Open Letter to Homeowners

AN OPEN LETTER TO HOMEOWNERS

REGARDING THE CURRENT MORTGAGE ENVIRONMENT

October 2007

As most of you know there has been a great deal of turmoil in the credit and lending markets over the last few months.  What started as a Subprime Loan issue (default rates increasing) has widened into a 'credit crunch' creating a great deal of uncertainty for A-credit borrowers-some real and some psychological.  As a Mortgage Broker, we keep abreast of lender changes and would like to provide some clarity and guidance to what has always been a somewhat confusing topic to many people.

Here's a current snapshot of where the lending industry is, by Loan Type:

• Conforming Loans (up to $417,000) are still readily available at attractive rates.  These loans are associated with two government-sponsored enterprises (GSEs) you may have heard of-Fannie Mae and Freddie Mac.  'Stated income' options are still available, as is 100% financing.
• Jumbo Loans (over $417,000) now have rates all over the map as lenders and the secondary credit markets determine how to price the risk associated with these kinds of loans.
• Interest Only Loans are still available but the qualifying guidelines for these loans have tightened up.  'Stated income' options are still available.
• Negative Amortization or Deferred Interest Loans are still available but the interest rates on these are quite high and variable.  These loans have received a great deal of bad press as many borrowers got these loans and did not understand how they worked (principal balance increases if only the minimum payment is made each month.)  They are not bad loans per se, but are only appropriate for certain borrowers under certain circumstances-and only if fully explained to, and understood by, the borrower.  Many lenders have stopped offering these loans.
• Lines of Credit (HELOC) and Fixed Seconds are still available, but at higher rates and lower combined loan-to-values (LTV).  These lenders are in second place (higher risk) and thus have tightened their guidelines.  A number of lenders have stopped offering these loans.  But, as the Fed cuts rates, the rates on HELOCs will also come down as the Prime Rate drops.
• Subprime Loans, those loans to borrowers with poor credit, are much harder to get and in fact many of the lenders that have closed their doors this year focused on these kinds of loans.  The secondary market currently has little interest in providing funds for these loans.  High loan to value, prepayment penalties and short term adjustable rates are common elements of Subprime loans.  This is why many Subprime borrowers are in trouble.
• Land & Construction Loans have always been more difficult to place, and more expensive.  Fewer lenders are offering these loans now, but there are still options.
• Investment Property Loans are still available, especially if the loan amount is Conforming.  If the loan is Jumbo, the rates are higher and the qualifying guidelines are now tighter.
• 'No Income, No Ratio & No Doc' loans (or Alt-A Loans) are harder to come by as the risk associated with these loans has become difficult for the market to price.  For these loans, many lenders have raised their rates, raised the equity or down payment required or stopped offering them altogether.  But they are still available.

Borrowers should keep in mind:

• Having some down payment and/or equity is more important than ever as 100% financing has gotten harder to do.  But single and combo loans to 100% are still available.
• Having verifiable income and good credit are even more important than they used to be, especially for jumbo loans and low or no down payment loans.  Check your credit!
• Beware of ads with Teaser Rates, No Cost Loans or anything that sounds too good to be true.  There is no free lunch in the lending market and as they say, 'You get what you pay for.'
• With lenders and loan types changing all the time, working with a Mortgage Broker provides access to almost every lender and loan option out there.  Brokers have great flexibility and keep track of daily changes in lenders' rates and programs-critical in today's lending environment.
• There is a reason why Mortgage Brokers place over 60% of the residential loans each year.  Don't get stuck at a Bank or Lender that decides, at the corporate level, to raise its rates, eliminate a program or shut its doors and leave you hanging.  Not all lenders are the same, nor are all Mortgage Brokers.
• As of this year, all Loan Officers working for Mortgage Brokers in Washington State must be licensed.  This includes a background check, passing a test and annual continuing education.
• Work with a local, established Mortgage Broker-someone you trust.  Ask your friends or your Realtor whom they trust.  Local means accountable and someone you can talk to face to face.  Ask the Loan Officer if he or she is licensed and a member of the National Association of Mortgage Brokers (NAMB) and the Washington Association of Mortgage Brokers (WAMB).
• Don't be afraid to ask questions.  An informed borrower will get the best loan program for his or her situation and will avoid being taken advantage of by one of the few bad apples that are out there.
• Be proactive if you plan on buying a new home.  Get pre-approved early in the process.  This way you will be able to make the strongest offer when the right house comes along.  Sellers, and their agents, are aware of the 'credit crunch' and want assurance that your financing is sound.  A pre-approval from a local Mortgage Broker will make the seller feel better about your offer.

Very truly yours,

Bainbridge Lending Group, LLC

Matt Culp, J.D., Owner     <>     Lic. #510-LO-27342    

Brian Hewitt                     <>    Lic. #510-LO-32257 

John Teising                     <>    Lic. #510-LO-33682

Megan Johnston               <>    Lic. #510-LO-40314