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Did Your Practitioner Fix Your ARM…

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or Make it Worse?

did your practitioner fix your broken arm?


When you break your arm, do you go to your family doctor, or do you go see someone at the ER that is equipped to deal with it? If you are like me, you go to the ER and request a specialist on top of that to make sure your broken arm gets fixed correctly so you don’t have to re-break it just to fix it again. The reason is that your family doctor doesn’t even have the tools necessary to tell you whether or not your arm is even broken.

So if you think you have a broken ARM, why go see a general mortgage practitioner who can’t even tell you straight up whether or not your ARM is really broken? Many Americans have already done exactly that and fixed their ARM even when it wasn’t broken yet. If they had gone to see a mortgage specialist, they could have avoided wasting all that money and making a big mistake.

Just because the media, your neighbor, or even your dog tells you that you need to convert your ARM to a fixed rate or face foreclosure doesn’t mean they’re right. If you dig a little deeper into what is happening to your adjustable rate mortgage, you may just find that it isn’t broke. You may even find it is better than you thought. So, don’t let a general mortgage practitioner prescribe the wrong medicine.

Take a look at the chart below to see what I mean…


Don't Fix Your ARM if it Isn't Broken


Since many ARMs are tied to LIBOR with a standard 2.25% margin, the black line is where your fully indexed rate would if you adjusted today. Interestingly enough, that black line has dropped below the light blue one which represents a 30-year fixed and guess what, it will likely keep going lower. Since the Fed won’t be happy until the Fed Funds Rate is back to about 1%, you can bet LIBOR ARMs are going to be a really good deal in the near future.

Since the media has bashed ARMs to death, you may find it surprising that over the timeframe of the graph, the LIBOR plus margin has been significantly lower than the 30-year rate for a while, yet didn’t exceed the 30-year rate by a large amount, and even then, for only short periods.

The bottom line is that if you had one of these common ARMs (LIBOR based with a normal margin, ie not subprime), you likely just wasted a lot of money. But take heart in knowing you fed the family of a starving mortgage broker. If you had gone to a mortgage specialist, you would have saved the money and likely been enjoying your rate drop.

Writer for national real estate opinion column AgentGenius.com, focusing on the improvement of the real estate industry by educating peers about technology, real estate legislation, ethics, practices and brokerage with the end result being that consumers have a better experience.

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5 Comments

5 Comments

  1. Shailes Ghimire

    February 5, 2008 at 9:20 pm

    Robert,

    That’s very good analysis. The graph shows that the Federal Fund rate and the 6-month LIBOR have a similar pattern over the past 13 years. Hence it appears safe to conclude that the trend should continue.

    Therein lies the major concern. These are uncertain times and I don’t know if people have the stomach for the kind of up and down an ARM has in store. Look at the 30year line. It’s almost flat compared to the other two. I don’t know if the media is the one touting he switch, but I know plenty of borrowers right now who’ll say “damn the savings” give me the stability. In a climate of falling real estate prices (in most markets) I don’t blame folks wanting to hold on to a rate (considering how low the 30 year is in historical terms).

    However, I do agree with your analysis. You have a valid point. I just don’t think rational thinking really trumps uncertainty at this point. That could be more of an explanation than anything else.

  2. Robert D. Ashby

    February 5, 2008 at 9:46 pm

    But wouldn’t rational thinking justify my point? If you rationaize, you would stay in your ARM as it makes sense. The problem is, as you eluded to in your comment, is the “fear factor”.

    People want peace of mind to settle their fears, showing irrational thought, and they don’t care about the cost (“damn the savings”). Of course if people thought and acted rationally (and in their best interests), they likely would have Option ARMs these days, but that is for another post(?).

    Don’t get me wrong, there are valid reasons to refinance from an ARM to a fixed right now, but my point is to think things through and don’t get pressured into it. The second point is look for someone who is willing to tell you to wait, even though they don’t get paid. Too many “practitioners” need money right and will sell their clients into anything, even if it isn’t in the client’s best interest.

  3. Shailes Ghimire

    February 6, 2008 at 10:12 am

    Robert,

    The practitioners needing money is a great motivator. I’m working with a few borrowers who should NOT refinance. There is NO reason at all – but they keep calling me saying that their other LO can do it. The problem is I never said they couldn’t do it – its just that they SHOULDN’T do it. So, that is the predicament I’m in. Irrational, yes.

  4. Benn Rosales

    February 6, 2008 at 10:36 am

    two things are happening Shailesh:

    1)they know they can do it
    2)but they don’t really understand why they shouldn’t when everything around them says they should-media, friends, other lenders who want to loan no matter what.

    so I think I would go back to the why, but the truth is they’re going to do what they’re going to do with or without you, do the shouldn’ts out weigh the shoulds is the real question

  5. Robert D. Ashby

    February 6, 2008 at 5:18 pm

    It is at times like those you describe when I wish I could hit somebody with a 2×4 through the Internet or phone and get them to wake up and see reality. The question I always ask myself is “can I live with myself after doing the transaction”? It causes me to walk away from some deals, but I can still sleep at night. In this case, I may still do the deal knowing I tried my best, but at least if I do it they will get a good deal and minimize their mistake.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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job openings

Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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