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Desert Custom Publishing PUBLISHER / CEO Joe Lotito MANAGING EDITOR Carita Strawn BUSINESS AFFAIRS Tommy Anton ADVERTISING EXECUTIVES Steve Mendenhall Robert Gordon GRAPHIC DESIGNER John Iglesia INTERN Evette Brandstadter
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Inside This Issue
8 Trade Wealth Mortgage Group
On The Fall of Fannie Mae
11 Obama and the Mortgage Market
What he plans for it
14 How to Screw up Refinancing
Helping you avoid some of the most common errors
17 Buy-to-let Mortgage
Highest since 2008
A smooth mortgage process
18 The Dos, The Donâ€™ts
History About Mortgage A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan. A home buyer or builder can obtain financing (a loan) either to purchase or secure against the property from a financial institution, such as a bank or credit union, either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. In many jurisdictions, though not all (Bali, Indonesia being one exception), it is normal for home purchases to be funded by a mortgage loan.
Trade Wealth Mortgage Group The Fall of Fannie Mae It’s enough to make you believe in miracles: The Obama Administration is now on record as saying that Fannie Mae and Freddie Mac should go out of business. It took a global financial panic and $140 billion in taxpayer losses, but on Friday there it was in black-and-white in the U.S. Treasury’s report to Congress on reforming the mortgage market: The Administration will “ultimately . . . wind down both institutions.” This marks a break with decades of bipartisan support and protection for the two government-sponsored giants of mortgage finance. Fannie Mae has its roots in the Roosevelt Administration, and a phalanx of bankers, mortgage lenders, homebuilders and Realtors worked together to keep the companies growing and federal mortgage subsidies flowing. Now even some Democrats—though not yet those on Capitol Hill—admit their business model was a catastrophe waiting to happen. Under the Administration’s proposals, Fan and Fred wind down over five to seven years. The two mortgage giants would, in effect, gradually price themselves out of the mortgage finance market by raising guarantee prices and down payment requirements, while lowering the size of the mortgages they could securitize and guarantee. This sounds like a plausible set of first steps to lure private capital back into the mortgage market, where some 92% of all new mortgages are currently underwritten or guaranteed by the government. The $5 trillion question, however, is what would replace Fan and Fred. And here the Obama Administration has punted, offering the “pros and cons” of three broad proposals without endorsing any one of them.
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“It would be difficult both to stay small and retain the capacity to go large when needed.” Door No. 1 is the best of the lot by our lights. Under this option, federal guarantees would be limited to Federal Housing Administration (FHA) loans for lower-income buyers and VA assistance for veterans and farm programs— each a narrowly targeted market segment. A Treasury official says this would reduce the taxpayer backstop over time to about 10% to 15% of the mortgage market. The Administration puts the case for federal withdrawal from the broader housing market in compelling terms: “The strength of this option is that it would minimize distortions in capital allocation across sectors, reduce moral hazard in mortgage lending and drastically reduce direct taxpayer exposure to private lenders’ losses.” Bravo. Treasury points to other benefits: “With less incentive to invest in housing, more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets. Risk throughout the system may also be reduced, as private actors will not be as inclined to take on excessive risk without the assurance of a government guarantee behind them. And finally, direct taxpayer risk exposure to private losses in the mortgage market would be limited to the loans guaranteed by FHA and other narrowly targeted government loan programs: no longer would taxpayers be at direct risk for guarantees covering most of the nation’s mortgages.” Those two paragraphs more or less sum up 20 years of Journal editorials on housing. Corbis So what’s not to like? The Administration says this option could reduce access to credit for some home buyers, and that it would leave the government without the tools to intervene in a future crisis. As for the credit point, other countries have high rates of home ownership with far less government support. If the government stands aside, it would open the way for alternative forms of finance, such as covered bonds, that now can’t compete in the U.S. because of government favoritism for the 30-year mortgage model. This would open options for borrowers by increasing the diversity of financing. As for a future crisis, government intervention is less likely to be needed if the market isn’t distorted by government subsidies in the first place. Behind Door No. 2 is a rump Fan or Fred, one that would stay small in “normal” times but stand ready to step in with Uncle Sam’s firepower in a future housingfinance crisis. But as the Administration acknowledges, it would be difficult both to stay small and retain the capacity to go large when needed. We’d add that the political pressure to expand any federal mortgagelending program would be too great for lawmakers to resist. Within a generation, the winding down of Fan 7
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and everything in-between
