It's A Great Time For A Mortgage Loan-As published in Barron's

I was interviewed and included in an article by Mike Hogan
that appeared October 15, 2007 in Barron's. Here is the
text of the article:

Things are so, so bad that some wag has created the Mortgage Lender Implode-O-Meter to count lender defunctions. What a great time to borrow or refinance.

Widespread pain in real estate makes for one of those classic situations where cash is king -- or, in this case, a decent down payment and credit score, at least, gets you into the castle. Its dark humor aside, the Implode-O-Meter lists survivors and dishes daily updates on this turbulent market for the benefit of borrowers and investors alike.

Not every lender’s business was built on subprime loans. Alt-A or “low-doc/no-doc” loans are just a narrow slice of the portfolios of deep-pocket institutions like CitiMortgage, Wells Fargo, Wachovia and Washington Mutual. They still have to keep the lights on, offsetting losses to subprime defaults with loans to qualified borrowers.

“If you fit the Fannie or Freddie guidelines, they’d love to make you a loan,” says Doug Brennecke, a mortgage broker with San Diego’s Mike Dunn & Associates. “Conforming loans are very available with rates and fees in the low-to-moderate end of the spectrum.”

“Guidelines” refer to standards lenders must follow before Fannie Mae or Freddie Mac will buy conforming loans within the $417,000 legal limit. Already-low rates on most conforming loans have been trending lower since the subprime meltdown began, reports Brennecke. And while rates and other terms are incredibly variable, you can drill down on offerings in your town at HSH Associates, a nationwide database updated daily. Likewise, Bankrate.com’s encyclopedic data bank shows a nationwide average of the benchmark 30-year fixed-rate falling from 6.30% in July to 6.05% in early October.

Chase Mortgage increased its loan originations 41% in the second quarter, reports spokesman Thomas Kelly, including subprime and jumbo loans that can’t be layed off on Freddie or Fannie. Qualifications are stricter and prices higher than for conforming loans. But Chase views the current market distress as an opportunity to increase market share, explains Kelly, and is willing to carry the paper until investors warm up to mortgage-backed securities again.

Plummeting home sales have resulted in a stunning lack of demand. The 21.5% year-to-year decline reported by the National Association of Realtors in September is only the latest in a long string of sales declines. In response, Countrywide Home Loans, the nation’s largest mortgage lender, is sending 7,000 home loan consultants to open houses and real estate sales offices nationwide, looking for borrowers. Having lost $595 million to defaults during the first half of the year, Countrywide also has mobilized an army of home retention specialists to help delinquent borrowers keep their homes. The lender claims to have saved 40,000 mortgages from foreclosure so far this year, including 17,000 through mortgage rate modification.

Other forms of outreach include Bank of America’s No Fee Mortgage Plus, which subsidizes loan origination, title and a dozen other closing costs. BofA claims it can save a borrower $3,000 or more on a $200,000 home loan. These costs vary widely by state, but a recent Bankrate.com survey found a national median of $2,692.

There are many such offers, but they bear close scrutiny. It’s common practice to simply offset some of these saving with a higher interest rate. You should be able to suss out real loan costs through careful examination of the preliminary Truth-in-Lending statement. The Federal Trade Commission also is a wellspring of tips, definitions and other consumer protection information.

Although lending standards have tightened considerably, lenders are still more flexible than they were before the subprime craze took them afield, says Brennecke, who has 30 years matching borrowers and lenders. All loans are individual negotiations but, generally, lenders look for borrowers with steady employment, a debt-to-income ratio of about 40%, a 640 or better FICO credit score, and a 10-to-20% downpayment.

The more cash down or lower loan-to-home value when refinancing, the higher your FICO score, the better your bargaining position. myFICO offers two FICO reports a year for $90. It also sponsors a free ballpark estimator on Bankrate.com. Alternately, everyone is entitled to one free credit report a year from all three credit bureaus via AnnualCreditReport.com.

Despite gory headlines, real estate pain is very localized. Most defaults are found in Nevada, Colorado, California, Arizona and Florida, states that were the loci of speculation, notes RealtyTrac. After roughly doubling in 5 years, the national median price of an existing home is virtually unchanged from a year ago -- $224,500 in NAR’s most recent survey.

Unless you foresee prices crashing permanently in your town, now might be a good time to lock in a low cost on your real estate investment.