Who's On First?

Let’s face it, sometimes economic and financial concepts can be hard to understand or just plain boring.  Even our Fed Chairman Ben Bernanke has problems at times, like during his press conference this week when he couldn’t explain why the unemployment rate was improving yet the economy was not.  Here is the easiest explanation I could find to enlighten him:

Abbott and Costello

COSTELLO:  I want to talk about the unemployment rate in America.

ABBOTT:  Good Subject.  Terrible times.  It's 9%.

COSTELLO: That many people are out of work?

ABBOTT: No, that's 16%.

COSTELLO:  You just said 9%.

ABBOTT:  9% Unemployed.

COSTELLO:  Right 9% out of work.

ABBOTT:  No, that's 16%.

COSTELLO: Okay, so it's 16% unemployed.

ABBOTT: No, that's 9%...

COSTELLO:  Wait a minute.  Is it 9% or 16%?

ABBOTT: 9% are unemployed. 16% are out of work.

COSTELLO:  IF you are out of work you are unemployed.

ABBOTT:  No, you can't count the "Out of Work" as the unemployed.  You have to look for work to be unemployed.

COSTELLO:  BUT THEY ARE OUT OF WORK!

ABBOTT:  No, you miss my point.

COSTELLO:  What point?

ABBOTT:  Someone who doesn't look for work can't be counted with those who look for work.  It wouldn't be fair.

COSTELLO:  To whom?

ABBOTT:  The unemployed.

COSTELLO:  But they are ALL out of work.

ABBOTT:  No, the unemployed are actively looking for work.  Those who are out of work stopped looking.  They gave up.  And, if you give up, you are no longer in the ranks of the unemployed.

COSTELLO:  So if you're off the unemployment rolls that would count as less unemployment?

ABBOTT:  Unemployment would go down.  Absolutely!

COSTELLO:  The unemployment just goes down because you don't look for work?

ABBOTT:  Absolutely it goes down.  That's how you get to 9%.  Otherwise it would be 16%.  You don't want to read about 16% unemployment do ya?

COSTELLO:  That would be frightening.

ABBOTT:  Absolutely.

COSTELLO:  Wait, I got a question for you.  That means there are two ways to bring down the unemployment number?

ABBOTT:  Two ways is correct.

COSTELLO:  Unemployment can go down if someone gets a job?

ABBOTT:  Correct.

COSTELLO:  And unemployment can also go down if you stop looking for a job?

ABBOTT:  Bingo.

COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.

ABBOTT:  Now you're thinking like an economist.

COSTELLO:  I don't even know what the heck I just said!

And now you know why the Administration's employment figures are improving!

How and why do home loan interest rates move?

What's Up With Interest Rates?

You've heard a lot over the last several months about historically low interest rates.

This begs the question: How and why do rates move?
The answer involves a number of factors and can seem complex. But it doesn't have to be!

To help you understand how interest rates move, take a look at an easy to understand video. You'll learn what the Fed has been doing to keep rates low, as well as the connection between interest rates and Mortgage Backed Securities.

Take a look at the easy-to-understand video by typing the following URL into your Internet browser on your computer:

http://www.mortgagesuccesssource.com/video.php?site=rates_hughes

8 Questions You Should Ask Your Lender About Mortgage Rates

Simply checking online for today’s posted rate may not lead to your expected outcome due to the many factors that can cause each individual rate and closing cost scenario to fluctuate.
We can preach communication, service and education all day long, but it’s our ultimate goal to earn your trust so that you can be confident in our ability to successfully lead you through this complex mortgage process.
Since mortgage rates can change several times a day, the following questions will help determine whether or not your lender truly knows what to look for so that they can provide you with the best rate once you’re in a position of locking in your loan:
Who determines mortgage rates, and what are they tied to?

Mortgage interest rates are determined by the pricing of Mortgage Backed Securities or Mortgage Bonds. The media often implies mortgage rates are based off the 10-year Treasury Note, which is incorrect.
While the 10-year Treasury Note has been known to trend in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.

How often do mortgage rates change?

Mortgage rates may change throughout the day, however they only change on days when the Bond markets are trading securities since mortgage rates are based on Mortgage Bond prices.
Think of a Mortgage Bond’s sales price similar to that of a Stock that trades up and down during the course of a day.
For example – let’s assume the FNMA 30-Year 4.50% coupon is selling for $100.50. The price is 50 basis points lower from the previous day’s closing price of $101.00.
In simple terms, the borrower would have to pay an additional .50% of their loan amount to have the same rate today that they could have locked in the previous day.

