NHLA Blog

Securing an FHA mortgage is about to get more expensive.

In its official announcement, Fannie Mae says the updates minimize long-term lending risks. If that's the case, this won't be the last guideline change Fannie Mae makes -- especially with loans defaulting at an above-normal clip.

The immediate changes are major. The first pertains to credit scores.

Effective December 13, 2009, the bulk of Fannie Mae's loans require a 620 credit score minimum. There are very few exceptions.

A second relates to loans with private mortgage insurance.

Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Pay higher mortgage insurance premiums month-after-month
2. Pay a one-time fee paid at closing to compensate for higher risk

Both options result in higher consumer loan costs.

A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.

In no case whatsoever may debt-to-income exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for "expanded level" mortgage approvals. These updates affect just a small part of the population.

So, home prices are rebounding, mortgage rates are low, and -- for 5 more months at least -- there's a federal tax credit for qualified buyers. You don't have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.

Considering bonds? Keep an eye on interest rates

By: Jim Larkin, CFP^®, CRPC^®

A low appetite for risk and lingering uncertainty about the health of the stock market has many consumers weighing the pros and cons of bonds and other fixed income investments. If you’re looking to invest in these steady return options, here are a few things you should keep in mind.

Bonds vs. Stocks

Under normal economic conditions, stocks tend to outperform bonds over long periods of time. This makes them an attractive option for risk-tolerant investors who can handle seeing their assets fluctuate with the ups and downs of the stock market. Contrarily, bonds are fixed; barring a default or other unusual event, bond investors receive their principal plus the assigned interest at the time of maturation.

Exceptions to the rule exist. In periods of severe economic volatility, bond interest rates can yield higher returns than stocks. Until the stock market began to rally in the second half of 2009, the decade prior generally proved more favorable to bonds than stocks. This fact, coupled with a sense of uncertainty about the market, has driven some investors to recalibrate their portfolios’ bonds to stocks ratio.

But, now that it appears we are on the road to economic recovery, will bonds continue to generate higher returns going forward? Nobody can say for certain, but the low interest rate environment may be an obstacle that stands in the way of superior bond market performance in the years to come.

Interest rates and prices – an inverse relationship

An important fact to keep in mind is that bond prices are affected by the direction of interest rates. When interest rates decline, bonds increase in price. When interest rates rise, bond prices fall. Returns for bondholders typically rise in an environment where interest rates are declining, a trend that has worked to the benefit of bond investors in the past decade.

Why do interest rates affect bond prices? Consider this simplified example: Suppose you invest in a bond from an issuer for $1,000 and it pays 4% interest. That amounts to $40 in annual income from the bond. If, one month later, the same issuer offers a $1,000 bond with a 5% interest rate, you could buy the same bond and receive an annual income of $50. In that case, the original bond you purchased that pays only $40 in income is no longer worth $1,000. To match the current market yield of 5%, a buyer would only offer $800 for your older bond to achieve a comparable yield based on the $40 annual income payout. That represents a 20% loss of investment principal.

Of course, if you hold the bond until it matures, the issuer is obligated to repay the entire face value of the bond, in this example, $1,000. Then again, if you wish to sell it in the secondary market prior to maturity, the bond has lost value (unless the interest rate environment has changed enough in your favor to compensate.)

Today’s low interest rate environment

Keeping in mind how interest rate movements affect bonds, consider the state of interest rates in today’s market. They are at relatively low levels on an historic basis.

For example, one of the benchmark measures of the bond market, the 10-year U.S. Treasury note, had a yield of 3.4% (as of October 30, 2009). At the end of 1999, the same maturity government issue yielded 6.3%.

The yield on the 10-year Treasury note has rarely dipped under 3%, and typically is much higher. In fact, in the fall of 1981, 10-year Treasury note yields soared above 15%. The note of caution for investors is that long-term interest rates may not have much room to decline from current levels, limiting the potential upside for bond values.

The greater risk in the current environment is that interest rates will rise, depressing values of existing bonds. If that occurs, it could have a detrimental impact on your bond portfolio. One way to measure interest rate risk in a bond mutual fund is to look at the fund’s duration. The longer the duration, the more it is affected by changes in interest rates. That can work to your advantage in a declining interest rate environment, but will have a negative impact on your returns if rates move higher.

