Last week I received word that MGIC, the largest and most used mortgage insurance company in the nation, would probably be cutting their mortgage insurance coverage for owner-occupied loans with ltv’s (loan-to-value ratios) greater than 95% on 3/1/08. With the practical extinction of piggyback 2nds, what this means is that borrowers are going to have to start putting 5% down if they want to buy a home. Lenders are already starting to react, as I just received an email from US Bank that effective tomorrow they will no longer allow ltvs greater than 95%.

If you are a buyer who is pre-approved for 100% financing you may want to double check with your lender to make sure you are locked. If you haven’t decided on a property yet I recommend acting fast. Most lenders do not allow loans to be locked until you have found a home and can provide an address. If you are a seller with a pending sale, I recommend double checking with the buyer’s lender to make sure they are locked and good to go.

Hopefully this scare won’t last, but it seems to me that we haven’t yet fully hit bottom with the credit crunch. I am hoping that zero down mortgages don’t completely vanish since most first time home buyers I meet don’t even have money for closing costs let alone a down payment. If this does happen I see FHA loans being our next best bet.

The FHA (Federal Housing Administration) provides insurance for FHA loans giving great rates and lower mortgage insurance for borrowers. Since the mortgage meltdown FHA has taken the place of sub-prime loans since they only require a 580 fico score. Currently FHA requires a 3% down payment on purchases although there is talk of that being reduced to 1.5%.

Last week the economic stimulus plan was signed by President Bush temporarily raising the FHA loan limit from $304,950 to $401,250 until Dec. 31 2008. As a side note, the plan will also raise the conforming loan limits (a conforming loan is any regular loan that is less than or equal to $417,000) in some areas of the country to $729,750. Unfortunately, this will not affect us in Oregon as they have determined that our median home price is too low to qualify for the raise. So for now borrowers will have to qualify for jumbo loans if their loan amount is above $417,000. For that group of folks this translates into higher rates and more restrictions since jumbo mortgages are seen as riskier and less desirable.

If you have a question relating to mortgages, feel free to contact us with your questions.  I am always happy to help!

1. Make your payments on time!

2. Avoid collections at all costs.

If you have any new collections, pay them off as soon as possible. If you have any collections that are older than 2 years, you may not want to pay these off. The reason is that once you pay a collection it will not disappear from your credit report, it will only show as paid instead of unpaid. When that happens, it will pull the collection current and your score will drop (the older the collection, the less it impacts your score).

3. Make sure you keep all credit card balances low.

You’ll want to keep your card balances below 50% of your credit limit, although 30% is even better.

4. Don’t apply for extra credit cards.

Don’t sign up for cards you aren’t going to use just to get the “10% off your purchase” many retail stores offer for applying for their card. Be choosy about who you allow to pull your credit.

5. Don’t close accounts thinking it will improve your score.

It usually hurts your score. Remember that a credit score is a measure of credit. If you have less open credit than there is less to measure!

6. Don’t open a lot of new accounts rapidly.

7. If you’re rate shopping, do it within a 14 week period.

8. If you are going to be buying a home soon:

Don’t wait until the last minute to speak with a loan professional. They can tell you exactly what to do and what to avoid giving you the best possible rate when you are ready to buy.

9. Check your credit at least once a year to avoid inaccuracies.

By law you are entitled to one free report a year. You can access your report at www.annualcreditreport.com. This report does not include your score, but you can purchase a copy of your score from the website for a minimal fee.

Credit repair

People often ask me how long it will take to improve their score. It could take weeks or it could take a year depending on what is impacting it. If there are inaccuracies on your credit report, by law you have a right to dispute them. To do this, send a letter to whichever of the three bureaus (TransUnion, Equifax, and Experian) that are reporting the item, detailing your dispute. They must do an investigation and get back to you within 30 days. This usually takes some work but can be very beneficial. There are companies out there that offer credit repair but be very careful. Some are very good but others are scam artists. I am very careful of who I will send my clients to.

If you are thinking about buying or refinancing a home and have a question regarding credit, please feel free to contact me!

How credit scores are calculated

Credit scores run from 300 to 850 and are calculated based on a mathematical equation which calculates and weighs various items from your credit past. In the US, we use the fico equation developed by fair Isaac and company. All of your credit for the past 7 years (10 with certain types of bankruptcy) is complied and used to determine how good of a credit risk you are.

The equation has five main categories that grade your credit history with each category being weighted differently.

