The Mortgage Guru

Matt Garnes
Mortgage & Real Estate Professional
Evofi One”The Evolution Of Mortgage Financing”
RE/MAX Advantage

Two Key Factors in Qualifying for a Home Loan When a lender makes a decision about a mortgage application, they consider two basic factors: 1) your ability and 2) your willingness to repay the loan.

Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years. Your proposed monthly payment will be compared to your monthly income and debt.

Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used. Willingness can be gauged by your credit report and previous commitments to pay rent and/or utility bills. There is also a greater tendency to stick with your payments if you live in a house as opposed to a rental property or vacation home.

It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area, but make up for it with other strong points. These compensating factors may include a large down payment, solid employment, extensive educational background or overall financial health.

For applicants who need to make a lower down payment, mortgage insurance is protection for the lender in case you stop making payments. This allows low and moderate income families to become homeowners with low down payment programs.

Speed Up the Mortgage Process

Once complete, your application will be given to a processor in the mortgage company who will organize your paperwork and may verify your employment, bank balances, and other information.

Be sure to respond promptly to requests for information while processing is taking place.

Commonly requested items during processing that may not have been collected during the application include:

• The final purchase contract for the house (if applicable).
• If you’re self-employed, the mortgage company may require your personal and business tax returns for the previous two years and your company’s year-to-date Profit and Loss statement.
• Divorce settlement papers, if applicable
• Updated account statements for listed assets in the application that may have changed in value.
• Information about debts or credit report items that may have been delinquent or not accurate.
• Evidence of your mortgage or rental payments, such as canceled checks.
• An irrevocable gift letter if you are receiving a monetary gift from a relative.

The processor is collecting this information before presenting it to an underwriter. An underwriter reviews all the information in your loan file to determine if the application meets the lender guidelines. With approval, a lender should give you a letter of commitment, which is a promise from the lender to make a loan based on specific terms and conditions.

Market Commentary

Thursday: 03/27/08 10:30 AM EDT : Treasuries are down this morning as traders position for new supply. Stocks are lower on dim corporate earnings news.

As expected, the final report on gross domestic product (GDP) for the fourth quarter of last year was little changed from last month’s preliminary report.

GDP is the market value of all final goods and services produced by labor or property in the country in a year’s time. Quarterly data is adjusted and annualized and changes from quarter to quarter indicate the strength and direction of the economy.

Today’s report said that GDP grew at an annualized rate of 0.6% in the quarter, the same reading as in the preliminary and advance reports. But the report did include a positive item for both stocks and bonds. It said that the price index, a measure of inflation, rose by 2.4% instead of the 2.7% cited in last month’s report.

In addition, the price index for personal consumption expenditures (consumer spending), minus the volatile categories of food and energy, rose by 2.5% instead of the previously reported 2.7%. Nevertheless, the core PCE increase was still the largest since the second quarter of 2006.

A negative for stocks was the news that after-tax corporate profits were down by 3.3% in the fourth quarter after a flat reading (0.0%) in the third quarter.

The GDP news is somewhat dated, though, as the first quarter is coming to a close. Estimates for the current quarter range from a slight increase of 0.1% to a decline of 0.5%. The classical definition of a recession is two or more consecutive quarters of negative growth; however, no growth or very slight growth are seen as undesirable. But the bond market benefits from a weak economy since it promotes a low interest rate environment.

In the other economic release of the day the Labor Department reported that the seasonally adjusted level of initial claims for state unemployment benefits fell by 9,000 last week to 366,000. Today’s report reflected annual adjustments to the seasonal factors and the data series was revised back to the beginning of 2003. The average weekly change over that time was a slight reduction but it caused an average decline in the current year so far of 3,909.

Yet, despite the downward revisions and last week’s decline, the upward trend has not been changed and the latest claims level tied that of the last week in January as the second highest since October of 2005.

The four-week moving average, which smoothes out some of the short-term volatility, rose by 1,750 last week to 358,000 — the highest since October 2005. For the year-to-date, the average weekly initial claims reading has been 346,500, up from the average for all of 2007 of 321,442.

The report said that continuing claims for the week ending March 15 (continuing claims must be at least a week old) declined by 5,000 to 2.845 million. The four-week average rose by 25,250 to 2,824,250. The continuing claims reading was the second highest and the four-week average was the highest since October of 2005.

The average continuing claims reading for the year-to-date is 2,763,818. For all of 2007 it was 2,551,596.

Besides the weak corporate earnings indicated in the GDP report, stocks are being pressured by several corporate news items. Software giant, Oracle, reported after the bell yesterday and although earnings were in line with expectations last quarter, sales fell short of predictions and the stock is falling this morning. Weak ad-click growth reported on Google is also pressuring the tech sector. And negative analyst guidance on Merrill Lynch and Wachovia is weighing on the financial sector.

Bonds are being held back by the approach of more supply. This afternoon, the Treasury will conclude this month’s auction of 5-Year Notes. Last month’s was moderately successful. The bid-to-covering ratio was 2.29, up from January’s 2.16 but still below the twelve-month average of 2.45. Noncompetitive bids totaled $78 million, down from $81 million in January and below the twelve-month average of $131 million.

But foreign demand was a little better than in January with indirect competitive bids garnering 21.8% of the issue versus January’s 21.1%. This was still well below the twelve-month average of 25.9%.

Today’s issue is larger than usual. While last month’s had a face value of $16 billion, today’s issue has one of $18 billion, the largest since May of 2003.

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