I Want My Four Point Five!

...Okay folks, get ready for a long one, but hopefully worth the read! :)

I want my Four Point Five, interest rate that is… That’s right, we’re all sitting around waiting for that 4.5% interest rate that the Feds promised. After all, it’s the only thing that will get our economy turned around right?
Well, that and the new pork belly stimulus package, but that’s a different subject all together.

We’re here today to try and understand why interest rates haven’t dropped to 4.5% like the Fed promised. The answer is in something called the Mortgage Backed Securities (MBS) market and the Treasury Bond (TSY) market.

I wish the explanation of how these markets work was simple but it’s not so I’ll try to summarize using visual analogies.

Imagine a table covered with stacks of little square crackers. All the crackers look the same but their not. Some have a little salt on them, some have no salt on them and some, well, they have a whole lot of salt on them.

Now imagine that you live on a diet of crackers and salt. Sometimes you need more salt and sometimes you need less, BUT! you always need crackers. On days when you need a lot of salt and you have to compete with others that need the salt too, you’ll pay more for the very salty stack of crackers and pay less for the unsalted stack.

Supply and demand comes into affect. There is a limited supply of stacks of very salty crackers and everybody wants them, this drives the price of the very salty cracker stacks way up!

This is what is supposed to happen in the MBS (Mortgage Backed Securities) market. There are pools of securities called Stacks. A share of a stack, one cracker if you will, starts out worth $100.

These stacks come with different layers of salt or interest rates. So you’ve got a stack that pays a 4% rate, 4.25% rate, 4.5% rate, 5% rate and so it goes. Because of the varying returns on each of these stacks, the price of the share (the cracker) in the stack will vary based on the number of buyers for that stack.

So, if nobody wants a 4% return, the $100 share might be sold for $98. If everybody wants a 5% return then a cracker …uhumm, I mean share, in that stack might sell for $102 dollars. Why is this important?

Well, it’s important because these interest rates represent a yield to the owner and that yield affects the interest rates that you and I pay on a long-term mortgage. Get the picture?

The higher the price above $100, the lower the actual yield or return to the owner is. When the price of the shares in the stack increases the yield decreases and the net result is lower interest rates. In simplified terms this is the way the MBS market works and it is how banks determine the interest rates we pay on our loans.

Now, on to the problem at hand! Why aren’t rates going down? Rates are not decreasing because everybody has figured out the game. In order to make rates go down, the Fed has to buy up stacks of Mortgage Backed Securities.

In order to fund these purchase the Fed did two things. They sold Treasury Notes (TSY) and they printed money. When this happened ‘the jig was up’ on many levels.

First, foreign governments saw us diluting our dollar and flooding the bond market so they stopped buying our debt. Big problem! This caused the price of TSY to drop and the yield to increase, it also caused the Fed to have less buying power.

Second, many banks spied an opportunity! If they could get some extra stacks out in the market, maybe the Fed would buy them and pay a premium. Bonus time, right?! Not so much.

What ultimately happened was the ‘Market’ (that’s right, with a big M) figured out what was going on. The MBS market was flooded with stacks. Everybody want a piece of the Feds action. i.e. all the banks wanted some more of our tax dollars, like the bailout funds weren’t enough!

When these stacks flooded the market the Fed could not absorb them all and the price on the stacks dropped sharply. This increased the yield and ultimately increased the interest rates we are offered on mortgages!

Now the markets are starting to settle again and the overload of stacks is being slowly absorbed. Here's the $64,000 question, when will rates dip below 5% again?

I’m not sure, but my guess is as soon as the government stops tinkering with it all. If they would just let the markets work, rates would have come down naturally. Every time the Fed does something like this it seems to put us 30 days farther out.

I want my 4.5 and I know you want yours too. My suggestion is to get out there, choose a lender and get approved and then be patient and wait for the rate that is right for you. When you see it, grab it! Chances are it won’t be there for long….

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

The Year Was 1950 and…

The year was 1950 and World War II had just come to an end. The next great conflict was just around the corner, the Korean War. The news was filled with warnings about the coming onslaught of communism.

