Your Mortgage Matters

I mentioned in my update two weeks ago that I had a special gift for you. Hopefully by now you will have received a copy of "Your Mortgage Matters." I’m not much of a writer, and this is my first attempt at putting this type of instruction together in book form. But I think there is some really good information in there that applies to all homeowners, and especially those getting in position to buy their first home.

I’d love your feedback and I'm happy to provide additional copies if you know of friends/family/clients that might benefit from the information. And please let me know if you did not receive a copy.

Couple of quick industry notes:

• FHA is NOT Extending the Flipping Waiver. The flipping waiver was issued in Feb 2010, and allowed an FHA loan to be closed without the seller owning theproperty for 90 days  BEFORE a contract is written. They are Not extending this.  For contracts written Jan 1 and later,  seller must have owned/had title (recording date) for 90 days before a contract is written on Day 91.
• Fannie is rolling out the 97% loan. I’ll provide more information on this in a later update, but wanted you to be aware of new offering. It will be available for first-time homebuyers with good credit starting this week. My guess is the rate will be a little higher as will the cost of the mortgage insurance. As I mentioned in an update a couple of weeks ago, I wish Fannie would look at loosening the guidelines for income/asset documentation for customers putting 20% or more down with excellent credit. But I guess we’ll consider this progress and move on.  Ultimately, we will need to compare each customer’s individual scenario to see how the 97% conventional loan stacks up against FHA to determine which is better. But that is something I love to do for clients, so no worries there.
• Great article from Quentin Fottrell at MarketWatch on why home buying is now much more beneficial than renting. According to Zillow, US renters spent nearly 30% of their monthly income on rent in the third quarter of 2014 (versus 15% towards their mortgage payment not counting taxes and insurance). Here is the link to the article: http://www.marketwatch.com/story/buying-a-home-is-now-twice-as-affordable-as-renting-2014-12-11

Who Would You Lend Money To?

Today we are going to look at why down payment and credit don't really matter. To drive home the point, who would you rather lend money to?

A) First time home buyer, getting a gift for the down payment (because she has no savings), who has a 650 credit score with a debt ratio of 45% based off of the income she receives from the job she has been on for 3 months since graduating from school... OR

B) Someone, who after being in the same line of work for 20 years, decided to started a business of her own, who has 50% to put down, an 800 credit score and cash reserves available to pay the loan off 5 times over...

I can promise you that if it is my personal money that is being lent out in this situation, I’m loaning my money to Ms. B! But guess what – if Ms. B tries to get a loan through the usual suspects (Fannie, Freddie, FHA, VA, etc...), she is getting declined while Ms. A is getting approved.

In the effort to continue easing credit restrictions on mortgages, everyone who matters (Fannie, mortgage insurance companies and even Congress) seem bent on re-establishing the 97% conventional loans. I’m not opposed to this and believe that when underwritten properly, good loans can be made to buyers who only have 3% to put down. But what I continue to be amazed at is the lack of effort to help those who have great credit and good down payment (20% or more), but lack the appropriate “documentable income”, qualify for financing.

I realize the pundits will say that it was all the stated income “no doc” loans that got us in trouble. But I’d argue that it was really a combination of giving those types of loans to borrowers with shaky credit and/or minimal down payment. When someone has great credit, there is a significant statistical improbability that he/she is going to walk from their loan. Combine that with a sizable down payment of 20% or more and the chances of default are almost negligible. When the downturn comes and real estate values decline a little, it’s the borrowers who only put 3% down that are going to be under water – not likely the ones that put 20% or more down.

I’m glad to see that there is an effort being made to soften credit standards. It is the natural pendulum swing from the extreme back to the norm. I’m just curious when our law makers will realize that the combination of great credit and good down payment count for something – even when the income doesn’t fit into the qualifying box.

What Do You Want Your Payment to Be?

Invariably when I get a call, and the first thing the customer tells me is that they are calling to see how much they qualify for, my immediate response is to ask them, “how much do you want your monthly payment to be?”

I ask this for a couple of reasons. Number one is that I want to know if they have done some budgeting analysis to determine what they believe their budget will allow them to pay each month. And number two, I’m curious to know if they are just “window shopping”, wanting to see if they can buy in the price range that they are looking. Sometimes the two go hand in hand, but many times they don’t. I will always explain to them how the qualifying works and ultimately let them know how much they can qualify to buy. But, I strongly encourage them to stay within the number they believe best fits their budget – even if they qualify for more.