35% of your credit score is payment history

This is where on time payments will help you and late payments or collections will hurt you. Late mortgage payments will especially drop your score. Late payments are only reported once they are 30 days or more past due so if you miss that payment by only a couple days it shouldn’t hurt your credit.

30% of your credit score is how much you owe

Your debt may be a revolving trade line or installment loan.  A revolving trade line is credit that has balances that can go up or down at anytime like a credit card. An installment loan is credit that has a set pay off, like a mortgage, car loan, or student loan. Keeping your balances low or paying down what you owe on these types of loans will increase your score. For good scoring keep your balances below 50% of the limit. For great scoring keep them below 30% of the limit.

15% of your credit score is credit history

For this category the scoring model looks at the age of your oldest account and the average age of all accounts. It also looks at how often you are using these accounts and how long it has been since you used them. Having a lot of old accounts is better than a lot of new accounts.

10% of your credit score is types of credit

Ideally what it is looking for is a healthy mix of credit such as one mortgage, one installment, one credit card, etc.

10% of your credit score is based on inquiries

Every time you apply for a loan or credit card and someone pulls your credit within the past 12 months it will show on your report and hurt your score . The reason inquiries are counted is because someone who is applying for a lot of credit within a short period of time indicates someone who could be over overextended and is not a good risk.

Note that if you check your credit yourself it is known as a ‘soft pull’ and will not impact your score. Also if you are rate shopping for a car or mortgage, any inquiries that are made within a 14 day period are counted as one inquiry.

If you are thinking about buying or refinancing a home and have a question regarding credit, please feel free to contact me

Active listings are up 11.9% compared to January 2007 but closed sales are down 31.9% and pending sales fell 34.3%. There are currently 13,904 residential homes for sale in the Portland Metro Area–and with Portland’s current rate of sales this number of homes will take 12.8 months to sell.

*This chart shows the number of homes for sale in Portland, Pending Sales, Closed Sales, Average Sales Price, Median Sales Price and Market Time compared to January 2007.

Median Sales Price and Appreciation by City:

Home prices in the Portland area have continued to increase even though the housing market has slowed. This graph shows the average sales price of the homes sold in the Portland Metro Area.

Here are the pricing statistics for individual areas that reflect that increase.
(average sales price – Year to date appreciation)

North Portland - $268,100 – 8.3%
Northeast Portland - $329,900 – 7.3%
Southeast Portland - $279,600 – 6.7%

West Portland - $503,100 – 4.6%
Gresham, Troutdale, Sandy, Corbett, Fairview - $249,600 –4.4%
Milwaukie, Gladstone, Clackamas, Estacada - $369,000 – -6.4%

Oregon City, Canby, Molalla, Beavercreek - $319,300 – 1.1 %
Lake Oswego, West Linn – $588,800 – 7.5 %
Beaverton, Aloha - $257,100 – 3.2%

Tualatin, Tigard, Sherwood, Wilsonville - $377,700 – 4.8%
Hillsboro, Forest Grove - $280,600 – 4.2%
Mt Hood: Zigzag, Welches, Rhododendron, Brightwood - $239,800 – 2.5%

This is the optimum time for home buyers and investors to go shopping: foreclosures are on the rise, housing options are plentiful and sellers are motivated to sell.

If you’re a first time home buyer or an investor feel free to contact us with your questions.

* Market statistics provided by RMLS Market Action Report.

When should I refinance my home?

It would be wonderful if I could just tell you, or if there was a simple formula that would determine when refinancing is warranted. The truth is, there are many variables (different for each homeowner) that should be considered before making a final decision, and it’s always best to consult a loan officer who understands both the advantages AND the hidden pitfalls of refinancing.

That being said, you should always consider the following:

1.The total cost of the refinance. (Can you afford it?)

2.The length of time the new loan will be kept. (Do the savings over time offset the cost of the refinance?)

3.The impact of a new loan on the salability of the home. (Low-rate assumable loans can be highly beneficial in the marketing of a home.)

4.The stability of the new loan compared to the old loan. (Refinancing an adjustable rate loan into a fixed-rate loan is often a wise choice.)

Another particular caution is the “two percent” myth. The industry is riddled with the mistaken belief that refinancing is worthwhile only if your new rate is two percent lower than your current rate. That’s like saying you shouldn’t buy a new house unless it’s at least 20% larger than your current house!

In some cases refinancing may be worthwhile for a very small drop in rate; in other cases refinancing may not be worthwhile even with a huge reduction in rate.

Should I pay discount points to “buy down” the rate?

