That was then, this is now.

If you can save yourself $50 per month, and the cost of the refinance pays for itself in 24 months and you plan to stay put for that long; go for it.

There have been many changes in the approval processes of both buying and refinancing. What you may have been able to qualify for when you purchased your home may not be true today. The Internet is not the place to do your mortgage. While it is a good source for information and education, the process is usually not consumer friendly. Internet lenders don’t have a vested interest in making sure you are getting into the best loan.

Don’t assume your existing lender is going to give you a “better” deal, or make the process easier because they have all of your information and payment history. When you refinance your loan, not matter who does it, you have to apply all over again, and yes, that usually means obtaining a new appraisal, title insurance, and re-documenting your income and payment history.

We are seeing an unbelievable “perfect storm” for refinancing. Beware though: when it comes to mortgage rates, sometimes it’s better to “act now”… and no, that isn’t just salesmanship, it’s the difference between a rate in the 4 percent range and the 5 percent (or even 6 percent) range. Granted, all of these rates are historically low, but why settle for a 6-percenter when you can possible get a 4-percenter, even for an Alaska FHA or VA loan.

Earlier this month, mortgage rates plummeted to their lowest levels in four years. Now, I love when mortgage hacks are right for the wrong reasons, don’t you? Many have pontificated that it was because the FED lowered that pesky FED Funds Rate. But if you have been a reader for any length of time you know more than they do because you know that long-term mortgage bonds frequently move in the opposite direction as the FED decisions. It happened because the Fed said it would “employ all available tools” to resuscitate the US economy.

The next day, however, the markets had second thoughts.

After the sugar-high of this statement, the markets began considering the long-term implications of a near-zero percent Fed Funds Rate and the cumulative cost of government intervention to-date. Suddenly traders grew afraid that government action would devalue the dollar and lead to inflation - the enemy of low mortgage rates.

As a result, that nice dip in rates didn’t last … again. By the end of the day, mortgage rates were higher by as much as a 0.5 percent and nearly all of the day’s big gains were erased and Alaska Home Loan rates went right back up to where they had been.

In hindsight, the reversal the next day wasn’t all that surprising - it’s the same trading pattern we’ve seen twice already this year.

The first time was after the Fed’s “surprise” rate cut in January

The second time was after the federal takeover of Fannie Mae and Freddie Mac in September.

Sharp rate drops tend to be followed by immediate bounce-backs, it seems.

What can be learned from this? Get your ducks lined up if you intend on wanting to be able to pounce the next time Alaska mortgage rates fall. I had a boatload of people call but wanted to think about it. I don’t fault a person for wanting to ponder things a bit before making a decision - I do it. Unfortunately the marketplace could care less and those that hesitate pay more. While those that locked at the first opportunity to save money are sitting pretty today, the rest that “waited for rates to go lower” are likely kicking themselves about it.

Does this mean you missed it? Yes and no.

Get your paperwork in order, and call to schedule an appointment for your refinance. By doing so you will be ready to take advantage of that target rate you want the next time it spikes lower.

Going forward, mortgage rates may fall, or they may not, but we’ve now seen the pattern three times now. When mortgage rates plunge like they did, they rarely stay that low for long. Sleeping on it for even one night may end up costing you dearly.

Jackie Toppin is affiliated with Preferred Mortgage in Anchorage, and has been in the mortgage industry since 1977. She may be reached at (907) 261-7655 or www.jackietoppin.com.

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What really happened in mortgage market

By Jackie Toppin
 

For the Journal, November 2008

And, as if that weren't enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures, and real estate markets here in the U.S. and around the globe. Some say losses in the mortgage securities market alone could reach hundreds of billions of dollars this year.

This means that, for any Americans looking to buy, sell, or refinance a home, they are confronting a very different market from the one that existed just 6-12 months ago.

How did this happen?

The recent real estate boom was fueled by a period of record home appreciation and historically low interest rates. Banks, in order to compete, loosened guidelines and began offering more funding to more borrowers through riskier, non-conforming or “exotic” mortgages.

These ideal lending conditions persisted for several years, supported by high demand, historical real estate data, home prices, and massive trading volume/profits on mortgage-backed securities and other financial instruments on Wall Street.

Then, in 2006, a slowdown in real estate led to a deterioration of home values, an increase in inventories, and ultimately to today's tightening of credit guidelines, leaving many investors unable to sell or refinance out of their existing positions.

Many Americans who had tapped into their equity were suddenly tapped-out and overextended as home values fell. Foreclosures followed in record numbers and a re-valuation of mortgage bonds and other financial instruments created the credit/liquidity domino effect we're now experiencing.

Unfortunately, it's going to get a lot worse before it gets better. According to the latest estimates, over 2 million subprime and Alt-A adjustable rate mortgage (ARM) holders will face payment increases of up to 30 percent to 100 percent when their loans reset in the next two to 18 months.

These loans make up less than 40 percent of the total mortgage market, but the negative effects, as we have seen, of increased foreclosure activity can have a ripple effect throughout the industry and around the globe.

What does this mean to you and your mortgage?

Sellers: If you're planning on selling your home, be prepared for an even smaller pool of qualified buyers. While some experts predict a settling of this credit crisis over the coming year, tightened credit guidelines and diminishing mortgage products could knock out as many as 15 percent to 30 percent of potential qualified buyers.

Now is not the time to sit and wait for the best possible price. Have a serious talk with your real estate agent. Having experienced buying/selling transactions in your area, he or she can help you price your home accordingly. He or she can also help ensure that your buyers are pre-approved and stay pre-approved throughout the entire transaction.

Buyers: Get pre-approved by your mortgage professional. While there are a lot of great deals out there, getting credit is becoming tougher and tougher, and it's taking longer and longer to complete a transaction.

Remember, what you qualify for today could change tomorrow in a volatile market. For those looking to refinance, keep this in mind. There is no time to delay! Communicate with your lender. Don't do anything that could negatively affect your credit, and make sure you get all your documentation in on time.

ARMs Borrowers: If your ARM is scheduled to reset in the next two to 18 months, you need to schedule an appointment with a mortgage professional right away. Whether your ARM is subprime, Alt-A, or even if you have a pre-payment penalty, don't let a default or foreclosure situation sneak up on you.

Did you know that your monthly payments can increase anywhere from 30 percent to 100 percent once your loan resets? At the very least, give yourself the peace of mind of knowing what your adjusted payment will be.

Borrowers with less-than-perfect credit: Each week it seems lenders are shedding more and more mortgage products. Many lenders have stopped offering no-doc loans and are reducing all forms of stated-income loans. While it might be challenging, borrowers with credit issues need to see a loan expert. Often they have credit repair resources and other strategies to help you reach your financial goals.

Finally, there's an important concept to embrace: all markets, while cyclical in nature, are self-correcting, be it credit, real estate, stocks or bonds.

For the last six or seven years, real estate was booming and riding high. The correction we're experiencing now - while it seems harsh and could get much worse - is, in a sense, “natural” and directly related to the extremely loose guidelines and perhaps overzealous lending and leveraging during the boom cycle.

Jackie Toppin is affiliated with Preferred Mortgage in Anchorage, and has been in the mortgage industry since 1977. She may be reached at (907) 261-7655 or www.jackietoppin.com.

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