I know that may go against the grain for what many lenders and Realtors may do. I get it – we are in a commission world, so the bigger the sale, the bigger the paycheck. So it would make sense to help them buy as much as they can qualify to buy. But I’ve found through experience that when we do what is really best for our clients, the result is better for everyone. They have a great home and a payment that fits comfortably in their budget – they are much happier than someone who is maxed out in his budget, resulting from buying too much home.

We’ve all heard the term ‘house poor’ and it is not a good place to be. I really believe that we should advise our customers, both from a lending perspective and a buying perspective, to consider the payment first. It isn’t fair for them to get excited about a home priced over what the ultimate payment will need to be to make their budget work. By helping them keep their budget manageable, they will be in a better place. And those customers are the ones that become lifetime clients, coming back to us again and again for their future home buying and selling needs – oh yeah, they also refer their friends!

Best Deal in Town

We just closed a deal this week where the buyer bought a $200,000 priced home with only $300 out of pocket and got a 30 year fixed rate at 3.25%. How in the world was that possible???

He got a USDA loan. I mentioned in an update a couple of weeks ago how USDA has expanded their lending territory from a geographical standpoint – including all of Wilson county and now even including small sections of Davidson county that boarder outlying counties. While I realize that this program only applies to people wanting to buy in these areas, and having income that fits within the household limit (which for most of the counties around middle TN is $77,200 per year), it is a program that you should definitely be familiar with.

In the case referenced above, my buyer’s agent was able to negotiate a contract where the seller paid the buyer’s closing costs. USDA allows the buyer to obtain 100% financing, so that combination created the ability to get our client into the property for virtually no money out of pocket. The monthly fee that USDA charges for “mortgage insurance” (they call it a guarantee fee) is less than 40% of what FHA charges and the rates are fantastic.

Click the link below to learn more about income eligibility and property eligibility. There might be an opportunity here for a client that could surprise you.

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

Net Worth - The Key Ingredient to Home Ownership

The link below is a great blog from NAR with a great reminder to give your clients on why owning a home versus renting is so important. Sure there are the common reasons for why people should buy versus rent (here are 5 good ones):

1. They have to live somewhere anyway, so they might as well get ownership rights and have something they can call their own.

2. They want a hedge against inflation. In other words, rents historically go up. However, once a mortgage is in place, particularly a fixed rate mortgage, the payment for principal and interest stays the same.

3. They want the tax benefit of being able to deduct the mortgage interest.

4. They want the forced savings that paying a mortgage provides. Every payment provides a principal component that steadily pays the loan down, building up equity.

5. They realize that buying a home is a leveraged investment if they have a loan. The house goes up in value the same regardless of whether there is a loan or not. The leverage of a loan allows a higher return because the increase in value provides a greater return due to less invested initially.

But stated more simply, as the link below shows graphically, people who own their home historically have a much larger net worth than those that don’t. There are always those situations that justify renting over buying. But the argument can certainly be made, and the stats back it up, that those who own their homes generally have more money (net worth) than those that don’t.

http://economistsoutlook.blogs.realtor.org/2014/09/08/net-worth-of-homeowners-vs-renters/

Credit Alert! - Deposit Accounts

Last month we had a dilemma arise, but learned a great lesson that we want to pass along. We had a client that we were working with to help him get his credit score improved. We ran an analysis and determined that if he paid a credit card down, we could get the improvement we needed in the score. When he actually paid the card down and we re-ran the credit, the score did not improve as much as we had anticipated. The issue was that the week before, he had opened a deposit account with a local credit union and they pulled his credit when they opened the account. He had no clue they were going to do this so he had not told us about it either. The additional inquiry on his report resulted in the new score being 10 points lower than what our analysis reflected it would be. We wound up having to pay more down to get his score where it needed to be.

When you tell your clients not to do anything credit related when they are in the purchase process (we have talked before about the need to counsel them on not opening any new debts and not even having credit checked during the mortgage process), you may also want to let them know that even opening a deposit account, where all they are doing is putting money in the account, could result in a credit inquiry. Fortunately in our case, we had time and the client had the extra money needed to pay another debt down and get his credit score where it needed to be. But that might not always be the case.