Filled with fear from the looming Cold War and knowledge that the devastation of the Atom bomb had been achieved by our new adversary, the Soviet Union, Americans were working hard to put a tattered economy back together. Fannie Mae had been formed just 12 years earlier and was providing our citizens with a new way to buy a home!

The interest rate on the 30-Year Fixed Rate mortgage averaged a mere 5.00-5.50% across the nation. The economy was awash with rising unemployment as soldiers came home. And the was the baby boom was adding even more stress to household incomes.

Today as in those days, we face some unsure times. Rising unemployment, a huge deficit, increasing taxes, all these factors are conspiring to put your family at risk.

However, there is one bright spot. The 30-Year Fixed Rate mortgage has come down …way down! Today rates are at levels not seen since 1950!

A standard mortgage rate for a borrower with a 680 credit score has been hovering around 4.875%! If your score is a little lower, say 620, you can expect to see rates around 5.375%.
The bottom line is this. Interest rates are low. Refinancing now can help you lower your monthly housing expense. This is like giving yourself a raise.

Don’t wait, make application with a lender today, then watch the market. When you see the rate you want, then lock your loan.

If buying a home is your goal, NOW is the time! Don’t worry fret and worry that you may not qualify. Just get your application in with a reputable lender and they will tell you if you are qualified and if you are not, they’ll tell you what you need to do.

These are trying but exciting times! Become proactive and change your life today!

If you need a lending professional, we can help! WE MAKE IT EASY! Call 770-350-7373 or email mgross@dividendamerica.com.

Ding Dong Your Debt is Calling!

Ding Dong is the universal written symbol for a doorbell. It's also the universally understood name for someone that isn't quite right in the head ....if you know what I mean.

Will, I'm not afraid to admit it, I've been a Ding Dong more times in my life than I care to remember! :) But I don't have to be that person any more, at least where debt is concerned, and I'm helping others shake that moniker as well.

Listen to this story: A client, we'll call him Bob Smith, comes into my office. Old Bob has a ton of credit card debt and the minimum payments have been climbing lately. The credit card companies are lowering the available credit, raising the interest rate and increasing the minimum monthly payment!

So Bob comes to me for a solution, what can he do? Well first he can use some of the equity in his home to pay off the credit card debts. We turn his 6.5% 30 year fixed rate mortgage into a 5.375% 30 year fixed rate mortgage. The debt consolidation saves him almost $700 per month!
Good right? Yes, but it gets better. Next we tell Bob he still has a problem. You see, the equity in the home was a safety net and we need to get that back as quickly as possible. We show Bob how to use a portion of the payment savings to build his equity back up rapidly.

With our software we run a scenario using his regular income and the $500 in payment savings as discretionary income. The program tells Bob how to pay his bills and if he follows the instructions Bob will pay off his new 30 year mortgage in just 8.5 years!

It gets better. You know that equity we used up paying off those credit cards? He gets that back in 2.75 years! Bob's life is changed and he's DEBT FREE in just 8.5 years.

Ding Dong your debt is calling! and it doesn't have very nice things to say. Do you want to know how to tell your debt to take a hike? Give me a call, interest rates are low, low, low and with our special debt repayment software we can have you debt free in no time!

Michael Gross is President of Dividend America Mortgage. He has been a builder, a Realtor and a real estate appraiser. He uses all of his expertise to show others how they can use a mortgage to create wealth through home ownership and now he's helping people get out of debt in 1/3 to 1/2 the time. Contact Michael at 770-350-7373 or mgross@dividendamerica.com.

No Closing Cost Loans – The Truth

It is 3:00 AM Eastern Standard Time and I’m wide awake. I can’t stop thinking about that ad. It keeps rolling through my mind and I can’t stop it. You know the one….

‘Don’t pay closing costs. Don’t give those pimps your money. We’ll close your loan for free, No Closing Costs! Then we’ll manage your loan for you. We’ll sit back, watch the market and the when the time is right, we’ll do it all over again. It’s the biggest no-brainer in the history of man!’

Well, he’s right. It is a no-brainer! It’s a no-brainer for many reasons, but let me point out a few of the biggest reasons why.

