A New York Mortgae Planners View:

Hindsight is always 20/02 But the problem is you can only see what you understand. in example looking at struggling businessman coming out shining through a rough market, the person who does not understand business principles does not how he pulled it through. Versus a business knowledgeable person does know and can identify the principles that this struggling business person cling-ed to that help him through the rough market.

I just heard today about a 59 year old executive in the jewelery manufacturing business expressing fear that he will loose his job. He never bought a house because he was always afraid that if he might looses his job, where is he going to pay the mortgage from.

He never invested in real estate due to lack of knowledge of the real estate business.

He never invested in the stock marketdue to his lack of knowledge of the stock market.

You see the theme? He was always holding to his job and being good at what he was doing, but he wasn't growing,which brings us to the following financial principles.

1. Buy assets (Real estate or Stocks Bonds etc)that will go up in value.
2. Educate your self about these assets.
3. Change is inevitable, growth is a choice so the choose to grow and change will be easy!

Rich dad says: the difference between the poor and the rich is, The poor buy liability's, and the rich buy assets.

Owning your House is vital to your total financial picture the time to buy is now!

For Real estate financing advice please call me at 917.660.3630

or send me an email to Joel@joelsilberstein.com

Sincerely

Joel Silberstein
Certified Mortgage Planner, CMPS

The Silberstein Group
Brooklyn NY 11219

Although we are going through unprecedented times the basics financial principles have not changed.

•1.    You actually have to qualify for a mortgage.

•2.    You have to save up some money for a down payment. Lenders want you have a reason to work through hardships and not get dumped along with the house.

•3.    The mortgage has to be properly planned because it does have the ability of robbing your life's savings.

•4.   The mortgage has the ability to provide you with a comfortable retirement. Speak to your Certified mortgage Planner about that.

•5.   Invest invest and keep investing. A down market will only increase your chances of hitting it big. it is called dollar cost averaging here is the technique from about.com

"Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over several years, providing insulation against changes in market price."

Strongest lesson is to see what the herd is doing and to do just the opposite. When nobody is buying Real Estate you buy.

When everybody is pulling out of the stock market due to fear, you do the opposite and start investing.

The idea is consistency and measured. Avoid fear and greed!

For more information on investing and equity management please contact me at

917.660.3630 or send me an email at joel@joelsilberstein.com.

Sincerely

Joel Silberstein
Certified Mortgage Planner, CMPS
The Silberstein Group

The PCE reading, which stands for Personal Consumption Expenditure is a report released every month by the feds, the looks back and it measures inflation. (How much buying power the dollar lost if any)

As I wrote before, inflation is the worst enemy for long term bond or mortgage rates. With a great reading on inflation today fear of fast inflation was tamed and that means better mortgage rates.

  If you care about detail read below, The PCE Report is a monthly report reporting on the previous month.

There 2 parts to this report, the PCE that includes all goods and services that a person on the personal level buys or pays for. Then there is the Core PCE, which looks at the core alone and excludes volatile Industries like food and Energy. The fed’s target rate of inflation (Yes There has to be some inflation) is 1-2% year over year.

This months’ reading was exactly 2.0 which is in the feds target Zone. Which means that the fed’s actions to keep the economy flowing paid off for now! Regards Joel Silberstein The silberstein Group

The feds Primary Job is to monitor and control to some extend the economy as a whole. there job is not just to provide low interest rates to the housing market.

One of the ways the fed can stimulate the economy is by cutting their rates. By cutting their rates money is cheaper so banks can borrowand lend out. Not necessarily for home-loans but for business loans, etc.  If there is more money available housing will enjoy something as well.

The side-effects of a rate cut is

• the potential loss of value to the dollar.
• Inflation
• and higher mortgage rates.

Benefits of the rate cut is primarily for

• Commercial banks that are in business of checking and savings type of banking.
• Home equity loans that are typically have a 10 year life.
• Auto Loans
• credit cards.
• Business loans

As I wrote above the benefits are intended for the economy in general and not necessarily to the housing market. The housing market can initially suffer by getting higher interest rates due to bonds being enemy #1 of inflation.