Always remind your borrowing clients that they need to intentionally avoid anything that would result in a new credit item or a new inquiry during their mortgage process. It can cause delays, additional documents needed, and in some cases could negatively impact the score and affect the ability to obtain financing.

How Student Loans May Cripple Your Retirement

I was reading two separate articles this week. One was about student loan debt and the other about retirement savings. A couple of things hit me. First, out of more than 1,000 U.S. seniors surveyed in March 2014, aged 60 and over, 45% of them indicated that if they could turn back the clock, they would save more money for their retirement years (source: National Council on Aging). Second, the U.S. now has over $1 trillion in student loan debt (for effect, that looks like this: $1,200,000,000,000). On top of that, 14.7% of student loans that entered the repayment phase of the loan in 2010 are currently in default (source: St. Louis Federal Reserve). So what do the two have in common?

I don’t really have any raw data to back this hypothetical question up, but how the heck is someone who graduates from college, with a ton of student loan debt, supposed to save money for retirement (let alone buy a house)??? According to the Federal Reserve, there are 37 million individuals with student loan debt, so the average comes out to about $32,000 each. We have to realize that we are all going to make a sacrifice. We either sacrifice now or later. Here are some thoughts on choosing wisely for retirement.

The earlier someone starts accumulating savings for retirement, the better – it gives the money a lot longer to grow (remember that concept that Albert Einstein called the “8th Wonder of the World" – compound interest)? Let me give you an example: Let’s say Stan starts saving for retirement at 22 and puts in $500 per month, growing at 8%, until he is 35 and then never puts in another penny. At 65, assuming the same growth rate, he will have almost $1.4 million (from an investment of $78,000). Let’s say Ted doesn’t start saving for retirement until he is 35. To have the same amount of money at 65, he will need to save $923 per month for the 30 years between 35 and 65 (an investment of over $332,000). But, by that stage in life, there are so many other things that have to be paid for (children as a prime example), most don’t have the ability or discipline to save that kind of money every month.

So what happens? People get to 65 and wish they could turn back the clock and save more money. We have got to start teaching our kids, and learn this lesson ourselves, that borrowing large amounts of money to pay for an education is crippling. It is becoming one of the most significant detriments to young people buying homes, not to mention long term savings for things like retirement.

If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor

The Week Ahead
This week, investors will be watching both geopolitical events around the world and major economic news in the US. The next Fed meeting will take place on Wednesday. The first reading for second quarter GDP, the broadest measure of economic growth, also will come out on Wednesday. The important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Core PCE inflation, ISM Manufacturing, Pending Home Sales, and many other reports will round out a very busy week. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday.

The Week That Was
The conflicts in Ukraine and the Middle East had little impact on markets last week, while the economic data was slightly stronger than expected overall. As a result, mortgage rates ended the week a little higher.

The housing data released last week contained mixed news. Fortunately, the good news came from Existing Home Sales, which cover roughly 90% of the housing market. June Existing Home Sales rose 3% from May to the highest level since October 2013, marking the third straight month of increases. Also, the inventory of existing homes for sale rose to the highest level since August 2012. Less encouraging, June New Home Sales, accounting for the remaining 10% of the market, declined 8% from May, and the May results were revised sharply lower. These figures are frequently volatile from month to month. New homes inventories increased as well to the highest level since October 2011. To summarize, the bulk of the housing market showed continued improvement, and the tight supply of homes for sale in some markets may be showing signs of easing.

While Fed officials have recently downplayed the risk of higher inflation, many investors are not quite so certain. The inflation data released on Tuesday eased some concerns, but just slightly. The June Consumer Price Index (CPI), one of the most widely watched inflation indicators, increased at a 2.1% annual rate. Core CPI, which excludes the volatile food and energy components, was 1.9% higher than one year ago. With CPI holding steady close to the Fed's stated target level of 2.0%, investors will be keeping an eye out for signs of rising inflation which could pressure the Fed to tighten monetary policy.

My Client Loves the House, Except...

Have you ever had a client almost love a house, but would really want to buy if it just had that one thing that’s missing? Have I got great news for you.

With our new Cornerstone Renovation loan program, your clients can buy a home and renovate it at the same time! It doesn’t matter if the renovation job is big or small. You can add a bedroom or just replace the kitchen counter-tops. Your client can get that repair done that the seller is unwilling to make, or just improve the house in conjunction with the purchase. Either way, this program works.

