Proactive Maintenance

Great article in Seattle Times this weekend. (Can’t believe I said that. Oh yea, it’s because it was copied from a reporter for the Denver Post.) Proactive maintenance is key to saving money as a homeowner. Something mentioned in the article is what we have recommended to homeowners for years: If you had an inspection performed when you purchased your property, find it. It is an excellent, and usually well organized, template for checking all of the elements and systems in your home. You may even find a few deficiencies that were in the report, but were forgotten in the haste of moving in and getting settled.

Left Out In The Cold?

The help that the Federal Government has pumped into the economy may take a awhile to help home-buyers and those seeking to refinance. The Sunday Seattle Times included an article by Jeff D. Opdyke and Jane J. Kim of The Wall Street Journal. Very good insights as to why we are not seeing conforming 30 year fixed rate mortgages drop to near 5% are offered. ARM’s are no bargain either because lenders are doing all they can to liquidate the ARM’s they already have on their books. This means that the ARM Jumbo you may be seeking will have a tough time being resold into a market already flooded with older ARM’s that lenders are trying to unload, thus your ARM will require a higher rate to attract buyers.

One bit of relief is the reduction in credit card and auto loan rates, as well as home equity lines of credit ["HELOC"].

Good advice is also offered regarding the importance of watching the mortgage market closely for signs of an opportunity. As the market is extremely volatile, be ready to act quickly should the product you desire suddenly drop in price.

The Mortgage Professor

Jack Guttentag, aka “The Mortgage Professor”, is  a syndicated columnist to the Seattle Times. He has often referenced his website: http://www.mtgprofessor.com/Default.htm. Today, I finally decided to pay a visit, as I am considering the alternatives available to me for refinancing my current Jumbo mortgage. There is a lot valuable information there. It is more important than ever to thoroughly research the loan process as lenders attempt to shore up cash flow based on fewer transactions. Learn about “UMB’s” and “MB’s” from the professor, then set your sights on what the best avenue is for you.

As Diana mentioned to me this morning, it is uncanny how acutely aware homeowners and home-buyers are aware of commissions paid to real estate agents, yet have little grasp of how mortgage lenders/brokers are compensated. This web site will open the eyes of would-be borrowers to the web of techniques utilized by unscrupulous lenders that seek to take advantage of borrowers, particularly when their backs are to the wall i.e., facing default on a purchase and sale agreement if they don’t close, or losing a home to foreclosure.

The lack of regulation and standardization is what created the mortgage lending crisis. It is solely up to consumers to decipher what they are getting for their money. This website will educate you to the pitfalls, give you the questions to ask your lender, and resources that you may not have considered. It takes a bit of effort to absorb, but is well worth the time invested………..for all of us. For if we, as a group, bring similar pressure to bear on the lending industry, we might just help straighten out the current crisis, as well as insure that it is not soon revisited.

Mortgage Mess: Light at the End of The Tunnel?

Jack Guttentag, aka “The Mortgage Professor”, provides some interesting insights into the mortgage market meltdown in his Sunday Seattle Times article “It’s Time To Expand Role of Mortgage Insurance”. Parts of his article are characteristically dry and difficult to read, but the essence of the message is there. If there is a bright spot in this deluge of not-so-good-news, it is that the mortgage insurance companies, those that impose an insurance policy on mortgage amounts in excess of 80% of property values, are doing OK. Why? Because they are insurance companies. As insurance companies, they have been required to “hold in reserve” i.e., save, a portion of the premiums that they collect in order to weather, without going broke, a housing downturn event. This means that they actually have the money to absorb the losses they are suffering through foreclosures and deflated property values. At least, so far.

Have you wondered how so many managed to get that zero down 100% no doc, no equity, no job loan with having to pay mortgage insurance premiums ["MIP"]? As an alternative, the mortgage bundling geniuses of Wall Street cooked up a risk assessment system that charged loan fees, interest rates and loan types based on risk factors.

