Since we have been working with Churchill Mortgage out of Tennessee, we’ve had the pleasure of speaking with listeners of the Dave Ramsey Radio Show.  He airs all over the State of Michigan, and when his customers call the only mortgage company that Dave has ever endorsed they call Churchill Mortgage.

Churchill mortgage has to decide how to handle changing call volume and difficult states.  Last year they decided to use a preferred provider for Michigan – they called Cornerstone.

When Mike Hardwick of Churchill Mortgage calls and asks if you’d like to be a preferred provider for callers of the Dave Ramsey show, you say yes and ask questions later.  This has been a very good thing for us, and I trust for them as well.  We’ve talked to hundreds of Ramsey Show listeners over the past few months alone!

At least once a week, I have a call that goes something like this:

“Hello, my name is Joe and I’m calling to determine if it’s worth my while to refinance.”

Because I know he’s a Ramsey guy I usually ask him how long he’s been listening to Dave.  Then I ask him where he’s at with Dave’s seven “baby steps.”  Most often the client is in step two.

That means that they’ve put away $1000 into an emergency savings account.  They then listed all of the debts they have except their mortgage from smallest to largest on a piece of paper.  They attack, with Gazelle like intensity, the smallest debt on the list until it’s gone, and then they go on to the next one. This is called working the debt snowball.

This particular client had been working his snowball down from almost $70,000 (remember, no mortgage included, just credit cards, car loans and student loans) to around $15,000.  His average monthly payment, against the smallest account only, was over $1500 every month.  He now has two accounts left to pay off, a combined payment of $2000 a month for the next eight months.

After I get this information, I ask about his mortgage.  His mortgage balance is just over $200,000 and he has a 6.75% interest rate.  The normal calculation would say that this guy should refinance because he could save 1.5% on his rate if he got 5.25%.  That’s an annual savings of $3000 per year.  That would make back his closing costs in the first year, and then he would be ahead $3000 per year every year following.  Right?  Wrong.

Dave Ramsey listeners eat credit card debt for lunch and pay off auto loans for dinner.  They do not stop when the consumer debt is gone.  They keep going and going and going.

Once the consumer debt is gone, these folks start contributing to their 401k – yes, this does eat into the $2000 snowball a little bit.  They then take the remaining $1500 per month and begin over-paying their mortgage.

At that pace, they would have to pay 89 payments on their mortgage in order to eliminate it.  That’s about 8 years from today.

So, we look at refinancing.  When you apply the interest rate savings of 1.5% to a seven year mortgage you get a much different result than if that loan is around for 30 more years.

Their current payment is $1350.  If you add $1500 to it you get $2850.  That would be the amount this client pays every month starting in eight months, and as we’ve shown, that’s an 89-month pay off.

But if he were to refinance into a 30-year fixed, add the closing costs of $2500 to the loan first, then finish his other debt in eight months (at which point he could really attack the mortgage), how long would it take him to eliminate the mortgage if he paid the same $2850 per month?

The answer is – 85 months.  This is a savings of four months of payments of $2850 for a grand total of $11,400 in savings.

In this case, the client actually said, “why bother?”

Your situation may be different:

1. If you have more than 10 years left to pay, then your savings will be larger.
2. If you are less sure than this client about how fast you will eliminate your mortgage, then you might want to lock in savings now, because they might total more in the end.
3. Your mortgage rate savings may be greater.
4. You may have much longer to pay on your other debt first and the mortgage payment savings could help increase the size of your debt snowball – this would increase your savings.

Get the facts and stay committed to eliminating all of your debt and payments.

The year Michigan will gain residents and increase its employed residents number?

The year Michigan will lower taxes and become Right to Work?

The year property values will rise?

The year you will own a home (again)?

I have been blessed this year to have assisted in and listened to 1000′s of stories from Michigan residents about the home they purchased, sold, rented, lost in foreclosure, rennovated, refinanced, etc.

Where as we cannot be certain about whether the above will happen in 2010 – there is a lot that, with good advice and determination, we can be very certain about.

With a good plan, great advice and accountability my clients are hopeful and certain that 2010 will be the year . . . !

The year that they will finally pay off their last credit card – never to return!

