Scott Dovala Santa Rosa Mortgage and Home Loans

Everyday one can't pass a TV or newspaper stand without seeing a story on the spiraling economy, home prices, employees losing their jobs. You here it on the radio, standing in line for a coffee and even in restaurants. The latter is what provoked this blog being written.

As I sat enjoying my lunch at a local restaurant here in Santa Rosa, I couldn't help but overhear 3 businessmen at the table behind me expressing their opinions about the economy and what they might do with their stock investments and 401 K's. All three must have been friends for sometime being that they were freely passing information between each other how much they had in their respective 401K's, stock investments and the remaining equity in their homes. Whether each was telling the truth or had inflated what they had accumulated, they each seemed to have done well for themselves. What did strike a nervous cord inside me was when the conversation turned towards the subject of making ones house and credit card payments.

One of the businessman changed the subject to one of his buddies who had a buddy that was one of the few and far between lucky ones who was able to have his loan modified so he could remain in his home.

"Why can't we get it on that!" one exclaimed. "I'd like a lower interest rate. Maybe we should stop paying our mortgages also."

"Yea", said the other man. "Maybe we should stop paying our credit card bills also. What could it hurt, it seems everybody else is getting away with it."

As I paid my bill, I understood their frustration. Although the majority of borrowers who attempt to modify their loans are in dire straights and have exhausted every other possible solution, there are those that work the system to their advantage. However, for any one that pays their mortgage and credit card bills on time and may think about working the system, there are consequences you must be willing to face.

Not only are you committing fraud but the lifetime you have spent building your credit will be wiped away for a number of years. The following are some facts of how long negative information will be attached to your credit report.

Charged Off Accounts: 7 Years

Delinquencies: Up to 7 Years

Child Support Judgments: 7 Years

Bankruptcy: Chapter 13/ 7 Years Chapters 7,11, and 12/10 years

Foreclosure: 7 Years

Collection Accounts: 7 Years, even if paid.

City/County/State/Federal Tax Liens: Unpaid 15 years Paid 7 years

Closed Accounts: Accounts closed to delinquencies remain 7 years. Those closed by the consumer or by the store for lack of use remain 10 years. Be aware that few consumers know that when closing credit card accounts because you don't use them anymore can actually lower your score.

As you can see,although there are some people who might think it worth the risk, working the system can cause some pretty extensive damage to your credit report. Is it worth the risk? I think not, and with lenders tightening up their approval processes even further, why make it any harder on yourself to get a loan down the road. Work the system? I think one will find out the system will work you instead.

Over the past year, there have been numerous failures in the banking and lending industries. Even the government tried with it's own feeble attempts to help borrowers with several failed programs such as Hope Now, FHASelect and the up and coming Recovery Act of 2008, But who would have thought that the government taking over Fannie Mae and Freddie Mac would actually be the first thing to help borrowers to begin to refinance and purchase a new home.

Since the takeover of Fannie and Freddie, interest rates have dropped near;y 3/4% in some instances. Today you can find, depending on your credit score, debt-to-income ratio and LTV, a 30 year fixed loan for around 5.50% That's nearly a 7/8% drop from rates just 3 weeks ago! A 15 year fixed rate for 5.25%.

Does this mean the housing market will now turn around? Hardly. No one knows what is going to happen in the future and in fact how well the governemnt will run Fannie and Freddie. Along with that, there are still billions of dollars worth of option arm loans that will be resetting in 2009 and 2010. If rates do not continue to stay steady or even go lower, we will be right back where we were before the takeover of Fannie and Freddie. To answer my own question about whether the takeover will help? Who knows, but it is a start.

Over the past few months I have had both current clients and potential clients calling and asking why haven't the interest rates dropped more. "The Fed Funds Rate is really low." "How long will it take for mortgage rates to go down also?" "I'm going to wait a little longer, I know they will drop because of the Fed Funds Rate."

Unfortunately, many borrowers and even some loan officers get confused when is comes down to who actually sets the mortgage interest rates. First of all, the Fed Funds Rate has actually nothing to do with where mortgage interest rates are. The Fed Funds Rate is actually the interest rate that banks lend to each other overnight. The lower the rate, the more liquidity there is between the banks. It is a short term rate that signals the Federal Reserves view as the state to the money supply.

Well. if the Federal Reserve doesn't set rates, who does? I'm sure many of you reading this have seen the videos from the Chicago Board of Trade with all the members running around in their different colored coats, flashing hand signals, shouting buy or sell at the top of their lungs. It is there at the CBT, where other commodities are traded, are where the initial rates are set. Most long term mortgage rates are linked to the 10 Year Treasury Notes traded on the exchange. Why the 10 year Notes? Mainly because they are considered one of the safest bond instruments in the world. When the 10 Year Note goes up in price and the yield goes down, over the course of the next few days. the lower price will be reflected in the conforming mortgage rates.