Another great feature- this is a conventional loan. No mortgage insurance is required if the loan to value is 80% or less. If a larger loan to value is needed (up to 95%), conventional mortgage insurance applies versus FHA. For borrowers with excellent credit, this is a huge advantage. This program works like a 203K, but is a Fannie Mae program – so conventional guidelines apply versus FHA. The loan to value is based on the acquisition cost (sales price plus renovation costs) or appraised value – whichever is less.

Highlights:

• One loan and only one closing
• Loan to value up to 95% on owner occupant properties
• Second homes and investment properties allowed
• Up to 6 months of housing payments can be financed if house is not habitable during construction (if supported by appraisal)
• Good for room additions, foundation work, in-ground pools, decks, and any permanently-affixed interior or exterior renovations that add value to the property

Call me if you have any questions!

If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor

The Week Ahead
This week, the focus will remain on the Middle East and Ukraine. Increased tensions in either region likely would cause a larger flight to safety. In the US, the Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Tuesday. CPI looks at the price change for finished goods which are sold to consumers. Existing Home Sales also will come out on Tuesday. New Home Sales will be released on Thursday. Durable Orders, an important indicator of economic growth, will come out on Friday.

The Week That Was
Geopolitical events were the primary influence on mortgage rates again last week, while the economic data had little impact. After a quiet weekend, investors were willing to take on a little more risk early in the week. Shocking news on two fronts caused an abrupt reversal on Thursday, however, and mortgage rates ended the week just slightly higher.

When a conflict breaks out which could affect global markets, investors generally respond with a "flight to safety". Uncertainty created by the threat of escalation causes investors to reduce the level of risk in their portfolios. This typically involves shifting from stocks to relatively safer assets such as gold and bonds, including mortgage-backed securities (MBS).

Heading into the previous weekend, investors were concerned about the possibility of an escalation in the conflict between Israel and Gaza, so they shifted to safer assets. When there was little change in the situation early last week, investors unwound these positions, pushing rates higher. Then on Thursday, Israel announced a ground offensive in Gaza and a Malaysian passenger plane was shot down in Ukraine. These events caused investors to quickly return to safer assets, offsetting much of the earlier rise in rates.

In the US, there was mixed news from the housing sector. The National Association of Home Builders (NAHB) Housing Market Index revealed that builder confidence jumped sharply in July to the highest level since January. Less positive, the Housing Starts data released last week, which covers the month of June, showed a decline of 9% from May. This data can be quite volatile from month to month, though.

Financing MI on a 90% Loan Versus the 80-10-10

For many years, borrowers have been able to put down 10% and avoid mortgage insurance (MI) by doing a piggyback loan, or an 80-10-10, where there is a 10% down payment and a 10% second mortgage to go with an 80% first mortgage.  But now that Fannie and Freddie have increased pricing for the combo route, there isn’t as much benefit as there used to be with the combo.  Assuming we are talking about a borrower with a great credit score (740 or above), there is a .75 bump to the points (which is the equivalent of .125-.25% in rate) when doing a combo.  The cost to pay the MI up-front on a 90% loan is 1.29 points, or a bump to the rate of .25-.375%.

So here is an example:  Sales Price is $250,000 and borrower has 10% to put down.  For example purposes, we’ll say that the rate would have been 4.25% for this same customer if he/she had 20% to put down.  Option 1 is to do the 80-10-10.  The rate would be 4.5% on the first mortgage and probably prime plus 1.5% on the second (a home equity line of credit with interest only payments and prime is at 3.25%).  Option 2 would be to do a straight 90% loan paying the MI up-front, but building it into the rate, which would be 4.625% in this example.

• Option 1 (80-10-10):  P&I - $1,013 plus payment for second mortgage of $99 (interest only at prime plus 1.5%);  Total: $1,112
• Option 2 (financed MI): P&I: $1,157

So the 80-10-10 still offers a better payment solution in this example ($45 per month cheaper).  But it also means that $25,000 of the total money borrowed is on a fluctuating rate (subject to change with prime) and interest only is being paid.  Versus Option 2 where the total amount of the loan is fixed, so no adjustments to worry about, and principal is being paid towards the entire balance.  We still use the 80-10-10 regularly, particularly for clients that plan on making significant principal reductions to the second mortgage over the short term.  But doing the deal with the straight 90% loan, financing the MI, probably makes more sense if the borrower has no intentions of paying extra.  We will counsel the borrower on which one makes the most sense for the specific situation.