Historically, interest rates have tended to move higher in periods of an economic recovery. This is important to bear in mind as you consider putting your money in bonds. If the economy continues to build steam, you may need to temper your expectations about future returns on your fixed-income portfolio.

Jim Larkin, CFP^®, CRPC^®

Financial Advisor

CERTIFIED FINANCIAL PLANNER™ practitioner

Ameriprise Financial Services, Inc.

1308 Village Creek Drive | Suite 2000 | Plano, TX 75093

Bus: 469.865.1050 | Fax: 469.865.1010

E-mail: James.k.larkin@ampf.com

Website: www.ameripriseadvisors.com/james.k.larkin

####

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

©2009 Ameriprise Financial, Inc. All rights reserved.

File # 93139

(12/09)

This communication is published in the United States for residents of Texas, Louisiana, Arizona, Colorado, Florida only; and this advisor is licensed only in the states of Texas, Louisiana, Arizona, Colorado, Florida.

Disclosed for the 1st time, 'damage points' taken off for late payments

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The "damage points" data, unveiled recently by FICO, are part of the most revealing glimpse into the firm's once-secret -- and still mysterious -- credit scoring model. The new information discloses how many points borrowers' scores will drop when they make the most-common mistakes.

FICO's credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they're figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed.

While knowing the numbers may not keep you filing for bankruptcy if given no other choice, the information may help you make the best decision when faced with a bad situation.

FICO scores -- and the access to credit they provide -- are a valuable asset to consumers and supply a safety net when incomes are stretched. It's an asset that needs to be protected, Sherry says, even if job loss or catastrophic illness makes bill paying problematic.

FHA/HUD – What Originators Need to Know about RESPA, FHA Broker Approval and Appraisal Reform

Register here

Please join HUD and NAMB this Tuesday for a webinar entitled  "FHA/HUD – What Originators Need to Know about RESPA, FHA Broker Approval and Appraisal Reform"  on Tuesday, December 1 at 2:00pm ET  (1:00pm CT, 12:00pm MT, 11:00am PT).

Tune in, send questions and find out what to expect in 2010!  NAMB is hosting this webinar to provide originators with the most critical information regarding impending RESPA, appraisal and FHA Broker (mini-eagle) approval reforms.  Our knowledgeable panelists are excited to share the most up-to-date information with you.

Register here.  Below is an overview of what will be covered during the webinar:

 Panelists:

• Ms. Vicki Bott - HUD Deputy Assistant Secretary of Single Family Housing
• Mr. Roy DeLoach – NAMB CEO
• Mr. Tony Gallegos - Mortgage U – Director of Training and Consulting
• Ms. Alice Alvey – Mortgage U – President

I. RESPA/GFE

Effective January 1, 2010, HUD is requiring loan originators provide borrowers with a Standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs and that closing agents provide borrowers with a revised HUD-1 Settlement Statement. Also discussed will be:

• Elimination of FHA cap on origination fees.
• RESPA/GFE - From Broker Perspective
• Principles of RESPA reform
• Key final terms and processes
• What brokers must know
• GFE Notice Requirements
• GFE Triggers
• Important Dates
• Settlement Charges
• Block 1 - What goes into it
• All other settlement services
• What charges can change
• What charges can not
• Requirements under the rule
• HUD's interpretation of the rule
• Major issues
• The best strategies to navigate this sea of requirements.

II. FHA Appraisal Ordering Policy

• Review of process
• Expected impact

III. FHA Mini-Eagle/Broker Approval Process

•  Net worth requirements
• Are audited financials still required?
• Will lenders adopt uniform FHA standards?

Webinar Sponsor:
Credit Technologies, Inc.
http://www.CreditTechnologies.com
800.445.4922

If you are shopping for a mortgage or considering one in the future, it is important to understand how your credit score will impact the financing you will be able to obtain.