What causes mortgage rates to change?

Mortgage Bonds are largely affected by various market forces that influence the changing demand for bonds within the market. Some of the key economic factors that have the greatest impact are unemployment percentages, inflationary fears, economic strength and the overall movement of money in and out of the markets.
Like stocks, most fluctuation is caused by consumer and investor emotions.

What do you use to monitor mortgage rates?

There are several great subscription based services available to monitor Mortgage Bond pricing.
The key is to make sure the lender is aware they should be monitoring Mortgage Bond pricing, such as the Fannie Mae 30-Year 4.50% coupon… and not the 10-Year Treasury Note or the news media.

When the Fed changes rates, why do mortgage rates move in the opposite direction?

It is a common misconception that when the Federal Reserve implements a rate cut it is immediately correlated to a reduction in mortgage rates.
The Federal Reserve policy influences short term rates known as the Fed Funds Rate (“FFR”). Lowering the FFR helps to stimulate the economy and increasing the FFR helps to slow the economy down. Effectively, cutting interest rates (FFR specifically) will cause the stock market to rally, driving money out of bonds and creating potential for inflation.
Mortgage Bond holders need to obtain a higher rate of return on their money if inflation is increasing, thus driving up mortgage rates. With the Federal Reserve Board meeting every six weeks, this is an important question to ask. If your lender does not have a firm understanding of this relationship, they may leave your rate unprotected costing you thousands of dollars over the life of your mortgage.

Do different programs have different interest rates?

Conventional, FHA and VA loans can all carry different rates on a 30-Year fixed mortgage. FHA and VA loans are insured by the Federal Government in the event of defaults. Conventional mortgages are insured by private mortgage insurance companies, if insurance is required.
Typically, FHA and VA loans carry a lower rate because the investor views the government backing as less of a risk. While rates are usually different for each program, it may be more important to compare the monthly and overall cost during the life of the loan to determine which program best suits your needs.

Why is an Adjustable Rate Mortgage (ARM) rate lower than a fixed rate mortgage?

An Adjustable Rate Mortgage (ARM) is usually fixed for a specific period of time. The period is typically 6 months, 1 year, 3 years, 5 years or 7 years. The shorter time period the rate is fixed, the lower the interest rate tends to be initially.
This is due to the borrower taking the future risk of increasing interest rates. The only instance where this would not be true is when there is an inverted yield curve where short-term rates are higher than long-term rates.

Why are rates higher for different property residence types?

Mortgage interest rates are based on risk-based pricing. Risk-based pricing allows adjustments to par pricing for risk factors such as; FICO scores, Loan-to-Value percentages, property type (SFR, Condo, 2-4 Units), occupancy (Primary, Vacation or Investment) and mortgage type (Interest Only, Adjustable Rate etc).
This allows the investors who lend their money for mortgages to receive additional compensation for taking additional risk.
If the borrower encounters a financial hardship, are they more likely to make the payment on the home they live in or the one they rent out?

Princeton Capital Ranked #3 Company To Work For In The Bay Area

Princeton Capital Ranked #3 Company to Work For In Bay Area

In the Sunday edition of the Mercury News, the Bay Area News Group published their February survey results of the Top Work Places. We were ranked #3 for mid-sized companies (150 to 500 employees). The rankings were based upon surveys completed by employees which makes this honor even more special.

We also received a special award in the area of Ethics for the way we conduct business. Below are links to the rankings, our profile, the special awards listing, and information about how the rankings were compiled. Don’t miss the picture of the “worker bees” which was printed on the front page of the special section in the newspaper.


Mercury News Top Workplaces List

Princeton Capital Profile

Ethics Award

Princeton Capital mentioned in Open Communication article in SJ Mercury

Congratulations, and especially thank you, to all employees and clients for making this one of the best places in the Bay Area to work! Princeton Capital is currently hiring loan officers; take a look at our website to get in contact and learn more.

“This is a huge honor, and purely reflective of all of [the employees'] individual efforts and dedication to each other,” said Rob Reid, CEO. “I am very honored to be part of this great team.”

Bethany McLean: Exposing the Fig Leaf

Best-selling author and Vanity Fair contributor Bethany McLean deconstructs the shared responsibility behind America's financial crisis and the misguided attacks on home ownership.

By Wendy Cole | March 2011

The title of your book, All the Devils Are Here (Portfolio Hardcover, 2010), written with Joe Nocera, suggests there were many culpable players in the recent financial collapse. Can you single out who was in the best position to prevent the debacle?