If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor

The Week Ahead
This week, investors will continue to monitor events in Europe and the Middle East. The biggest US economic report will be Retail Sales, which will be released on Tuesday. Retail Sales account for about 70% of economic activity. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Wednesday. Industrial Production and NAHB Housing also will be released on Wednesday. Housing Starts and Philly Fed will round out the schedule on Thursday.

The Week That Was
Unexpected events outside the US had the greatest influence on mortgage rates last week. Violence in the Middle East and economic concerns about Europe caused investors to shift to safer assets, helping mortgage rates. Bond friendly comments from the Fed added to the improvement, and mortgage rates ended the week lower.

During periods of uncertainty, investors commonly reduce the risk in their portfolios. Generally, they shift from riskier assets such as stocks to relatively safer assets such as gold or US guaranteed bonds, including mortgage-backed securities (MBS). Added demand for MBS helped mortgage rates to improve last week as investors were confronted with concerns on two fronts. Violence in Israel caused tensions in the Middle East to increase. In addition, there were signs that the largest bank in Portugal may default on its debt. This caused investors to question the level of reserves held by the banks in Europe and the outlook for economic growth in the region.

The news from the Fed last week also was favorable for mortgage rates. There were no big surprises in the FOMC Minutes from the June 18 Fed Meeting and no new guidance on the timing of the first fed funds rate hike. The positive news for mortgage rates came as the Fed provided a little more detail on its plans for its mortgage-backed securities (MBS) portfolio. The Fed's portfolio has been growing at a scheduled pace as the Fed has been reinvesting principal payments received and adding new MBS. The Minutes indicated that the purchases of new MBS will end in October as expected. After that time, the Fed plans to continue to reinvest principal payments received, which will hold the size of its portfolio steady, at least until the first fed funds rate hike. Principal payments have been averaging $16 billion per month, so investors were pleased that the reinvestment will continue for quite a while, as the added demand for MBS helps keep mortgage rates low.

Communicate And Close On Time - It's What We Do

It is a very rare occasion that I use this format to promote what we do here at Cornerstone. I heard something last week that just made me laugh. A buddy of mine, who works for a competing mortgage company here in town (a large bank), told me that in his regional meeting this past week, their regional manager was commending them on increasing their “closing date met efficiency” to 56% in the month of May. In other words, he was pleased that they met the expected closing date a little over half the time. Are you kidding me???

When we opened our Cornerstone office 3.5 years ago, I spent a lot of time interviewing referral partners and potential referral partners asking them what were the most important things for them when working with a mortgage professional. I made a list from a variety of answers such as good rates, great programs, experience, ingenuity, friendliness, availability, etc...  But the two items that were on everyone’s list were Effective Communication and Close on Time. So that has been our focus here. I believe that we offer all the other items on the list as well, but our only real focus is closing on time and communicating well along the way.

We have created a process that is super efficient. Other than a handful of situations outside of our lending process, we haven’t missed a purchase closing date in 3 years. We also communicate in an incredibly effective manner. We have at least 10 touch points with each customer and another five with our clients’ Realtor throughout our process. Over the past 18 months, we have delivered our purchase closing packages to the attorney 48 hours or more in advance of the closing 86% of the time. For us, it is a complete failure if the HUD is not prepared and ready for review 24+ hours in advance of the closing.

If a customer wants nothing but the best rate, s/he should go to the internet to get their loan. I’m certain they can find an interest rate that can beat local lenders. But if they want to close on time and have an efficient process built on effective communication, while still getting a good rate and product, we are tough to beat.

If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor

The Week Ahead
This week, the JOLTS report, which measures job openings and labor turnover rates, will come out on Tuesday. The FOMC Minutes from the June 18 Fed meeting will be released on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
The big story last week was that job gains in June were significantly higher than expected. Since faster economic growth adds to future inflationary pressures, though, this was negative for mortgage rates, which ended the week higher.

Against a consensus forecast of 210K, the economy added 288K jobs in June, and the figures for April and May were revised higher as well. This was the fifth straight month of job gains above 200K which has not occurred since the late 1990s. The Unemployment Rate declined from 6.3% to 6.1%, the lowest level since September 2008. Average Hourly Earnings, a proxy for wage growth, were 2.0% higher than one year ago. This was a solid report nearly across the board.