Before looking deeper at credit scores, you should first understand the "Risk-Based Pricing" methodology the mortgage industry uses to adjust interest rates based on borrower profiles.  To mitigate risk and price for the potential risk of a mortgage loan, banks and lenders have "risk-based" pricing adjustments for a variety of loan criteria (one of them being your credit score).  Simply, a borrower that is deemed a low risk will get the best pricing and borrower's with some risky attributes will have to pay higher rates.  This methodology is used across all channels of consumer credit including car loans, credit cards, and personal loans

On to credit scores... Each of the three major credit bureaus, Equifax, Experian and TransUnion, collects data from your lenders about your history of borrowing and paying back credit. They compile that information into your credit report, which any lender can access whenever you apply for a loan. The Fair Isaac Corp. is the major producer of credit scores. They take the information from those credit reports, apply their own trade-secret formula and, based on the three credit reports, distill three credit scores for you into one score ranging from 300 to 850.

Borrowers with high FICO scores -- the top tier ranges between 760 and 850 -- can expect lenders to offer them lower interest rates and more loan choices. Scores of 620 or lower usually place a borrower in the "subprime" category, and they can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans. A FICO score of about 500-520 is generally the minimum that will qualify for a mortgage.

Based on 11/24/09 national average 30-year conforming fixed interest rates according to Freddie Mac, here are the interest rate quotes you could expect to receive based on your FICO score (includes paying .5 to 1.00 point).

760-850	4.557%
700-759	4.780%
680-699	4.957%
660-679	5.171%
640-659	5.601%
620-639	6.147%

You can visit our website to utilize a free credit score estimator tool to get a feel for what your credit score might be:

http://www.nationalhomeloanadvocates.com/CreditScoreEstimator

You can also find a link to join myFiCO to purchase your credit report and score without generating an inquiry for credit at the link above.

Karl Peidl is an Accreditd Mortgage Advocate and guest NHLA blogger.

How Purchase Loans Are Made A Step-By-Step Walkthrough 1.   Pre-approval - Get pre-approved for a mortgage and know in advance exactly how much house you can afford. Completing this step will also increase your negotiating power since you'll be viewed as a "cash buyer".   2.   Loan Search - Put yourself in the hands of an experienced mortgage professional, someone who will help you to determine which financing options best suit your needs today and in the future.   3.   Loan Application - It's crucial to supply the lender with as much information as possible, as accurately as possible. All outstanding debts as well as assets and income should be included.   4.   Documentation - Paperwork supporting the application must also be submitted. Information commonly sought includes pay stubs, two years' tax returns, and account statements verifying the source of the down payment, funds to close and reserves.   5.   The Hunt - Begin shopping for a house. Once you find the right one, the terms of the sale will be negotiated, including the price and potentially the terms of the loan being sought.   6.   Appraisal - Lenders require an appraisal on all home sales. By knowing the true value of the home, the borrower is protected from overpaying.   7.   Title Search - This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the owner. All liens must be cleared before a transaction can be completed.   8.   Termite Inspection - While most purchase loans do not require a formal inspection for termite and water damage, some loans (especially government loans) allow for the possibility. If problems are found, repairs may be necessary.   9.   Processor's Review - All pertinent information will be packaged by your mortgage professional and sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.   10.   Underwriter's Review - Based on the information put together by the loan professional, the underwriter makes the final decision regarding whether a loan is approved.   11.   Mortgage Insurance - Many lenders require private mortgage insurance when borrowers put down less than 20 percent on a loan.   12.   Approval, Denial or Counter Offer - In order to approve a loan, the lender may ask the borrowers to put more money down to improve the debt-to-income ratio. The borrower may also need a bigger down payment if the property appraises for less than the purchase price.   13.   Insurance - Lenders require fire and hazard insurance on the replacement value of the structure. Flood insurance will also be required if the property is located in a flood zone. In California, some lenders require earthquake insurance on condominiums.   14.   Signing - During this step, final loan and escrow documents are signed.   15.   Funding - At this point, the lender will send a wire or check for the amount of the loan to the title company.   16.   Confirmation of Funding - The lender authorizes the disbursement of loan proceeds.   17.   Closing - Documents transferring title will now be officially recorded by the County Recorder.   18.   Congratulations, you are now a homeowner!   If you'd like to learn more, please give me a call. I'd be happy to speak with you! Karl Peidl Pleasant Valley Home Mortgage Corp. 305 Harper Drive, Suite 3 Moorestown, NJ 08057 856-252-1224 kpeidl@pvhmconline.net www.karlpeidl.com www.pleasantvalleyhomemortgage.com

New Jersey: Licensed by the N. J. Department of Banking and Insurance.  Delaware: Licensed Lender by the Delaware Office of the State Bank Commissioner.

