Refinanced Your Home Lately? Be Prepared for the Unexpected!

Unless you’ve been hiding under a rock, I’m sure you’re heard that home mortgage rates are at all-time lows. But unless you’ve recently refinanced, what you may not have heard is that the process can be nothing short of a nightmare-for you and your Loan Officer. That’s right-money may be cheap these days, but ‘easy’ it is not.

Let’s start with the obvious, your home’s value. Gone are the days of the “Do you have a pulse and can you fog a mirror?” loans, where stated values were used. And back in the ‘old days’ when lenders did require a licensed 3rd party appraiser to inspect and photograph your home inside and out and analyze a multitude of data to determine the price your home would fetch in an open and competitive market–the appraiser’s opinion of value was generally accepted, with few questions asked.

But no more! With the housing market crash, no matter how much an appraiser justifies value, chances are it’s not going to be accepted. In a lender’s foreclosure, it’s this always changing difference between your home’s value and what you owe that can literally ‘break their bank’.

Whether it’s before your loan closes or after you default and your lender forecloses, they want to make sure your home can be sold for enough money to pay off your mortgage balance and all associated costs they’ll incur in getting rid of your home-which costs, according to the Joint Economic Committee of Congress-can average a whopping $77,935!

THIS is why your home’s value is critical -can your equity absorb your lender’s cost to foreclose? And the nightmare in today’s market? No one can figure that out! It’s like trying to appraise a pile of crumbling rock during earthquake after-tremors. Lenders need more valuation proof. They want more “comparables”-recent sales of nearby homes like yours-as many as 5 and 6 rather than what used to be the standard 3. And if you’re watching “For Sale” and “Foreclosure” signs proliferate in your neighborhood for months on end, then you’re right in thinking appraisers must be having a difficult time finding 3 cookie-cutter open and competitive market sales.

Lenders also want more neighborhood data like foreclosure and short-sale trends in the ‘hood’. They want more ‘desk reviews’ (that’s when an appraiser in NY City sits at a ‘desk’ and reviews a local South Carolina appraiser’s opinion of value on a quaint little country home in the Low Country), and more “AVM’s”, an automated valuation model using scientific measures and computer decision logic, versus a human’s inclination and actual details of the home or transaction.

Here’s a real example of a recent refinance my Loan Officer colleague had to deal with:

His borrower was refinancing to a lower rate where the first appraisal came in at $287,000. The homeowner knew his home’s value was low-balled. So another appraisal was ordered, which came in at $345,000. That’s a big $58,000 difference, his equity. Next, the lender ordered the “AVM”, which is like selecting a spouse from an on-line dating site based on nothing but physical stats. And what happens? Well, of course, the “AVM” result was that it can’t support the $345,000 value. Next came the dreaded desk review, performed by an appraiser who wasn’t familiar with local market conditions and who didn’t physically inspect the property, neighborhood or comps. So naturally, the desk reviewer (who’s also covering his ‘backside’) goes conservative at $284,000. And which figure did the lender use? $312,000. Are you scratching your head yet? And, you want to hear the worst part? The cost for determining value is the borrower’s responsibility. In this particular case, what should have been a $400 appraisal cost ended up being over $1,100!

To summarize, if you’re thinking about refinancing, brace yourself. Yes, take advantage of today’s low rates if you can, but be prepared in today’s market that if you ask 5 experts what your home is worth, chances are, you’ll get 5 very different opinions.

How I Stopped Fretting About Finances and Learned to Manage My Money

Growing up in my family home taught me a lot about living frugally. I have early childhood memories of the abundance of food our family enjoyed. All of this food largely came from my family’s farm. I remember the rows and rows of potato plants rising up from mounds of newly tilled soil. Tomato plants, green peas, cucumbers, onions, squash, there were so many delicious foods that came from my families garden every year. My parents didn’t seem to worry about financial success when they had all this abundance of nature’s bounty around them.

My father contributed to our family’s finances on a daily basis by doing a variety of home maintenance and car repairs. He chose to do this himself rather than pay someone else to do this work. My Mother sewed many of our clothes. Growing up in my family should have prepared me for many skills to live frugally. I had to wonder though if there is a difference between living frugal and knowing how to manage money. It seemed to me my parents never had any money to spare.

I realized only after I lived on my own for awhile that I had depended on my family’s resources, without really learning how to put those resources to use in my own life. I was different than my parents. I wanted to buy my clothes from a store. I wanted to live in town. I wanted shopping trips. I also wanted to manage my money with enough to go around to the end of the month, and from one day to the next. I wanted to have financial intelligence.