Given the surprising strength of recent job gains, the increase in mortgage rates could have been larger. One significant factor in the jobs data has remained favorable for mortgage rates, however. The 2.0% annual rate of wage gains is relatively low by historical standards and creates little concern for future inflation. Fed Chair Yellen has described wage inflation as one of the important indicators of when the Fed needs to raise the fed funds rate. If the pace of wage gains were to increase, then Fed officials would face more pressure to tighten monetary policy.

Financial Success - The Solution is Simple

“What is the secret to a life that is free of financial burdens?”

I get asked this question a lot, in some form or fashion and not always in direct context to mortgage financing. Some people are buying their first home and trying to put together a game plan. Others are moving up in the world and trying to manage career and family. I’ve even had this question come from opposite ends of the time spectrum – high school students, trying to comprehend what a budget is, on one end, and soon-to-be retirees who are trying to figure out how to make their dollar last longer, on the other end. Even if the definition of financial success varies slightly depending on the generation or situation, people want a simple, easy to follow guide.

Well, here is the simple answer – practice stewardship. And here is the quantifiable answer - set up a budget and live on 80% of what you make each month. There you have it, nothing complicated about it. We should treat all of our earthly possessions as if they belong to someone else and it is our responsibility to take care of them. We need to spend our money in a manner that allows us to set aside 20% every month for giving and saving (10% each is a good guide). I will never overextend when I only spend 80% of what I make and I will have a safety net set up from saving at least 10% every month to help with any future, unforeseen need for an immediate cash outlay that is more than the monthly income allows. I know, it’s not rocket science - the solution is pretty simple.

Why is it then that 75% or more of the people I talk to on a daily basis don’t live this way with their finances? It’s kind of like the strategy to lose weight. Everyone knows the simple answer is to exercise and consume fewer calories. So why can’t people stick to what they know works? It’s because knowing what to do and doing it are diabolically different things. Maybe the simpler answer for both scenarios, physical and financial health, is to have self-discipline. Drink water when I want Coke. Save the money even though I want the new outfit. Drive the clunker another couple years when I “deserve” a new car. Go for a walk when I’d rather sit and watch TV. Get up earlier in the morning when I’d rather sleep. Live on a budget so you can experience financial success.

If you are ever interested in reading prior weekly emails, please visit my Facebook page. Mike Smalling Mortgage Advisor

The Week Ahead
This week, the important monthly Employment report will come out on Thursday due to the holiday on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, Pending Home Sales and Chicago PMI Manufacturing will be released on Monday. ISM Manufacturing will come out on Tuesday, ADP Employment will be released on Wednesday, and ISM Services also will come out on Thursday. Mortgage markets will be closed on Friday in observance of Independence Day.

The Week That Was
It was another good week for mortgage rates. Weaker than expected economic growth data and increased concerns about Iraq were favorable for mortgage rates. These factors outweighed the negative impact of improving data in the housing sector, and mortgage rates ended the week a little lower.

The biggest surprise last week took place when first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was revised substantially lower from -1.0% to -2.9%. This was the fastest rate of decline since the first quarter of 2009. The news caused mortgage rates to move lower. The improvement in mortgage rates may have been even greater, but investors took into account that unusually bad winter weather was the main cause. Consumers postponed shopping, and businesses scaled back inventories. Much of the missed economic activity during the first quarter was simply delayed, and GDP growth is expected to rebound to around 3.5% during the second quarter.

The housing data released last week showed nice improvement. May Existing Home Sales increased 5% from April, which was the largest monthly gain since August 2011. Total inventory of existing homes available for sale rose 2% to a 5.6-month supply. May New Home Sales jumped 19% from April to the highest level since May 2008. The April Case-Shiller 20-city home price index showed that home prices were 11% higher than one year ago.

Get Rich Quick

It is very rare that someone hits it big overnight and goes from Average Joe to Joe Millionaire. When I’m counseling my clients, I always encourage them to look at their personal finances and wealth building as a process, not an occurrence. It may be boring, but things like living within a specified budget, eliminating non-mortgage debt, investing in retirement accounts, saving for kid’s college, paying cash for cars – and buying them used, are all vital components to a long term strategy that helps us develop financial security over a lifetime. I’m constantly in that mode personally and always advising in that manner.