The year they will start a family!

The year they will start a business!

The year they will buy or build the home they have been thinking about for years!

The year they will jump in for the first time - or back in – to the housing market.

We cannot know the future – we can only prepare well by doing some smart things that we know will help us reach what ever we hope for in 2010.  Here are a few things that are always a good idea:

1.  Make a plan to eliminate all of your consumer debt and commit to paying it all off once and for all before you enter into any new major purchases.  This one for most families will have the biggest impact on their future options.  With no credit cards or car loans most families will reclaim the right to spend upwards of $1000 per month of their income again.  Income that today is being claimed by banks and credit unions against prior years purchases.  Get out of debt in 2010!

2.  Boost your Emergency Fund – Dave Ramsey recommends six months worth of your monthly expenses in a money market or savings account.  This is  a very good idea after you’ve paid off all of your consumer debt.

3.  Start a ROTH IRA – or convert your old 401k to a ROTH IRA.  In 2010, the IRS will allow anyone regardless of income to convert old pretax accounts to a ROTH IRA.  Anyone currently paying taxes in the 15% (or lower) tax bracket should consider using a ROTH IRA instead of a traditional IRA, or converting their traditional IRA to a ROTH IRA.  The math is not too difficult on this and I’ll post it on www.evanvanderwey.com soon.

Make a plan this year to better your financial future.  While many are whining and complaining about the uncertainties in life, doing some smart things that will increase your level of certainty.

CLIENT:
ok wanting your advice on this . We have the house up there in MI that we have an ARM on and we are so upside down that its ridiculouse , then we have the house down here in [out west] that we bought at the bottom of the market and are ( hopefully ) going to make money on . We are going to sell the house in MI as soon as is financially profitable to do so , and i was thinking of re financing the one up there . I don’t know how the market is up there and i havn’t the time ( work commitments and all ) to work this out , so i would appreciate some in[ut from you guys .

Due to the distance involved we would really like you guys to handle everything if a re fi is the way to go . I’m not looking long term on this ( like 20 years ) we just need to sell and make a few, and call it a right off if needs be

MY RESPONSE:
Hey, great to hear from you – hows the weather out west!?

Send me your mortgage statement and I will confirm my thoughts with it, but as I recall, your loan rate is currently less than or around 3% right?  Your payment has got to be quite low as a result and even if you made the lowest payment option you are given each month you would be reducing your principle balance considerably over the course of a year.

In addition, the Feds just came out with a statement that they would like to keep short term interest rates “very low for a very long time”.  They are using the year 2012 as the first date they will be moving their rate.  This is never a sure thing but I certainly like the sound of this more than the sound of hyper inflationary rising rates!

My advice for anyone in an ARM type mortgage who will be holding onto their home for just the next 3 to 5 years is to NOT refinance.  Fear on the one side will cause us to move toward the certainty of a 30 year mortgage and incur whatever expense it takes to get it.  On the other side, some are in a low rate ARM mortgage and are making their decision based on greed.  As long as greed is the motivator, they will likely wait too long trying to hold onto the relatively small amount of savings and then in a year or two they will end up in a higher fixed rate for the next two decades as a result.

In your case, you don’t have a long term outlook on this home or mortgage.  The level headed approach is to sit tight and make your payments.

That said, you don’t have an option to refinance right now anyway because your home is worth less than you owe on it and neither Fannie Mae nor Freddie Mac are the current paper holder on your mortgage.  None of their open access programs will apply.  Enjoy 3% it will likely be around a little while.

Thinking back, when we wrote this loan for you a few years ago, we said that this could be the last mortgage you write on a home in Michigan.  At that time we did not know you would be moving West (we thought East) but we DID like the fact that you would not be spending money on closing costs again here.

I wrote a post a while back called YOUR economy vs. THE economy.  I think YOUR economy is fairing quite well in THIS ecomomy.  Lets add it up:

1.  You were able to secure a VERY low price on a home out west that you will be in for a longer period of time.
2.  On the home you can’t sell right now you have both a very low mortgage rate and a tenant making your payment.

It looks to me as though you are landing right on your feet!

Your thoughts?
evan

home mortgage

Client:

I received your email and have had time to review it.