As if home foreclosures, a rising unemployment rate and plummeting retirement savings aren’t enough to give us heartburn, the economic recession has pushed many Americans deeper into credit card debt. Though most of the blame lies with individual consumers–after all, no one forced us into an overspending frenzy; we did it ourselves—certain dubious practices by credit card companies have exacerbated the problem and, as a result, prompted legislative action by Congress.

CARD Act takes aim at deceptive practices

On May 22, 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. The legislation is intended to eliminate excessive fees, penalties and predatory lending practices.

Fairness in fees

In the past, creditors reserved the freedom to shorten payment cycles at their discretion, which could result in late payments and stiff late fees for consumers. The CARD Act requires a monthly payment cycle of at least 21 days. It also bans the practice of calculating interest charges on a previous month’s higher balance, requires companies to apply payments to higher interest balances first, and minimizes over-limit fees by requiring that consumers be notified before being allowed to go over their credit limit and trigger costly over-limit fees.

Crystal clear disclosures for the customer

The new rules are designed to help reduce confusion regarding credit card rates and fees. Credit card terms must be clearly visible and legible to the consumer and disclosed in language that is easy to read and understand. The new rules require creditors to provide crystal clear statements of account activity once a card is in use so consumers can easily see new charges and fees. Creditors are also required to show the financial consequences of paying less than the full balance due over a period of time. The goal is to educate consumers and encourage responsible use of credit.

Accountability rather than secrecy

Going forward, credit card companies must publish their contracts in a public place and in plain language. Companies that do not adhere to these new regulations can be fined. Credit card regulators will continuously monitor credit card practices and introduce additional safeguards as needed.

Advance notice and opt out options

Credit card companies no longer will have the option to raise rates on a whim. Rather, they will be required to provide a notice of change in terms a full 45 days in advance. As a card holder, you will have the option to opt out of a new, higher rate and can repay your debt at your current rate. However, by opting out, your card will be cancelled and you will no longer be able to use it. There are some exceptions to the opt-out rule worthy of note. Consumers cannot reject a higher rate if it results from a change in the prime rate (if a variable rate is attached to their card) or if they are more than 60 days late in making payments.

More regulations planned

More changes will be rolled out in the coming months aimed at keeping a lid on interest rates, preventing card companies from targeting young adults and even regulating interest assessed on gift cards. Credit card issuers will be hammered with new requirements to protect consumers and ensure fair business practices.

Limit your debt

The changes to credit card rules will ultimately make the use of credit a more expensive proposition. Credit cards are convenient tools for purchasing plane tickets, reserving hotel rooms and renting a car, so it’s difficult to eliminate them from our lives altogether. The key is to pay your bill in full each month or as soon as possible. As soon as you carry a balance, your debt will grow rapidly under the weight of hefty interest rates assessed by most card companies. If you’re struggling under the burden of credit card debt, talk to a credit counselor or trusted financial advisor about your options. The sooner you can repay what you owe, the better.

Jim Larkin, CFP^®, CRPC^®

Financial Advisor

CERTIFIED FINANCIAL PLANNER™ practitioner

Ameriprise Financial Services, Inc.

1308 Village Creek Drive | Suite 2000 | Plano, TX 75093

Bus: 469.865.1050 | Fax: 469.865.1010

E-mail: James.k.larkin@ampf.com

Website: www.ameripriseadvisors.com/james.k.larkin

####

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

©2009 Ameriprise Financial, Inc. All rights reserved.

File # 91807

This communication is published in the United States for residents of Texas, Louisiana, Arizona, Colorado, Florida only; and this advisor is licensed only in the states of Texas, Louisiana, Arizona, Colorado, Florida.