No-Brainer #1:
What bank, mortgage company, lender or broker do you know that works for free? I can’t think of one. You are paying for that loan somewhere.

It is usually in the form of a higher interest rate. Even though the ad says they don’t raise the rate, check it out. Get their GFE (notice I didn’t say their rate quote, get a valid Good Faith Estimate) and compare it to someone that is charging you closing costs.

There WILL be a rate difference of between 0.250% and 0.500%. That equates to a lot of money over the next 7-10 years, probably much more than you would have paid if you would have just rolled the closing costs into the refinance loan amount and got the lowest rate.

Think about it this way. If the closing cost equated to $4,500 but you take a no closing cost loan with a payment that is just $50 per month more and you stay in the home 10 years then you just paid $6,000 for your closing cost. Does that make any sense at all? Now imagine the payment is $100 per month higher, that's $12,000 for closing costs that should have cost you $4,500.

No-Brainer #2:
If you are purchasing a home don’t do a No Closing Cost loan with any lender. There is no need to take a higher rate. In this buyers market most sellers are willing to pay your closing costs for you! Now that is the REAL No Closing Cost Loan.

No-Brainer #3:
Manage your mortgage for you? What kind of lunacy is this? Sure the mortgage is a financial tool, but its not a mutual fund or a stock portfolio. It is DEBT!

Who knows how to manage debt? Well, almost everybody with any since knows how to manage debt. If you think you don’t then here’s a true FREEBIE for you! I’m not going to charge you a dime for this little gem. Ready?.....

You manage debt by paying it off! And in this economy you pay it off as quickly as possible! You can’t get the return in the stock market equal to getting the lowest rate possible on all of your consolidated debt and then starting a 25, 20, 15 or (if you can handle it) a 10 year repayment schedule.

As I said, I can go on and on. The No Closing Cost loan is a huge no-brainer. For the lender it’s a huge no-brainer because they actually make MORE money off your loan because they can hide what they actually make in the loan. They never tell you how much money they are really making on your loan.

It should be a huge no-brainer to most of the public because it makes no financial sense at all. The only reason this type of loan exists is for those who plan to be in their home for 3-4 years at a maximum. For longer term stays you should look at low- and full-closing cost loans.

So don’t get tricked by fancy ads put out by slick operators. You don’t need a debt manager or a mortgage manager. Instinctively you already know what to do. Get the lowest rate with the lowest payment and then eliminate the debt as quickly as possible!
That’s the BIGGEST no-brainer in the history of the Universe!

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

The night was stormy. The wind was trashing and thunder was crashing and trees were falling all around us. It was a horrible storm. The rain was coming down in sheets and water flowed through a gash in the roof filling bucket after bucket with water.

The next day we surveyed the damage. After pulling a huge tree limb out of the roof it revealed a gaping hole. Something had to be done so a huge blue tarp was strung across the house. It was a temporary fix but it worked until the roof could be repaired and all could be made right again.

In a way, this is what has happened to our economic system and isn't it appropriate that the government would name the portion of HR 1424 Emergency Economic Stabilization Act that is designed to stabilize home ownership T.A.R.P. (Troubled Asset Relief Program)

Many people ask me what this bill is all about and the answer is complex. You see the bill is about a lot of things. Some of what is in the bill is important, however I am sad to say that there is a lot in the bill that is not. So let's focus on what is important in the bill and for the time being, leave the pontification of what should not be there to the pundits.

One of the most important parts of this bill is the TARP (Troubled Asset Relief Program). The TARP is the portion of the bill that gives the Secretary of the Treasury the authority to purchase non-performing and under-performing loan assets from banks. This huge fund should start to get all of the bad loans out of the credit system so that the real value of the loan pools that are performing can be determined.

The American economy, our financial house, has just been through a really bad storm. The TARP is there to temporarily cover the hole in the rough until it can be fixed properly. It is truly and temporary fix.

However, don't fret, there is a portion of this bill that is designed to permanently fix the hole and put our economic house in order. After the Sec. Tres. buys these troubled assets he has several tools he can use to transform the troubled assets from worthless pieces of paper into valuable streams of income.