A Smooth Mortgage Process Every borrower wants their mortgage closing to be simple and stress free. While it may not always feel like it (between loan processors’ requests for your 2011 Schedule E and page 6 of March’s bank statement), lenders want the same thing. Here are some timely “do’s and (mostly hypothetical) don’ts” for borrowers to consider during the loan application process. While no single list can completely cover all loans, following these “do’s and don’ts” during your mortgage application process will help your loan officer give you the best service possible. DO: Ask your loan officer questions and listen to his/her answers. DON’T: Solicit mortgage advice from your cousin’s hairdresser who had a real estate license in 1995 and almost sold 3 houses. DO: Promptly provide all documents requested by your loan officer and processor to speed up your closing. DON’T: Leave out pertinent details on your loan application, such as that pesky pending lawsuit, the layoff notice you just got at work, your unpaid child support, or the fact you haven’t actually filed a tax return since 2009. DO: Check your email frequently during the loan process for questions and updates from your lender and respond to any requests they have. DON’T: Start a loan the day before you go on a two week camping trip with no cell phone or email access. DO: Make sure you and your loan officer discuss your rate lock, agree on when to lock, and have a plan for closing by lock expiration date. DON’T: Instruct your loan officer to lock the rate, then ask him a week later if he can improve it because you heard a radio ad stating rates dropped and are now “THE LOWEST EVER FOR THE 19TH CONSECUTIVE WEEK!!” DO: Be comfortable with and confident in your loan officer and loan before you submit a formal loan application. DON’T: Start the loan, then “check around” with 6 other lenders “just to see what they have” the week before your closing. DO: Make sure your employment, asset, and personal information are correct on your loan application. DON’T: Become gravely concerned because the credit card balances on your credit report aren’t identical to the current balances. DO: Know the rate and balance on your existing loan. DON’T: Miss the important subtlety of actual “payoff ” balance of your loan, which will include interest charges and will exceed the principal balance. 9
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What are Fair Debt Collection Practices? Debt collectors face unique challenges that can tempt some in the business to engage in illegal behavior. According to Reuters, the Federal Trade Commission logged 120,000 debt collector complaints in 2009. If you believe that a debt collector is hounding or threatening you, it may be time to review your legal rights. The Fair Debt Collection Practices Act requires that debt collectors treat those who have failed to repay their creditors in a fair manner. It prohibits abusive debt collection practices. For a complete listing of your rights as a debtor, visit the Federal Trade Commission website. The following debt collection practices are among those that are prohibited: Debt collectors may NOT: • Harass, oppress or abuse you or any third parties they contact. • Use threats of harm. • Publish a list of consumers who refuse to pay their debts. • Use obscene language. • Repeatedly use the telephone to annoy someone. • Take or threaten to take your property unless this can be done legally. They are also restricted in the statements they can make to debtors. Debt collectors may NOT tell you that: • You will be arrested if you do not pay your debt. • They will seize, garnish, attach or sell your property or wages, unless the collection agency or creditor intends to do so and it is legal to do so. • They will take actions, such as a lawsuit, against you, when such action legally may not be taken, or when they do not intend to do so. Finally, debt collectors may NOT: • Give false credit information about you to anyone. • Send you anything that looks like an official document from a court or government agency when it is not. • Use a false name. A debt collector is permitted to contact you in person, by mail, phone, telegram or fax. However, he or she may not contact you at inconvenient times or places (such as before 8 a.m. or after 9 p.m., unless you agree). And, they may not contact your place of work if the collector knows that your employer disapproves of such contacts. Report any problems you have with a debt collector to your state Attorney General’s office. You may also want to file a complaint with your Better Business Bureau.
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Obama and the Mortgage Market U.S. President Barack Obama just gave a speech saying that he wants to reform the housing market, pulling back on the government’s role as the primary backer of your mortgage. And about time. The government currently backs about 90 percent of newly issued mortgages, through Fannie Mae, Freddie Mac, the Federal Housing Administration and Department of Veterans Affairs. To all intents and purposes, except for very large loans to very affluent people, there is no private mortgage market in the U.S. The president said today that he wants to change that -- to make it so that investors, not the government, are bearing more of the default risk. A fine sentiment, but he’s a little vague on the details of exactly how government involvement in the mortgage market will be wound down. Especially since he wants to make sure -- above all else! -- that the American public continues having access to the 30-year fixed-rate mortgage. This may be a bit tricky, since the 30-year fixed-rate mortgage doesn’t seem to be a product found in nature; in most other countries, they basically don’t exist. Instead, people have floating-rate mortgages with long reset periods. That isn’t to say that no private bank would ever create such a creature. After all, jumbo fixed-rate mortgages, which aren’t government-guaranteed, do exist. But without the government guarantee, they’re a bit expensive. And in other countries, people seem to look at the expense and decide that they’d rather have a long-term adjustable-rate mortgage, thankyouverymuch, than pay the extra interest it would cost them to enjoy a fixed rate for 30 years. So how is the administration going to withdraw the government from the mortgage market while keeping the sacred 30-year fixed-rate mortgage attractively cheap? What if banks are still cautious about lending when we start to sever Fannie Mae and Freddie Mac’s relationship as wards of the state? If interest rates rise precipitously, will the administration keep pushing forward, or will it chicken out? And how does Obama square all this with his renewed call for Congress to help homeowners with underwater mortgages refinance at today’s attractively low interest rates? The speech offered no answers. It was less of a policy plan than a fond hope that U.S. citizens, in their role of homeowners, could continue to enjoy extremely low-cost mortgages in which the bank bears all the interest-rate risk . . . without forcing U.S. citizens, in their role of taxpayers, to finance all this bounty.