Your mortgage adjustment letter and your note don’t match up, the letter they sent you gives you results that are better than the note you have from them.  Based on your note, your rate should be 3.625% and they are going a full quarter lower than that.  ???  In addition to that, they are saying that your “margin” is 2.75% and your note shows it to be 3.0%.  That will be slightly beneficial for you in years to come.

You have a couple of options:

1. Try to refinance quickly while you are employed – 5.0 to 5.25% is what you can expect if your credit scores are good – you may qualify for the new “open access” terms that waive the negative results of a low appraisal.

2. Ride this out in the ARM and enjoy the lower rates while they are with us.  The Fed just said that they would like to keep rates on ARMs very low for the next 30 months.  At the same time though, they said that long term rates would need to rise as a result.

If you said that you would be selling this home in the next 5 years, I’d say, the ARM is not that great a risk -think about sticking with it.  If you wanted this to be your “forever home”, then refinance it if you can because long term rates will never be this low again.

Feel free to call me when you can and we can go over details of this.  I’ll archive this data and stay in close contact with you as you have questions or concerns.

With respect to payment, if you don’t refinance with us, I’ll bill you as we discussed.   That said, if I didn’t get payment from you for a long time, that would be okay (and I’ll never call you for it) I just need to be consistent with clients on the front end.

I trust that the LORD will see you and I through all of our challenges, including the big ones.  I know you know this, but even the strongest among us need the reminders.

Best,

Evan

But hang on. As it turns out–with this stat, at least–things are looking pretty good here too. If by “here” you mean the Midwest in general.  The Pending Home Sales Index is based on contracts signed in September. Nationally, this number rose 6.1% against the previous month, and is 21.2% higher than in September of last year. This is the largest annual increase on record. In the Midwest the index rose 8.1 percent and is 17.8% higher than last year. Not bad. And though foreclosures will continue to work against us, they’re coming at a slower rate. The net result? Reduced inventories.

And there are other things helping to reduce inventories: the imminent extension of the first-home-buyer tax credit (or some form of it); the extension of Freddie, Fannie, and FHA higher loan limits (just announced last week); and the release of pent-up demand as approximately three million renters have moved into the financially-qualified category as potential buyers (this according to the NAR); and now, the continued gains in pending home sales.

Collectively, these should cut into the existing inventory and act to lower supply and eventually raise home prices. We’re seeing this in other markets around the country, and where we see home prices rise, we’re also seeing more willingness on the part of lenders to underwrite. And that will happen here too, eventually.

I’m not going to say be patient, because if you’re still in this business, you learned how to do that long ago.

Ever since HVCC – Home Valuations Code of Conduct – Loan Originators in all conduits have had their hands tied when ordering the valuation appraisal report for customers. HVCC kept the Loan Officer from choosing, ordering, or even talking to the appraiser until after the transaction was closed. Even worse, appraisers from out of area (say Jackson, MI for an Okemos, MI report) were routinely chosen by the Appraisal Management Companies (AMC’s) which severely compromised the integrity of the report and valuation.

The process was slanted toward choosing appraisers who would work for less money because the AMC’s profits were higher. This has resulted in lower than market value appraised values and longer wait periods.

Realtors especially will be glad to know that if this bill finally passes their Loan Officer will again be allowed to have normal communication with appraisers for the purpose of affecting smooth transactions through to closing.

Again, this is not done yet. But what is approved in committee is NOT the “moratorium” we were hoping for but rather a Total Knock Out of the entire code and most of the implications it carries with it.

Thank your local National Association of Mortgage Brokers member. What the banks and bankers were not motivated to do because it reduced their revenues, the brokers have been fighting for and will likely win for all of us. The consumer will be the biggest winner in this.

Over the past 24 months it has been an unpopular thing to be a mortgage broker and because of a few many of us were given a bad name. I have been proud to bring excellence in rates, service and advice over the past decade and look forward to serving you with the same in the next.

Need excellent rates, service or advice on a mortgage? Call a broker!

This link is to another good post on the topic:

http://www.housingwire.com/2009/10/22/house-panel-sunsets-hvcc-in-consumer-finance-bil/