“Oh, you don’t want to pay MIP with your loan every month? No problem. We have this little thing called an ARM with an artificially low start rate that is guaranteed to completely blow up your financial life in 2 or 3 years. But don’t worry, we’ll refinance you out of that in a year or so into a 30 year fixed rate loan you can live with. How do we do that? Simple! Your property simply has to appreciate to where it will appraise for 20% more than the inflated value that we are using today. Oh, did I say inflated? I meant enhanced. That’s what we say when we pack all of the exorbitant loan fees onto your loan amount. That way, you’re not just getting 100% financing, but about 103% financing. But don’t worry. The important thing is that you are in the market, and surely your property will continue to appreciate at 10-15% per year.”

The Mortgage Professor thinks that MIP is the way out of this mess. Once considered a nuisance to borrowers, it may now be a blessing as a means to refinance loans that exceed 80% of appraised property values and allow owners to keep their homes.

Rex Agreement: Avoid This Like The Plague

You would think that with the mortgage mess still unsorted, the last thing we would see is another exotic home equity product from a financial institution. The Rex Agreement has to be one of the most abusive instruments I can image. It’s just like taking your home equity to the pawn shop. According to the Sunday Seattle Times article:

1. If you have high equity in your home, and it is worth $500,000 you may borrow up to 15% of its value ($75,000)

2. You get the money immediately, free to do whatever you want with it, interest free.

3. You sell your home 5 years later for $700,000.

4. You are required to repay the original REX loan of $75,000 PLUS 1/2 of the appreciation, for a total of $175,000.

It cost $100,000 to borrow $75,000 for 5 years. Let’s think about that for a moment.

If you borrowed $75,000 with a HELOC (Home Equity Line of Credit) from Bank of America at 6% interest for five years, making 60 monthly interest only payments of $375, it would cost $22,500. Hmmmmmm……..$175,000 vs $22,500.

Make no mistake, this is a highly predatory product designed to tap into good folks’ fears. I can hear the “closers” for this one.

1. “You won’t have to sell your home, you can stay where you are.” [Note that these loans are only for people with high equity and excellent credit i.e., older folks that have been scared to death by the media over the last 6 months and think they should stuff their mattress with cash.]

2. “If your home goes down in value, we will share that loss with you.” ["Oh golly, what incredibly nice guys. How could they possibly be crooked if they are willing to accept half of the risk of my home depreciating?" Are you kidding? If they didn't know that the real estate markets across the country have already bottomed out, and are set for a steady march upward in appreciation, they never would offer this product.]

3. “You won’t pay one cent of interest for this loan.” [Gee, thanks! Over the past 30 years, single family home appreciation has averaged about 4% annually. 5 years would mean about 20% appreciation, and I only have to give you guys half? 10%? Where do I sign.]

4. “These are just standard forms.”[My favorite! Let me say this once. When it comes to lending, THERE ARE NO STANDARD FORMS!!! I think that this has been thoroughly demonstrated by the current record foreclosure rates by homeowners who thought they were signing "standard forms" when in fact they were endorsing a time bomb. If people had taken the time to read their loan docs, the entire mortgage/credit mess may have been averted.

If you know elderly homeowners who might be strapped for cash, probably so that they can pay their ridiculously high property taxes, or unforeseen medical bills, warn them against REX Agreements. It is better to explore the offerings of a bank bank based “reverse mortgage” than to succumb to the vultures that will be peddling REX Agreements. They are already advertising on the radio locally. Warn your elderly relatives and friends. They are the primary targets.

Our Pond Is Waking Up…..

If you have a pond in your yard, you have noticed it beginning to wake up. The fish are moving, the perennial plants are beginning to sprout, and maybe the water has turned brackish with water borne algae. Yech!

Our pond is about 30 feet in diameter and 6 feet deep. This is the second pond in our life, and I wanted make certain that it wasn’t the maintenance headache that was our first pond. I wanted it to be as natural as possible, and healthy in function and appearance.

There are many, many websites that proffer solutions/designs/systems for the perfect pond. There are water scrubbers, filters, recyclers, all kinds of contraptions on which one can spend thousands of dollars. The one design that I never see is the one I placed in my pond as I built it: an under-gravel filter, just like those you see in aquariums. This item, coupled with a pair of ultra-violet filters, keeps the pond very clear. A healthy pond still needs lots of water plants and marginal plants to compete with algae growth, but I think the under-gravel filter system does the most for the overall health of my pond. The best part is that it is inexpensive, just a recycled 3/4hp 220v hot tub pump and lots of PVC pipe.

