Have you ever noticed that some of your most innovative thoughts have happened at the oddest times? The reason for this is that your brain wasn't occupied with your ongoing "to do" list, so it was finally free to explore new ideas.

If you want to do more creative thinking, then you need to establish a system for organizing your tasks. Begin by collecting them in an in box. What should you do with the items once you've accumulated them? According to David Allen, the best-selling author of Getting Things Done, the first step is to ask, what is it? Is it actionable? If you can't act on it, then put it into one of three categories: reference, such as a noteworthy article; someday–maybe, which is a task that you might do later; and trash. The filing principles we're discussing here work equally well with manila folders and a circular file, but in our example we'll be using Microsoft Outlook.

Many of us use Outlook's tasks function, but for some the list has degenerated into an "amorphous blob of undoability", according to Allen. He suggests organizing Outlook tasks using categories. For tasks that require no immediate action, but might happen eventually, produce a category called someday-maybe. Create each task in this category with a potential start date and a scheduled reminder. If there are items that should be referenced, you can file them in an appropriate folder on your hard drive or in a file cabinet. Remove trash as soon as you can.

If the item is actionable, you will have to decide on the next step. This step will either be to do it, delegate it, or defer it. If a task can be handled in 2 minutes or less, Allen says simply do it. It will take longer to file and retrieve it later.

If you can delegate a task, do so. Outlook gives you the option of assigning a task to somebody else, setting due dates and priority, and sending the task to a recipient in your contacts list. It will also notify you when the task is reported done. You can file this task in your new Outlook category, waiting for.

If you can't handle a task immediately, Allen suggests deferring it to a category where it can be done. Examples include: @phone, if you have to call a client; @home, if you need to mow the lawn; @office, if you need to prepare a presentation, etc. If a task has to be done at a specific time on a specific day, put it in the Outlook calendar. Don't forget to set reminders.

Of course you will have projects that can't be handled as simply. Any task that involves more than one step should be filed in the task manager under projects. David Allen suggests that on a weekly basis, you should review all tasks listed under projects and ask yourself, "What is the next action?" This will ensure that you continue to make forward progress.

If you would like to learn more about task management, please call me. I would be happy to send you a Gift of Knowledge Interview with productivity expert, David Allen.

President Woodrow Wilson signed into law the Federal Reserve Act in 1913, creating the Federal Reserve, the nation's central banking system. The Federal Reserve, or Fed, has also been called "the gatekeeper of the US economy" because of its unique power to influence US financial and credit markets.

Comprised of seven presidentially-appointed Board of Governors; the Federal Open Market Committee; 12 Federal Reserve Banks; and private U.S. banks and advisory councils, the Fed's mandate is "to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar, and moderate long-term interest rates." In other words, the Fed's job is to regulate the nation's financial institutions while simultaneously keeping inflation in check.

To accomplish this important yet difficult task, the Fed studies economic indicators, creates, and then implements monetary policy - its specific plan of action or "target" for the economy - based on its findings. And while there are many tools at its disposal, the Fed has three main instruments of monetary policy: open market operations, interest rates, and reserve requirements, all of which can impact the mortgage industry.

Open market operations, the principal tool used by the Fed in its monetary policy, consist of the buying and selling of U.S. government and mortgage-backed securities (treasury bonds, notes, and bills) on the "open market." Basically, the Fed buys when it wants to increase the flow of money and credit, and sells when it wants to reduce it.

The Fed also controls two important interest rates: the discount rate and the fed funds rate. The discount rate is the interest rate charged by Federal Reserve Banks to commercial banks and other eligible financial institutions on short-term loans. The Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. Experts say that changes in the discount rate can serve as a clear announcement of a change in the Fed's monetary policy. These changes are important because they can impact lending rates for banks and interest rates for the open market.

According to the Federal Reserve, the fed funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. Like the federal discount rate, the fed funds rate is another tool the Fed can use to control inflation and other interest rates. This interest rate is often a source of intense speculation whenever the Federal Open Market Committee meets, creating uncertainty that can move the financial markets as well.