Buying down the rate refers to the payment of discount points in exchange for a lower interest rate. A discount point costs one percent of the total loan amount. Hence paying two discount points on a $100,000 loan requires $2,000. There are both simple and complex methods of determining whether to buy down the rate.

The simple approach requires a basic mathematical calculation.

First, take a look at your payment options with and without points. For a $100,000 loan, if your alternatives are a 6.25% rate at zero points or a 6.00% rate at one point, you’re effectively choosing between two monthly payments: $615.72 or $599.55.

Then divide the cost of the point ($1000 in this scenario) by the amount you’ll save per month due to the lower interest rate ($16.17) and you’ll see that it will take you just over 5 years to make up for paying the point ($1,000/16.17 = 61 months).

If you’ll be keeping the loan longer than the number of months indicated, then the payment of the discount points is mathematically warranted.

How long do I have to lock in an interest rate?

That depends on the loan product and the lender. Some interest rate lock-in periods are as short as seven days, but most reputable lenders provide for a range from seven to at least 60 days.

Extended rate-locks are sometimes available with lock-in periods as long as 270 days, but these extended locks may require extra discount points or a slightly higher interest rate. Keep in mind, talking with a loan officer experienced in refinances can be invaluable in your decision process.

If you’re located in Central Oregon near the Bend area, feel free to contact me with your specific questions about refinancing.

Active listings are up 55% compared to this time last year. Right now there are 14,831 residential homes for sale in Portland and the surrounding areas—and with Portland’s current rate of sales this number of homes will take 5.7 months to sell.

You’ve probably heard the rumors that we are experiencing a “buyers market” in the Portland area. While there is more inventory than there has been in past years, we’re not technically in a buyers market. . .yet.

A “buyers market” occurs only when the housing inventory reaches 8-10 months. When inventory increases to that level you will see the home appreciation stop and prices drop, but so far our highest level of inventory was in January at 6.2 months.

Median Sales Price and Appreciation by City:

Home prices in Portland are still on the rise from last year. This graph shows the average sales price of all homes sold in the Portland Metro Area.

Here are the pricing statistics for individual areas that reflect that increase.

North Portland - $250,000 – 8.2%
Northeast Portland - $280,000 – 7.2%
Southeast Portland - $250,500 – 10.8%
West Portland - $379,000 – 2.8%

Gresham, Troutdale, Sandy, Corbett, Fairview - $260,000 – 12.7%
Milwaukie, Gladstone, Clackamas, Estacada - $302,000 – 7.1%
Oregon City, Canby, Molalla, Beavercreek - $304,000 – 7.1%
Lake Oswego, West Linn – $462,800 – 9.3%

Beaverton, Aloha - $262,000 – 3.2%
Tualatin, Tigard, Sherwood, Wilsonville - $340,000 – 4.1%
Hillsboro, Forest Grove - $270,000 – 10.8%
Mt Hood: Zigzag, Welches, Rhododendron, Brightwood - $260,000 – 7.2%

This continues to be an excellent time for home buyers to go shopping. There are enough homes available that sellers are more willing to negotiate and accept contingent offers than they have been in the past.

If you’re a first time home buyer feel free to contact us with your questions.

* Market statistics provided by RMLS Market Action Report.

American Brokers Conduit, one of the largest wholesale lenders in the nation, bit the dust several weeks ago, and on Monday, Greenpoint (owned by Capital One, and another large wholesale player) announced they too are closing their doors and filing for bankruptcy.

Making matters worse, we can now see that what’s taking place in the States is starting to affect other countries as well. In the past few weeks alone, over $2 trillion has been lost in the global market!

How did this happen? And what does it mean for the average consumer? Let’s take a quick look back and see where things went wrong.

Lending like there’s no tomorrow

Over the past few years the US has been in a real estate boom. Homes were appreciating at record levels creating a feeding frenzy of buying and selling. Many lenders and investors who wanted to cash in on this opportunity loosened their guidelines and made mortgages available to people who previously were unable to receive financing.

Subprime and alt-a loans allowed more and more people with bad credit, no verification of income, and no down payment to obtain home loans. These are statistically high risk mortgages, but with the rampant real estate boom, lenders and their investors were willing to take that chance.

The people who received these loans were banking on the fact that their homes would continue to appreciate, and obtained short term ARMs or option-ARMs with the plan of refinancing after a couple of years. Others simply planned on selling the home after a few months to a year and cashing in on the appreciation.

But during the third and fourth quarters of 2006, mortgage delinquencies started to mount. The real estate boom was over and many people had stopped paying their mortgage. And just like a line of dominoes, this kicked off a scary chain of events.