But with the higher priced homes in California, where most are above the conforming loan limit, we move into the jumbo loan range above $417,000. Since the stimulus package things have changed for the jumbo market. Now that Fannie Mae and Freddie Mac are involved, we now have what are known as Agency Jumbos. These are jumbos that range between $417,001 and $662,500 here in Sonoma County, and are priced by Fannie and Freddie themselves. Up until the end of April however, the difference between the conforming rate and agency jumbo rates was still wide. It was nearly ½ point to ¾ points. But in late April, both Fannie and Freddie narrowed that gap down to ¼ to 3/8 points difference. Loans above the $662,500 mark are still considered jumbo loans and are priced by the lenders themselves at a much higher rate than the agency jumbos to attract investors to purchase them. Compared to agency jumbos, the standard jumbos are priced somewhere around 7.625% to 8 ½ %. Why so high? Because investors are skittish about the higher loan amounts and want incentive to buy them.

There you have it. A very simplified explanation of who sets interest rates. So the next time someone says that the fed funds rate was lowered hwy hasn't the interest rates gone down. You can pass it along.

With Memorial Day behind us, the start of the summer events season is here. The first event being the 2008 Annual Beerfest on June 7th. This year it will be held at The Wells Fargo Center for the Arts from 1pm to 5pm here in Santa Rosa CA.

Over 30+ microbrewries from Northern California will be present along with 28 restaurants and purveyors serving everything from hors d' oeuvres to spicy hot ribs and everything in between. There will also be music provided by DGIIN.

Tickets are available in advance fro $35. Tickets will be $40 the day of the event. Advance tickets can be ordered by phone from the Wells Fargo Center at 707-546-3600. Please be aware that tickets will be limited so a relaxed plesant atmosphere can be maintained without those daunting long lines some of these events can produce.

Don't forget when taking the opportunity to taste and compare both food and drink, to vote for your favorite beer and fest food. Here were the winners of last year Beerfest.

2007 BEST FOOD- ANDY'S PRODUCE MARKETS - Outstanding Fruits & Vegies!
2nd Place - LARRY VITOS - Yummy Pulled Pork
3rd Place - AIDELLS SAUSAGE - THE best sausage in the world

2006 BEST BREWERY - RUSSIAN RIVER BREWING COMPANY
2nd Place - MOONLIGHT BREWING COMPANY
3rd Place - ANDERSON VALLEY BREWING COMPANY

So come and enjoy a day in the atrium and courtyard, and don't forget that proceeds from the Beerfest are donated to the Face to Face/Sonoma County AIDS Network.

As we go through life, there are a number of firsts for all of us. The first time we take a step. Our first word. First time we drive a car. But one of the scariest firsts is the first time we purchase a home.All the processes and steps we have to learn and remember. Finding a real estate agent and lender. Calculating and re-calculating your income and debts, and even after all those calculations, still not sure if you want to go through with it. How will you make the payments? What if one of us loses our job? What will the housing market do? It is a hard decision to make when thinking about purchasing your first home.

Does purchasing a home have to be that daunting? No it doesn't. Sure there are a lot of new things to learn, but once the excitement and nervousnessgo away, you will sit back and realize the whole process was not that difficult. The most important, and I must stress MOST important thing to do is ask questions. Do not assume anything. When it comes to purchasing a home, there are no dumb questions. You are investing a large chunk of your savings and income into this home, and if you are using a real estate agent or lender that doesn't want to take the time, or skirts around the answer to your question, you have the wrong people working for you. Yes, I said working for you. Sometimes in the process the working relationship can get a little muddy. But, who ever you choose as a lender or agent, they are working for you, not the other way around. If you have worked out your budget and know you cannot afford a house for more than $300,000 and your agent is showing you homes for $375,000 and up, you have the wrong agent. Same goes for the lender. If the lender you have chosen is trying to approve you for a loan amount that will strap you if one little thing goes wrong, that's the wrong lender.

One of the best ways to relieve the stress of looking for a home is before you start looking get pre-approved. What that means is that the lender views the necessary documentation it will take to get you approved. From there, he/she can run you through their automated underwriting system to see at what loan amount you will approve at. This way once you know what your upper loan limits are, it relieves you of the stress of guessing whether you can afford that home you just saw in the paper. It is usually just a simple process. All you have to supply your lender is an application, 2 months most current bank statements, 30 days of most current pay-stubs, and 2 years W2's. If you are self-employed, then 2years of 1040's must also be supplied. That's it. From the above documentation a lender will be able to tell you what type of programs and what your maximum loan amount will be that you can approve for.

Now this process does differ amongst lenders, meaning some charge a non-refundable application fee and such. But most, like myself do not charge the borrower any upfront fees to get approved. So next time you're wondering if you can be approved, get your paperwork together and contact myself or another lender and see just hoe much of a home you can afford.

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