Finally, think of reserve requirements, the last of the Fed's main monetary policy instruments, as the cash deposit requirement for a secured credit card. Reserve requirements represent the specific portion of deposits that banks are obligated by law to keep in non-interest-bearing funds at a Federal Reserve Bank, typically 10%. Consequently, as banks attempt to stay as near to the reserve limit as possible without dropping below, they constantly lend money back and forth to each other. The Fed, interpreting signs of inflation in its economic indicators, may choose to reduce the amount of reserves available to banks by slowing the selling of securities. Generally, this causes interest rates to rise, the economy to slow, and inflation to slow with it. The reverse is generally true when indicators suggest a slowing economy or deflation.

If you or your clients have any questions about the Federal Reserve, inflation, interest rates, or any of the topics discussed in this piece, please don't hesitate to give me a call. The Fed's monetary policy is not only fascinating, your clients would benefit greatly from understanding its impact on the financial and credit markets.

There are five factors that comprise the credit score. They are listed below in order of importance, just as an underwriter would look at the score: Payment History: 35% impact. Paying debt on time and in full has a positive impact. Late payments, judgments and charge-offs have a negative impact. Missing a high payment has a more severe impact than missing a low payment. Delinquencies that have occurred in the last two years carry more weight than older items. Outstanding Credit Balances: 30% impact. This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit when trying to purchase a home. Credit History: 15% impact. This marks the length of time since a particular credit line was established. A seasoned borrower is stronger in this area. Type of Credit: 10% impact. A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards only. Inquiries: 10% impact. This quantifies the number of inquiries that have been made on a consumer's credit history within a six-month period. Each hard inquiry can cost from 2 to 50 points on a credit score, but the maximum number of inquiries that will reduce the score is 10. In other words, 11 or more inquiries in a six-month period will have no further impact on the borrower's credit score.

Remember, a computer that's not taking any personal factors into consideration calculates these scores. When a credit report is generated, it is simply today's snapshot of the borrower's credit profile. This can fluctuate dramatically within the course of a week, depending on the individual's own activities. The borrower should be made aware of this when they enter into the loan process, and know that it's not in their best interest to go out on a shopping spree. They need to make sure they are not creating a negative impact on the score while the lender is reviewing their file.

Secondly, it is often beneficial to compile a Tri-Merge Credit Report. This combines the scores provided by Fair-Isaac (FICO) with the score generated by TransUnion (Empirica) and the Beacon Score produced by Equifax. The lender should be provided with this rounded profile because these three scoring systems can vary in their results. The lender is going to look at the middle score and throw out the other two. In many cases, this works to the borrower's advantage.

Stay tuned for Credit Scoring, Part III: Dealing with Challenges

In the 1960s, Fair Isaac Corporation started working on a system lenders could use to evaluate the likelihood of receiving repayment on loans. Prior to that, it was really a matter of trusting an individual to be a "man of his word," so to speak. Fair Isaac sought to take human error out of the equation with a reliable system that could determine whether or not consumers were truly worthy of credit, and thus FICO was born. This evolved to become the standard for lenders by the 1980s.

Credit scoring has an enormous impact on a borrower's ability to purchase a home. It can mean the difference between getting a good interest rate and the home of their dreams, or whether they even qualify at all. For this reason, it is important for borrowers to understand the credit scoring process, and to know what their credit score is when they look to obtain mortgage financing.

What the credit scoring model seeks to quantify is how likely the consumer is to pay off their debt without being more than 90 days late on a payment at any time in the future. Credit scores can range between a low score of 350 and a high of 850. The higher the client's score is, the less likely they are to default on their loan. Only a rare one out of approximately 1300 people in the United States have a credit score of above 800. These are the slam-dunk clients that walk away with the best interest rates. On the other hand, one out of eight prospective home buyers are faced with the possibility that they may not qualify for the loan they want because they have a lower score between 500 and 600. Here is a sample chart that illustrates how an underwriter interprets the score in terms of risk, and how the interest rate is affected.

Stay tuned for Credit Scoring, Part II: The Five Factors of Credit Scoring

Annual Percentage Rate (APR) is a tool that consumers can use as a starting point to compare loan programs. However, it's important to keep in mind that APR is not a perfect system, and not all lenders calculate APR in the same way. While the Federal Truth-in-Lending Act does require any mortgage broker or lender to disclose APR to the consumer, there is no rule written in stone for calculating this number that each and every lender agrees upon.