How mortgage loans work

Most loans are not kept by the lender or investor that funds them. Instead they’re pooled into packages which are then sold to investors as mortgage-backed securities. These are traded as any other bond, and a yield is created by the homeowner paying their monthly mortgage.

When investors started noticing that these types of bonds weren’t performing, they stopped buying, and lenders who had banked on being able to sell their newly funded loans were left holding the bill. Unable to sell, they were forced to file for bankruptcy and shut their doors.

In December this happened to Own-It Mortgage, a large subprime/alt-a lender, just one of the first in a group of 120 lenders to unexpectedly call it quits. (You can see a list of all the lenders who have gone under at ml-implode.com.)

As more lenders went bankrupt, fear of poor returns continued to scare investors away from buying these loans. Compounded with a slow real estate market we have, in a sense, achieved the perfect storm.

The future of home loans

So what’s next for borrowers? Well, those that fit into the “vanilla” category will be all right. (A vanilla borrower is someone with great credit, good income, low debt, and strong assets.)

Those that fit into the alt-a or subprime categories will have a tougher time than they used to. An alt-a borrower is someone with good credit but without any assets, no down-payment, or difficult to document income. A subprime borrower has bad credit usually coupled with collections, bankruptcy, or foreclosure.

Reduced documentation loans and stated income loans will become more difficult to obtain and will require higher down payments and carry a higher rate. Second mortgages are going away and those of us in the mortgage business are seeing the return of one loan with private mortgage insurance.

We’re also seeing an increase in FHA/VA loans for non-vanilla borrowers—and any loan not backed and guaranteed by government agencies Fannie Mae or Freddie Mac will be more expensive and less common.

I fear for those borrowers that were banking on their appreciation and who received short term ARMs or option-ARMs, because in the next 12-18 months, over 2 million ARMs are set to recast.

When they do, these homeowners will be faced with a 30-100% increase in their minimum payment, and many of them will be unable to refinance due to less than expected equity and stricter loan guidelines. Those that are unable to refinance and try to sell are going to have a tough time with the already flooded market.

Although no one in the mortgage industry has ever seen anything like the drastic correction we’re now dealing with, we all know the cyclical nature of the market—eventually the pendulum will swing back the other way.

The question is; how bad is it going to get before that happens?

Check back for more articles and predictions to come.

Shops, businesses and wonderful restaurants line both sides of Bend’s two main streets, Wall and Bond. Many of the buildings have facades dating back to the early 1900’s, and new storefronts compliments the old, blending in with amazing harmony.

Restaurants in Bend, Oregon

Fantastic dining experiences are around every corner, and as a Bend local I’d recommend quite a few.

“Staccato” is located in an old brick firehouse with a warm and trendy atmosphere - and their northern Italian cuisine is out of this world. “Merenda’s” is another favorite of mine, featuring an eclectic menu and a bustling crowd at most meals.

Of course, for a touch of old Bend and some down-home cooking, “The Pine Tavern” can’t be beat. Located right on the edge of Drake Park this restaurant has one of the best views around. “Toomies” has excellent Thai food, and if you’re in the mood for fresh guacamole prepared right at your table then you have to visit “El Corporal.”

Things to do downtown

Bend’s Saturday market is located across from the Library between Wall and Bond and offers unique Central Oregon products. If shopping’s not your cup of tea, downtown Bend also has outdoor entertainment at Drake park several nights each week and there are plenty of theaters and art galleries to explore as well.

For an interactive history lesson, just walk the streets of the Historic District. Many of these homes were built by the founders of Bend: railroad tycoons, the owners of the Shevlin-Hixon Mill, the founders of the newspaper, and Bend’s first political figures once lived in these homes.

With plaques along the sidewalk that describe each home’s history, you could easily spend an afternoon walking, learning, and enjoying the beautiful architecture.

Homes in Downtown Bend

Many people visit Bend and fall in love with the feel of the city itself, deciding to live right in the heart of downtown Bend. Condos are available that put you in the center of it all, along with cottages and bungalows around the edges.

Many of these are small and recently remodeled, yet retain a lovely old-style character that you won’t find in brand new homes. They’re also popular as vacation homes or rentals, for owners that aren’t in the area full-time.

Occasionally one or two of Bend’s historic houses go up for sale as well, so if you’re looking for a historic home to own in Bend be sure to let me know. When those are on the market they don’t last long.

For more information on downtown Bend, listings of homes in Bend, or visual tours please contact Kari.