An example-of a recent fed move to benefit the Housing market exclusively was the Treasury Securities Lending Facility introduced for the first time last week.

Today while listening to the Ric Edelman's radio show a women called in. Apparently she was elderly and she owns 2 pieces of property one she currently lives in, and another an undeveloped piece of river front property and as large as 14 acres.

 Her question to Ric was that the house she lives desperately needs renovation and she is asking Ric if she can take out money from the other undeveloped property through a 1031 exchange.

Rick answered that 1031 exchange is merely a tax deferred method it takes all the money you get from the property you sell and rolls it into the new property therefore you will not have any money out of this transaction to renovate your home, therefore concluding that this strategy is not for her.

What I was starlet about was that he cut her short by answering what he did and elaborating on any other strategy therefore she might conclude from his answer that she should sell the property and incur a large capital gain and take part or the whole money (I don't know how big of a gain there is going to be) to renovate the property!

The problems I have with this is as follows

• Unnecessary tax to the government
• Taking an appreciating asset like Real estate and converting into a non appreciating asset that's analogous to buying an expensive Bentley for its stereo system that will be taken out.
• For Failing to show the client how to achieve greater financial comfort while holding onto the property and still achieve her objective of getting cash for the renovation of her other property

Now what would you professionals say about this conversation above?

I will follow up with my strategy in my next post!

Sincerely

Joel Silberstein

Mortgage planner

She approached me with an interesting question

should I pay for the house all cash or should get a mortgage since I making a nice profit of the house I am selling?

Now this is a Question we right away jump and say No don't pay for the house entirely all cash Just get a mortgage. after all this is what we sell our livelihood we are mortgage brokers our name will predict our answer!

But what is the right advise to the client?

What I answered to the client after taking every detail of her income and assets was, that  being that thats all the money she has, she should not dump all of it into the house. It will be very easy to put it all in there, but not as easy to retrieve it since she is retired. Now of course a reverse mortgage is always an option but how much she can take out will be determined based on life expectancy, and will not be a fast process!

Therefore I suggested to speak with a financial planner and to determine how much income she can realistically generate with the cash she has on hand, and based on that to determine how much of a conventional mortgage can she support with her total income.

What we will have accomplished

1) We have access to the money and principle at all times.

2) if the house goes down in value she still has her capital

3) We just reduced her tax liability on her total income since she has mortgage interest to deduct.

Sincerely

Joel Silberstein

PS. Of course there are other ways but I just wanted to point out this strategy

Last week 4 large lenders stepped up to the feds discount window and each borrowed 500 Millionon dollars, these banks are Bank of America, Citigroup, JP Morgan chase, and Wachovia. . 

The speculation is that their motive was largely symbolic and to calm the market. But what I am thinking is, that they jumped on an opportunity to create arbitrage. The normal discount window is 6.250%  and has to be repaid the following day. Here they are presented with a rate of 5.750% and can be repaid in 30 days now thats an opportunity!.

Banks know where to invest their money for a quick profit, and are in the business of borrowing money for less lending money for higher interest so to create a little spread between their expanse and their income and thats called arbitrage!

Now I think we can learn this practice from banks on how to do this ourselves!

Call Me so I can send you some litrature as to how to go about it

Sincerely

Joel Silberstein

Good after noon My friend's

 Having read my mentor's Tim Davis blog today where he wrote about whom responsability it is for this mess we are in. Tim assigns some or all responsibility to the consumer.

I agree with him but we cannot exclude the mortgage broker entirely who where supposed to inform their clients about the challenges down the road, and how the loan will preform in a few years from now and not just merely quoting rates, a trade that true mortgage planner's are conforming too.

 Furthermore, the banks who shut their doors they all originated Loans which no body in their right mind  would lend their own money on. 

A little more on that note, I spoke to an account representative today at Bank a. Bank a (as I would like to call them here)was the lender who used to buy all the loans from ABC and bank of Arizona and securitize those loans on the secondary market. When Lehman declined to continue to buy them toward's the end of this market as we know it,  thats when ABC and the like shut their doors.