It is a bit complicated to go into all of the details here, but if you are interested in knowing more about this approach, give me a call. A pond is a beautiful amenity to add to any home, as long as it looks good. Poorly planned, or unattended, it just becomes an eyesore. So plan ahead and you’ll have something you’ll enjoy for years to come.

Time To Fertilize The Lawn: Caution

I mentioned last week that it is time to get started with fertilizing your lawn in order to get ahead of the weeds and bugs. However, I failed to mention MOSS. Scotts fertilizer with moss control works very well on my lawn. The word of caution is that you take the steps necessary to make sure this fertilizer doesn’t end up on your patio. With a little rain you may end up with rust stains that are just about impossible to remove. The reason is that one of the important active ingredients in moss control fertilizers is iron.

If your lawn runs right next to your driveway, walkways or patio, be sure to use a “drop” spreader in these areas, not a broadcast spreader. Spread this type of fertilizer only when conditions are quite dry. To be on the safe side, sweep or blow off the flat-work areas when you are done to make certain that no particles of fertilizer remain. The flat-work around your home is an important value amenity. Value will be lost if these areas are rust stained from moss control fertilizer.

There are many websites that offer assistance in dealing with rust stains. Here are just a few:

http://www.howtogetridofstuff.com/stain-removal/how-to-get-rid-of-rust-stains

http://www.signonsandiego.com/uniontrib/20050619/news_1hs19heresh.html

I have no experience with these sites or the products they are peddling, so caution is advised.

Know The Cost Of Your Commute

As we face the prospect of $4.00/gallon gas, and the likelihood that we will soon be paying tolls to drive around King County, take the time to calculate what your commute actually costs, relative to your home’s value and location. This nifty tool will answer questions that perhaps you hadn’t thought of asking before. While we have historically sought to reduce commutes to save TIME, it is going to become just as important, if not more so, to consider the hard costs associated with commutes.

This calculator is a little bit tricky to use at first, but patience will provide excellent information. You may input as many “commuters” from your family as you like, each with its own vehicle value and average miles-per-gallon, as well as distance, number of commutes per month, estimated vehicle maintenance costs, and toll costs. This information is combined with the size of respective mortgages, interest rate, and location. The results can be a bit startling, especially when you move farther out and spend MORE rather than less as we did a few years ago.

While it was understood that our mortgage would more than double in size, I never could have anticipated that the extra 10 mile commute expense would add another $1400/month.

Location. Location. Location……………

How To Get That Beautiful Green Lawn? Conserve

I am not an expert, but I’ve learned a few things about lawn care over the years, especially now that I am mowing about 1.5 acres about every 5 days during the height of growing season. My older Brother told me something interesting a few years ago: compared to our British counterparts, Americans tend to over-water and under-fertilize their lawns. Interesting…..

This has proven true in my case. Perhaps resistance to the investment and hassle of fertilizing stems from the desire to deny the manufacturing behemoths of Scotts, Lilly-Miller and Vigoro. Last year I committed to a 6 week feeding schedule using only Scotts products. I have tried less expensive products from other companies, but the results have been disappointing. Scotts seems to perform the best when it comes to moss and weed control. Except for the heavily trafficked, and thus compacted lawn areas around the patio and pool, the results were very pleasing. And I used about 1/3 as much water.

Spring is the time to start feeding your lawn because it is going to start waking up and it will be hungry. Use this link to the Scotts fertilizing schedule to determine what product to apply, and the best time to apply. Even if your property is subjected to water use restrictions, a healthy, well fertilized lawn will weather drought conditions and recover nicely, without so many weeds when watering is resumed.

What $1 Million Buys In Homes Across The U.S. by Forbes.com

Honestly, most of the news surrounding housing has me a little depressed lately. Actually, it’s not so much the housing, but the credit debacle that has caused banks across the country to lose their collective minds as evidenced by arcane C.Y.A. policies implemented in the last week: cancelled “HELOC’s” [home equity line of credit], and second position lenders refusing to subordinate for the sake of refinancing a first [see Ken Harney's article from the Sunday Seattle Times]. So I thought it be nice to look on the lighter side of real estate this week. If you would like to see what $1,000,000 buys in other parts of the country, you will enjoy this article by Matt Woolsey at Forbes.com