What is a conventional mortgage?

Conventional mortgages are the most common type of home loan, and are not insured or guaranteed by any government entity. Down payments typically range from 3% to as much as the home buyer would like to pay, although there are some 0% down payment programs available as well.

Typically, mortgage insurance (non-government) is required for conventional loans with down payments less than 20%. However, alternative options are available that provide loans without mortgage insurance even with very low down payments. A loan officer can best direct you to a program that meets your objectives.

What are VA loans?

VA loans are guaranteed by the Veterans Administration and are available only to qualified veterans. The primary benefit of a VA loan is the ability to obtain 100% financing. The veteran pays a funding fee to the VA at closing, and the fee may be included in the loan. The funding fee varies from 0% to 3% of the loan amount, depending on a variety of factors.

What is an FHA loan?

FHA loans require very low down payments and are insured by the Federal Housing Administration. A one-time mortgage insurance premium is paid at closing and a small monthly MI premium is included in the loan payment. The amount of the up-front and monthly MI premium varies with the term of the loan and the loan-to-value ratio.

What is an adjustable rate mortgage?

An adjustable rate mortgage (ARM) has an interest rate that’s guaranteed for an initial period of time, then adjusts based on market conditions. Adjustable rate loans are often converted to a fixed-rate loan.

The length of the initial rate, the method and limitations of the rate adjustments and the convertibility of the loan (to a fixed-rate loan) varies with each loan. Borrowers have substantial flexibility due to a large variety of ARM products from which to choose, making ARMs a popular choice for many borrowers.

What is a balloon mortgage?

A balloon mortgage is typically amortized over 30 years, but the balance becomes due before the 30 years is up. For example, a five-year balloon will have payments based on a 30-year mortgage, but after the first five years the borrower must pay the remaining balance in full or refinance the mortgage.

What is a fixed-rate mortgage?

A fixed-rate mortgage provides an interest rate that is fixed for the life of the loan, and provides maximum payment stability. Whether interest rates go up or down, your fixed-rate loan will stay the same.

What is an interest only loan?

An interest only loan lets the borrower pay only the interest each month. For example, on a $100,000 loan with a 6.25% interest rate, you’d pay $520.83 with an interest only loan, and $615.72 with a fully amortized loan.

That’s a savings of $94.89 each month! BUT. . . just making an interest only payment will not reduce your loan balance, and after one year you would still owe the full loan amount (in this case) $100,000.

If you have any additional question about mortgages, or are buying a home in the Bend area, feel free to contact me.

Three Rivers South (Sunriver)

Located around 4200 feet above sea level, Sunriver showcases Central Oregon’s high mountain desert at its best. Summers are sunny and warm beginning in June and going through the end of August.

Because of that high elevation, night time temperatures during the summer are often in the upper 30’s and 40’s, so sleeping isn’t an ordeal even on hot days. Daytime temperatures are usually in the 80’s and 90’s with very little rain or humidity.

Winters are beautiful too—sunny skies dominate, but you’ll still see snow from November thru March. A typical storm brings in about a foot of snow and then the sunny skies return. Winter temps range from below zero to the 40’s.

There are numerous activities in Three Rivers South: fishing, golfing, canoeing, kayaking, horseback riding, skiing and snowboarding at Mt. Bachelor, hiking, mountain biking, snow-mobiling, snow-shoeing, flying or gliding from Sunriver Resort’s airport, and the list goes on.

Plus, within 30 minutes of Three Rivers South are some of Central Oregon’s premier natural attractions like Lava Butte, Lava River Caves, Lava Cast Forest, Paulina Peak, Benham Falls, and the Cascade Lakes.

Sunriver Homes

Whether you are interested in a permanent residence or a vacation/rental property there are many options and price ranges to choose from. You’ll find stick built homes, manufactured homes, luxury homes, townhouses and condos all available in Three River’s South, many of which are located on the waterfront.

For an affordable home on a large lot check out the neighborhoods of Oregon Water Wonderland I and II, or Lazy River South. Homes in these neighborhoods range in price from $200K to $300K.

For more expensive homes, look at Deschutes River Acre and River Meadows. Homes here generally range from the mid $300K’s to $500K.

And of course, if you want luxury and resort living there’s Sunriver Resort, Crosswater Resort, Cauldera Springs and Vandevert Acres, with homes ranging anywhere from the upper $400K’s to well over $1M.

For more information on Sunriver homes, brochures, home listings or visual tours of homes in Three Rivers South, please contact Kari.