When I ran across Seth Godin’s blog this past week titled Get Rich Quick, it caught my attention. But as I quickly realized, he took a different slant. He is obviously not talking about building monetary wealth, but enriching our lives. I thought it was incredible and worth sharing. Here is how you really get rich quick:

• Enrich your world by creating value for others.
• Enrich your health by walking twenty minutes a day.
• Enrich your community by contributing to someone, without keeping score.
• Enrich your relationships by saying what needs to be said.
• Enrich your standing by trusting someone else.
• Enrich your organization by doing more than you're asked.
• Enrich your skills by learning something new, something scary.
• Enrich your productivity by rejecting false shortcuts.
• Enrich your peace of mind by being trusted.

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
Next week, ISM Services will be released on Monday. The JOLTS report, measuring job openings and labor turnover, will come out on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. A meeting of the European Central Bank (ECB) on Thursday also may influence US markets. The ECB is considering a bond purchase program similar to the one in the US that is currently being wound down.

The Week That Was
The major economic data released last week continued to show an even better than expected bounce back from a weather-related slowdown during the winter. Despite the economic strength, though, there were few signs of inflationary pressures, helping mortgage rates end the week lower, near the best levels of the year.

The economy added 288K jobs in April, far more than expected, and the largest monthly increase since January 2012. Average job gains over the last three months were a healthy 238K, up from 167K over the prior three months. The Unemployment Rate unexpectedly dropped from 6.7% to 6.3%, the lowest level since September 2008. Looking below the surface, though, a large part of the decline in the Unemployment Rate was due to people leaving the labor force. Average Hourly Earnings, a proxy for wage growth, were flat, limiting the upward pressure on inflation.

The impact of unusually severe winter weather appears to have taken an even bigger bite out of economic activity during the first three months of this year than what had been expected. The initial reading for first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was just 0.1%, down from 2.6% during the fourth quarter. This report often receives large revisions, though, as more data is collected.

Gift Funds

When you have a client with excellent credit, but he/she is depending on a gift for the funds needed to close (down payment and closing costs), we can do a conventional loan up to the maximum amounts when a gift is provided.

In the past, borrowers have been required to put a certain amount of their own funds (3% or 5% depending on the loan type) when doing a conventional loan. So many times, an FHA loan is suggested in that scenario (FHA has always allowed the full amount of the up-front money to come from a gift). However, the advantage with the conventional loan is that the mortgage insurance will likely be much less expensive going that route versus the typical FHA.

Last week, we had a client buying a $200,000 home. She had great credit and her parents were providing a gift for her needed funds. It had been recommended to her that she take out an FHA loan. We showed her that by putting an extra 1.5% down ($3,000 in this case), she would be able to significantly lower her payment. How? Well, the monthly mortgage insurance payment would be $95 per month on a conventional loan versus $217 per month on the FHA. Granted, the conventional loan in this case would require an additional $3,000 down, but with a monthly savings of $122, her parents were more than happy to give her the additional amount needed.

Another great benefit with the conventional loan is she will have the ability to remove the Mortgage Insurance once her loan balance has dropped to 80% loan to value. FHA will require the Mortgage Insurance to be paid for the life of the loan.

As fast as things change in our industry, sometimes it is good to be reminded of simple strategies like this. Make it a great week!

The Week Ahead
Next week, the JOLTS report, measuring job openings and labor turnover rates, will be released on Tuesday. The FOMC Minutes from the March 19 Fed meeting will come out on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Friday. Import Prices and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
This week, all eyes were on Friday's key monthly Employment report. Adding to the focus, Fed Chair Janet Yellen emphasized on Monday that future Fed policy will primarily be determined by the performance of the labor market. The jobs data was right in line with expectations, and mortgage rates ended the week a little lower.

After a rough start to the year, partly due to unusually severe winter weather, job growth has returned to the levels expected by most economists and the Fed. The economy added 192K jobs in March, and upward revisions to the data from the prior two months added another 37K jobs. Anticipating even stronger data, which would be more inflationary, investors had pushed mortgage rates a little higher earlier in the week. After the report was released, mortgage rates completely reversed those increases.

The biggest surprise in the jobs data may have been the surge in the labor force. The Unemployment Rate remained unchanged at 6.7%, above the consensus of 6.6%, but the flat reading was due to an unexpectedly large number of people entering the labor force. The Unemployment Rate measures the percentage of people who want a job but are unable to find one. Growth in the labor force is a sign of an improving labor market.