Between banks, politicians, regulators, and Wall Street, there was a lot of blame to go around. No one group was responsible, as much as Americans would like there to be. But if I had to point a finger, I’d say Congress and the federal regulators bear the most blame because they could have done something. Consumer advocates as far back as the 1990s were testifying about the dangers of the subprime market. People were taking out loans they couldn’t afford to pay back, and the Federal Reserve led by Alan Greenspan was in a position to address that. But nothing was done.


You say that the growing use of subprime mortgages during the boom years was not about spurring home ownership. Explain that.

Home ownership was the fig leaf for the rise in subprime lending. But that was really about cash-out refinancings, not buying homes. As much as three-quarters of the subprime business during the boom times was for loan refinancing, for people who wanted to take the equity out of their homes with the assumption that home prices would continue to go up. These loans were much more about financing consumer spending than contributing to home ownership.


What is your take on the pushback against home ownership in the media and in government?

The financial crisis has become a giant referendum on home ownership. But the crisis in no way proves that home ownership is the problem. People were living beyond their means and had more credit than they could handle.


Do you think the government should continue to support home ownership through programs like the mortgage interest deduction?

I don’t have a point of view on this. These tax policies were in place long before the crisis, and the crisis didn’t prove they were bad policies. What the crisis proved is that it’s bad policy to lend people more money than they can afford to pay back. However, I do think that, as a country, we need to have a wide-ranging discussion on home ownership. Fixing Fannie Mae and Freddie Mac in isolation, without looking at the big picture, would be short-sighted. Maybe it would make sense to have the deduction just for [purchase-money mortgages] and not refinancings, which is just about people ­taking on more debt.


Do you believe the leading players involved in the mess learned a moral lesson from this?

No, I don’t think the politicians or the banks have learned anything. But I hope the American consumer has learned something. What’s good for the financial industry probably isn’t good for you.


Could a crisis like this happen again?

Something will go wrong in the financial system again. It just won’t be exactly the same thing as this. We need the regulators to do their job, but to try to prevent it by enacting such tight regulations that we’d never have any innovation again would be a big mistake.


But haven’t lenders pulled too much in the other direction lately, become too restricted in their lending practices?

Yes, they are relying far too much on a single FICO score to make decisions about a borrower. They need to look at the whole financial picture of an individual, including their length of employment and credit history. The FICO system is totally flawed.


Do banks still have a long way to go in restoring the confidence of the American people?

I think the rage against Wall Street goes too far if it allows people to deny their own personal responsibility in the crisis. But banks continue to prove they have no respect for consumers. Just look at the way some tried to dismiss the sloppy foreclosure processing. Banks should treat home owners with at least as much respect as the prison system treats criminals. By comparison, prisoners receive more due process when they file suits about procedures being improperly filed than some of these home owners received.

Bethany McLean: Exposing the Fig Leaf: Last Word: REALTOR® Magazine

Bethany McLean: Exposing the Fig Leaf: Last Word: REALTOR® Magazine

Loan Pre-Approval and Turning Yourself Into a “Cash Buyer”

Loan Pre-Approval and Turning Yourself Into a “Cash Buyer”

 

Being pre-approved for a loan puts you in a great position when buying a home. It puts you on equal footing with an all-cash buyer, in essence turning yourself into a cash buyer.With a real pre-approval, the buyer is the next-best-thing to being a “cash buyer” because the seller can rest assured that the buyer will qualify for a loan. 

 

A truly “all-cash buyer” does not have to worry about lender approvals, but will typically still be concerned with a property appraisal and an acceptable title report.  Being pre-approved for a loan puts a buyer in a better position with the seller of the property. It allows the buyer to understand the costs associated with the purchase as well as the monthly costs associated with the ongoing ownership.

The Pre-Approval Process
The pre-approval process simply means that a buyer is getting approved for a loan prior to reaching an agreement with a seller of a property. The buyer will provide the lender with current income, asset and credit documents and the lender will determine the loan amount for which the buyer will be able to borrower.
The pre-approval process can take anywhere from 2 – 10 days, depending on the variables surrounding the possible transaction (credit worthiness, location of assets, calculation of income, etc).

Once a loan amount and purchase price have been determined by the lender, the final approval will usually be subject to an acceptable purchase contract, property appraisal, title report and final interest rates.
While it will vary from borrower to borrower based in the individual characteristics, a lender will typically be able to pre-approve a buyer within 5 days of receiving all of the applicable income, asset and credit documents.