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Giving the Gift of Gift Cards With the holiday season right around the corner and the economy putting the squeeze on budgets, many shoppers are going to be looking for the best gift options this holiday season. For those looking to give gift cards to family and friends, BBB is recommending that you do your research before purchasing a gift card. BBB receives hundreds of complaints each year for the gift card industry. In some cases, consumers are disgruntled when they are given an expired gift card with loaded cash that isn’t usable until the expiration date is corrected. After sending the expired card in for replacement, the consumer is left empty handed when the card fails to return to them. “Consumers need to be on the lookout for gift cards that appear to be ‘open’ or out of their original package, and cards that state an expiration date that is coming up or that has passed,” says Christine Sauers, BBB Serving Delaware President. “Shoppers should be wary of online auction sites that promise ‘full value guaranteed’ gift cards. It’s sites like these that are prone to selling old, valueless cards that leave the gift giver and receiver distraught.” BBB recommends the following tips for both givers and receivers of gift cards: Know the rules. New federal rules that took effect in August of 2010 are designed to protect consumers, and will restrict fees and affect gift card expiration dates. These new rules apply to two types of cards: Retail gift cards, which can only be redeemed at the retailers and restaurants that sell them; and bank gift cards, which carry the logo of a payment card network like American Express, Visa, or Mastercard and can be used wherever the brand is accepted. Check it out. Make sure you are buying from a known and trusted source. Always check out a business at www.bbb.org. Avoid online auction sites, because the cards sold there may be counterfeit or may have been obtained fraudulently. Read the fine print before buying. Is there a fee to buy the card? Are there shipping and handling fees for cards bought by phone or online? Will any fees be deducted from the card after it is purchased? Inspect the card before buying it. Verify that no protective stickers have been removed, and that the codes on the back of the card haven’t been scratched off to reveal a PIN number. Report any damaged cards to the store selling the cards. Provide the receiver with back up. Give the recipient the original receipt in case the card is later lost or stolen. Also, before you buy retail gift cards, consider the financial condition of the retailer or restaurant. A card from a business that files for bankruptcy or goes out of business may be worthless. If the business closes a store near the recipient, it may be hard to find another location where the card can be used. A business that files for bankruptcy may honor its gift cards, or a competitor may accept the card. Call the business or its competitor to find out if they are redeeming the cards, or if they will do so at a later date. Treat the gift card like cash. For receivers, it’s important to report lost or stolen cards to the issuer immediately. Some issuers will not replace cards that are lost or stolen, while other issuers will, for a fee. Make sure to use gift cards as soon as possible, because it’s not unusual to lose or forget about them. For more consumer tips you can trust, visit www.bbb.org. 17
How to Screw Up Refinancing A mortgage refinance boom is in full swing, as homeowners take advantage of record low rates by refinancing their home loans.But a home loan refi is more complicated than it was a few years ago. Home values are lower and paperwork requirements are higher. It’s easy to make mistakes while refinancing a mortgage. To, here is a list of five things you shouldn’t do when you refi. Be unrealistic about your home’s value Deluding yourself about the value of your home is an excellent way to ruin a refi. Too many homeowners ignore falling home values in their neighborhood, convincing themselves their houses are worth at least what they paid for them. In mortgage refinances today, the most common reason for denial is a home appraisal that comes in too low. The lender won’t lend for more than the appraised value. And a lot of homeowners go into denial about the decreased values of their homes. “Don’t overestimate what the value of your home is. Don’t kid yourself and think your house is worth $500,000 when it’s really only worth $400,000,” says Dale Robyn Siegel, author of the book “The New Rules for Mortgages” and owner of Circle Mortgage Group in Harrison, N.Y. Dither about your rate lock Homeowners who delay locking a good mortgage rate risk making a refi uneconomical. While floating, you take the risk that mortgage rates will go up. Rates could rise enough so that it’s no longer worth the time and expense of refinancing, says Bob Walters, chief economist for Quicken Loans. Also, rate locks have expiration dates. So, it’s a good idea to build a cushion of a few days in case there’s a delay in the loan closing, says Dan Green, mortgage planner for Waterstone Mortgage in Cincinnati. If you have a 30-day rate lock, it’s better to set the closing date on the 28th day than the 30th day -- just in case there’s a snag that delays the closing by a day or two. Start renovating your house before the appraiser visits Taking a sledgehammer to the interior of your home before the appraiser arrives is a good way to get turned down for a refi. The appraiser delivers an estimate of the home’s value on the day of the inspection. The house will be worth less on that day if the upstairs is a shambles or the bathroom 18 Find your way home
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