But whats really interesting is, that Bank a is still in business and still originating no doc loans and stated stated loans and still doing most of what they used to do prior to this meltdown and for not so much higher rates. Their philosophy was, we do them but we need to add risk into the equation and they did. they did not dominate the market because they where always more expensive then ABC on the wholesale Level but guess what, they are still around!

Bottom line, Dont trade in your principals and ethics for greed, because greed tends to loose and then you can be left without anything so keep your principles and ethics.

Wow I cant belive I wrote that

Sincerely Yours  Joel Silberstein

Hi Guys

It seems that the mortgage meltdown is imminent and unavoidable. Reputable lenders closing right and left like Greenpoint who just announced that they will shut down their operation for new applications but keeping their commercial branch open.

Another lender that shut its doors last week was First Magnus, a Great alt A Lender with great Products. What is sad about it is the way mortgage brokers and realtors on the front end are feeling the squeeze. Especially painful is when you already got your approval and it is scheduled to close in 24 hours and then you hear the lender is shutting their doors and will not honor their prior commitments.

It seems almost like betrayal, a company going under and taking their profit with them and ignoring the poor borrowers and brokers who are desperately looking out for their closing.

But knowledge of how the secondary market operates will shed some light and give us some answers as to why lenders that go out of business behave that way.

When a ABC or first Magnus originated a mortgage, the way it worked was They produced a commitment based on the standard guidelines. Then closed the loan using their warehouse line of credit, and after 2 weeks or a month took their entire pool of loans and went to the secondary market and sold their loans for a profit and then Paid back their lines of credit which they have with various creditors who are them self's mortgage lenders. What happened was, that when ABC got their loans together and brought them to the secondary market, the investors Didn't wont to buy them especially if they where low rates for a No doc like 6.5% or Interest only on a 1,200,000 loan. Their excuse was that the real estate market is declining, home equity is going down, and default's and foreclosure rates are up. And it will end up being that the lender has no security, since equity in houses are going down the loans against those properties is now greater that the house value. In the event of foreclosure, the investor who purchased this loan will not see his money back. So when ABC came to the market the investors argued for higher Rates. But since the Loan where already Funded by ABC's Line of credit (which by the way hade to be repaid right?) the couldn't sell it for their full value but for a discount price.Therefore they couldn't pay back their lines the full amount ending up losing Millions of dollars. The straw that broke the camels back was the creditors of those lines called in their margins. Now what do you expect ABC do with The Loans They have in process which are still in commitment stage and not yet closed ?. Or even the loans that did closed today or yesterday but they still didn't fund at the low 6.5 % Rate. Should they fund them and loose additional Millions of dollars? Hell No. So they had no choice but to reject them and to close shop.

But countrywide and the like, who are big Depository Banks and Financial Institutions who had the capital withstood the storm and shelled out the difference and stomached the loss. But that didn't come by so easy, they where squeezed into a tight Liquid Crisis. that could have resulted into a situation that if large group of depositors where to take out their money  for a short time from their accounts, countrywide would have hade a real issue. At any other day a case like this plays' out, Banks will borrow from each other and pay interest on that loan and the usually have a short window to payback like 24 Hours. This is called the discount window or discount rate. But in the current liquidity squeeze that many banks found them self's in a situation like that would have been too much to bear. Therefore The Federal reserve board of New York and San Francisco stepped up and applied with the Board of governors of the Federal Reserve, to lower the discount Window from 6.250% to 5.750% and additionally to extend the term of the loan from overnight, to 30 days. So that large banks like countrywide can borrow from the feds at lower rates and Payback in 30 days and in the mean time catch up on their liabilities to other banks and to remain liquid in this time of need.

How complex is the lending sector and what great back up systems are available in the US by our government truly amazing! But what this is telling us is, that when the market is going through a credit tightening and guidelines change, banks will need to have more equity and more liquidity to keep afloat. But as far as mortgages are concerned they are here to stay. Yes it is changing and change is good, just like it changed in the past and we hope that it does in the future.

I hope that this clarifies a little about what's going on out there, and especially now is important to be working with a Mortgage Planner who has a finger on the pulse of the market, and not just any Mortgage Broker who only offers low rates but offers no Market Knowledge!

Talk with you soon

Sincerely

Joel Silberstein