Here is What I Learned About How to Manage My Money:

— Keep a daily record (Mundis 94). I vowed to track my spending. I would carry a small notepad with me everywhere. Anytime I spent even .05 cents, I would write it down in the notepad. My record included what I spent my money on. I would find out where my money was going and how I was spending my money. I would stick with the daily record and not add anything to it until I was sure that I could track all of my spending. I would know exactly what I was spending my money on each and every day.

— Keep a weekly record (Mundis 97). In my weekly record I review where I have spent my money. For example, 5 dollars on coffee, 50 dollars on clothing, I made a weekly form to fill out tailored to my own needs. This is a form I could understand since I made it myself. This form would allow me to see my spending habits for one week. Along one side I put the areas where I had spent my money, such as, clothing, coffee, laundry, entertainment, groceries. I put columns all the way across with a total for each area of spending at the end. Once I had my totals for each area then I could add these combined totals for a complete total of spending for the entire week.

— Keep a monthly record (Mundis 98-99). The monthly record is an overall view of spending for the whole month. Again I made my own form, which was easy for me to read, for recording the amounts. I wanted to be able to see my spending habits, but I didn’t want to spend hours on a complicated budget sheet someone else designed. I wanted a financial plan simple, and tailored to my own needs. Once I had completed my first month of record keeping, it was easy for me to see many areas where I could make changes in my spending habits.

— Stick with a financial plan (Mundis 128-134). After reviewing my spending habits, it was time for me to decide how much money to spend on individual areas for the upcoming month. With my record in hand I was now prepared to make better decisions. For example, I lived one block away from a convenience store. After reviewing my monthly spending record, it was easy to see I spent close to 40 dollars a month at this store on snacks alone. I could cut back on some of these snacks and also I could purchase these snacks at various retail stores in the area, where the prices for these items would be much lower. Finally, this included my last form showing my financial plan for the upcoming month. At the end of each month I could compare my financial plan to my actual spending. Sticking with a plan would allow me to create a money surplus.

A Word About Spending Areas

Since this was my money, I decided how to spend it. I decided to have an area for entertainment, and shopping trips. Maybe I didn’t want to be rich, but I did want to enjoy life, not all fun costs money, but I couldn’t forget about the shopping trips. I would set some money aside for just the fun purchases, a new pair of shoes, or blue jeans, flowers, a vase, or a book to read, things I would personally find pleasure with.


I decided to be consistent about paying off debt. No matter how much or how little I could pay, I would never miss a payment. I would not make any new debt. If I couldn’t pay cash or figure out a way to save my money for a larger purchase, then it would have to wait. “Just for Today, One day, Do Not Incur Any New Debt. Not one. Don’t borrow $ 2 from a friend. Don’t accept a service you plan to pay for later. Don’t take a loan from a bank. Don’t charge anything on your credit card” (Mundis 83).

After Christmas Sales for 2010 May Have Fallen Short of Expectations

In the past many shoppers have been persistent in their efforts to find the ultimate bargains after Christmas. Retailers also anticipate huge crowds after Christmas as they continuously boast about the sales and bargains that customers will receive. They are hopeful that customers will come out eagerly buying that gift that they did not receive for Christmas. December 26, 2010 the crowds were smaller than expected. This reduction in the after Christmas shopping crowd came as a result of either in climate weather or just overall lack of funds. Now on the east coast in particular crowds were low because it was slammed by snowstorms. These snowstorms kept many would be bargain shoppers at home. Some stores were even offering extra discounts to people who were bold enough to fight through the storm to continue their shopping. Now the economic factor played a role also in the low customer turnout for after Christmas sales. If you really think about it, from a financial standpoint people cannot spend what they don’t have. Then there were some people like myself who were just overly frugal. Like other people I want to be able to weather the economic storm that we are going to face in the United States in 2011.

I went out to do some shopping but my purchases were so minimal I noticed that the after Christmas sales were not as good as they had been in the past. One thing that I observed while shopping was that most people were using cash instead of credit cards when they made purchases. I also refrained from using my credit cards because it makes no sense to be paying for items next year that were purchased the previous year. People are trying to get out of debt. Reduced consumer confidence also played a major role in people spending less money after Christmas. One stunning fact that consumers realized this year is that they have to get back to reality after the Christmas holidays. They took in consideration that they have to be prepared to live the other 364 days of the year.

Bloomberg News, Snowstorms smothers index after Christmas shopping, New Jersey

Gray Pilgrim, After Christmas Sales 2010,