First, the bill gives the Secretary the ability to adjust non-performing loans. The secretary can lower the interest rate, lower the loan balance or reset the loan to a 30 year fixed. He can do one or all of these things to help the borrower stay in their home and to make the home affordable based on the current income of the homeowner. This should allow the homeowner to start making their payments on time and should turn a non-performing asset with no value into a performing asset that can be sold for a profit.

Second, the Secretary has the authority to insure the payments on the new loan. If the secretary feels that the new loan would sell faster and for more money in the tertiary market if it were insured, the secretary can add a premium to the payment. This premium would insure the loan for up to 100% of it's payment if it went into default. Essentially this means that anyone purchasing the loan as an investment would have no downside risk.

As I said, there is much more in this bill that can be discussed. Much of it has to do with technical issues relating to how banks lend to each other and how they borrower from the Fed. The bottom line is that the TARP is the major portion of the bill that will help homeowners and that will stabilize the real estate markets.

So we've decided to do something about the hole in the roof caused by the storm. We've put a TARP over it to stop the damage. Now let's hope our politicians have the knowledge and foresight to take the next steps to do the hard work to remove the TARP as quickly as possible and truly fix the gaping hole in our economic house.

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please call 770-350-7373 or email mgross@dividendamerica.com

Housing Bill….Housing Debacle?

The Housing Bill passed both houses of congress with flying colors and now it seems that a threatened veto by the president has been reconsidered and he will sign the bill after all. So is the housing bill good or bad for America?

Let’s take a look at some of the finer points in the legislation.

· $7,500 Tax Credit – Yes that’s right, for those of us who buy a foreclosed home as a first time homebuyer, there is a tax credit. But wait, not so fast, the credit has to be paid back….

What, paid back? How is that a credit then? Sounds like Mr. Reed and Ms. Pelosi pulled a fast one. If you take the credit, you’ll have to pay it back in equal installments over the next 15 years.

· Increase in Conforming Loan Limits for Fannie Mae – Under the current system, home loans greater than 417,000 are considered to Jumbo Loans. Under this provision the new conforming limit will be $625,500.

This is good news for those of you were forced to take a Jumbo loan when you bought or refinanced your home in the past. If you have a loan amount between $417,001 and $625,500 it is time to investigate whether a lower rate is available! Call Today!

· FHA Revamped and Modernized – The good news is that FHA will be revamped and modernized and will act as America’s major subprime player in the mortgage market. The bad news is that the bill takes away down payment assistance.

If you are in trouble and on the verge of foreclosure, FHA may be the answer. Refinancing with an FHA loan is exactly what this new program is for.

However, if you are one of the more than 250,000 citizens each year that depend on down payment assistance in conjunction with an FHA loan, the Democrat controlled congress (you know, the ones who are ‘for’ the little people) just kicked you to the curb.

And, if you are a real estate investor, this means that your flip strategies with homes in the first time homebuyer market may be at risk. There are resources available to help you sell your homes using down payment assistance but they will now be very specialized sources and may require buyers to take certain home ownership courses to qualify. (for information on these sources visit dividendamerica.com and schedule a consultation)

The bill is a mix of good and bad, give and take. To be fair, this bill is more about giving stock market investors confidence in the mortgage market than about helping the everyday citizen.

As with all things government does, this legislation is a huge compromise that could have been better but is a step in the right direction.

For more information read the article on MarketWatch.com: http://www.marketwatch.com/news/story/fine-print-housing-bill-mutes/story.aspx?guid=8AA21F55-D848-4076-B9EF-282FEAD95B1D&print=true&dist=printMidSection

Michael Gross is the President of Dividend America Mortgage and has been in real estate for over 20 years. He has been a builder, a Realtor, an appraiser, and currently he is a lender and an active real estate investor. He uses all of his experience and knowledge to show individuals how to properly use a mortgage as a tool to help create greater wealth through real estate investing. For more information on residential and small commercial loans please contact Mr. Gross on his direct line at 770-350-7373 or via email at mgross@dividendamerica.com