David Kosmecki | May 21, 2007 in Uncategorized | Comments (0)

Mortgage rates moved substantially higher last week as traders reacted to Thursday’s Initial Jobless Claims.

The amount of new unemployment filing dropped below 4-week trend line is now at its lowest levels in a year.

Fewer unemployment claims coupled with increasing employee wages raised fears of inflation and inflation nearly always pushes mortgage rates higher.

This week is practically devoid of data but there are two key housing releases — Thursday’s New Homes Sales and Friday’s Existing Home Sales — that could move mortgage rates.

In addition, as investors look for higher returns, they siphoning money from their bond investments and moving it into the stock market which has seemed unstoppable as of late.

This, too, is placing sell-side pressure on mortgage bonds.

As mortgage bonds sell off, it pushes mortgage rates higher for homeowners. Expect traders to ride last week’s wave until Thursday, at least.

If you’re shopping for mortgages today, it may be prudent to lock your rate and avoid fighting the current rate trend.

How “Repair Credits” To The Buyer Can Sabotage Your Home Sale

David Kosmecki | May 18, 2007 in Uncategorized | Comments (0)

Sellers cannot offer repair credits to buyers as a line-item on the final settlement statement

When buyers and sellers look for common negotiating grounds, it’s common for the buyer to request home improvements to be made prior to the sale.

The request may be phrased in any number of ways:

  • “The hardwood floors are warped and we think the seller should pay for it.”
  • “There is a leak in the plumbing that needs to be fixed to prior to moving in.”
  • “The roofing reached the end of its life. It needs to be replaced.”

The seller may agree to meet the buyer’s demands, but making repairs to a home fixture, such as a roof, isn’t convenient while a person still occupies a home.

And this is how the “repair credit” gets introduced into the contract. A repair credit is a dollar amount granted from the seller to the buyer to be used to cover the costs of the requested repair(s).

For a seller, repair credits offer a way to “pay for” the handyman work without actually going out of pocket; all of the funds for the buyer are taken directly from the home sale’s proceeds instead of from a bank account.

Unfortunately, when granting the repair credit, many sellers go about it in the complete wrong way, putting their buyer’s ability to acquire home financing for the purchase at risk.

That’s because — as a rule — lenders do not allow concessions for home repairs to be line-item credited on the final settlement statement.

This is for two reasons:

  1. The lender has no way of knowing that the repair will actually be made by the buyer
  2. The lender has no way of knowing whether or not the repair is actually needed

Put the two together and it raises the red flag we call “Fraud Alert”.

The correct way to offer a repair credit is to reduce the home’s sale price by the amount of the credit and make that the new purchase price. In the end, the seller goes home with the same amount of money.

How Psychological Factors Are Pushing Mortgage Rates Higher

David Kosmecki | May 17, 2007 in Uncategorized | Comments (0)

Mortgage bond prices are trending below a barrier so now is the time to lock

Mortgage rates have held in a very tight range over the past few months, but little by little, they are inching higher.

Mortgage rates are not picked from thin air. Just like stock prices, they are based on facts, opinions, and psychology.

There is a lot of news and data to interpret but, for the first time since last Fall’s precipitous decline in rates, psychological factors are now the driving force.

Mortgage bonds recently pushed through a “barrier” that should place continued pressure on mortgage rates to increase. In the last two years, mortgage prices have crossed this barrier just one time.

Trends tend to last for extended periods of time in the mortgage business and, for now, the trend is not your friend. If you’re shopping for a mortgage, today would be a good day to lock.

Hot Housing Starts Figure May Push Mortgage Rates Higher

David Kosmecki | May 16, 2007 in Uncategorized | Comments (0)

Each month, the Commerce Department releases a statistic titled “Housing Starts” that measures residential construction activity.

This morning, the Commerce Department released April’s Housing Starts data (PDF) and the headline data reflected a 2.5% increase in new construction.

Markets had anticipated a 0.8% decrease. This coincided with a decrease in available homes, as shown on the graph at right.

Housing Starts details the number on residential units on which construction started in the reported month.

Housing Starts can provide terrific guidance on the future direction of our economy for several reasons:

  1. Home construction creates jobs in the construction industry
  2. Home builders spend dollars on raw materials, fixtures and appliances when building a home
  3. Home buyers spend money on furniture, electronics and services (i.e. movers) after buying a home

So, as more homes are built, more jobs are created, and more money is pumped back into the economy.

A hot Housing Starts number can predict strong economic growth 6-9 months out on the horizon and that is one reason why economists watch it intently.

Another reason Housing Starts matters is because the Federal Reserve is inflation-wary.

It has stated many times that growth is strong but that housing is dragging down overall growth to a more comfortable level. The housing sector, it believes, will create a gradual economic slowdown.

Today’s data may prove otherwise.

In response, expect mortgage rates to rise today on inflation concerns.