The point of calculating APR is to let the consumer know what the actual cost of their financing is in the form of a yearly rate. APR factors in certain closing costs and fees associated with the loan, and spreads this total over the life of the loan along with the actual note rate. The objective is to give the consumer a clearer picture of what their actual costs are, and this inhibits lenders from hiding fees or upfront costs behind low interest rates in their advertising.

Fees that are generally included in the APR calculation are points, pre-paid interest, loan processing fees, underwriting fees, document preparation fees, and private mortgage insurance. On occasion, lenders will include a loan application fee and/or credit life insurance. Fees that are normally not included in the APR calculation are fees from Title, Escrow, attorney, notary, document preparation, home inspection, recording, transfer taxes, credit report and appraisal.

Remember, all lenders do not perform the calculation the same way. Moreover, APR does not consider the possibility of making pre-payments, moving or refinancing. Unless the interest rate is tied to a fixed instrument, APR is even more confusing. Calculating APRs on adjustable rate and balloon mortgages is more complex because we really have no way of knowing what future rates will be.

If all lenders calculated APR the same way, we could make easy comparisons when deciding on what loan program to go with. Since they don't, the consumer should know that APR is simply a starting point for comparison. They should rely on the skills of a well-versed loan professional to assist them in obtaining the loan that meets their specific needs. The more important things to consider are how long the loan is needed. What are the long-term goals of the borrower? If the homebuyer only expects to stay in the home for five years, there's not a lot of sense in looking exclusively at 30-Year Fixed rates because the APR seems more reasonable. If a young couple is buying a home, knowing they will refinance in eight years to pay for their son's college education, then once again, APR is not a realistic factor to take into consideration.

The Loan Executive should be prepared to answer questions about APR once the lender provides the Truth-in-Lending Disclosure Statement (Reg Z), such as why the “amount financed” listed in Box C is not the same as the actual loan amount, and why the APR is higher than the interest rate on the loan in most cases. The consumer will get a clear definition about the fees associated with their loan in the good-faith estimate, but the Truth-in-Lending Disclosure is often an area that is confusing to the borrower.

Stay tuned for more Business Boosters coming your way!

In a recent article, top mortgage originator and national trainer Greg Frost noted that an increase in foreclosures had drawn attention from many out-of-state investors. According to Greg, his area saw an influx of savvy investors eager to bid on HUD Repos and other affordably-priced and discounted single-family dwellings.

In the article, Frost warned mortgage originators and REALTORS® to be wary of investors who try to represent themselves as owner occupants in this type of situation. They may seek to obtain 97% FHA financing, even though their real mission is to turn around and sell for a quick profit. Not only does the lender lose their investment due to the rapid pre-pay in this type of transaction - The Government National Mortgage Association-backed security loses value as well!

This practice is called "flipping," which the United States Department of Housing and Urban Development (HUD) defines as "...a predatory lending practice whereby a property that was acquired is quickly resold for a considerable profit with an artificially inflated value, often abetted by a mortgagee's collusion with the property appraiser and others involved in the mortgage loan transaction."*

Flipping is not good for FHA, GINNIE MAE, or the affected lenders, as it can quickly turn affordable borderline neighborhoods into inflated slums. Moreover, the negative effect of flipping dominoes to those earnest purchasers who end up bearing a harsh increase in interest rates as lenders seek to recoup their losses.

HUD established time restriction guidelines in 2003 in an effort to crack down and prohibit the use of FHA loans to support property flipping. The rule forbids a sale within 90 days of purchase, and requires increased documentation by the lender if an FHA-financed home is flipped within 180 days. However, HUD's Prohibition of Property Flipping in HUD's Single Family Mortgage Insurance Programs; Additional Exceptions to Time Restrictions on Sales; Interim Rule was published in December 2004 to broaden and clarify certain exceptions to the existing regulation.

The interim rule, which became effective on January 24, 2005, now permits federal agencies that acquire properties [i.e., HUD's Real Estate-Owned (REO) properties] as a result of a function of their programs, to quickly market and sell those acquired properties.

Additionally, the interim rule provides that time restrictions on sales do not apply to inherited property. The purpose of time restrictions is to curb fraudulent property flips, whereby a property is deliberately acquired for the purposes of reselling quickly and at an inflated value. While an Heir may turn a property quickly and at a profit, HUD now acknowledges that the sale of an inherited property falls outside the intended scope of the regulation.

The interim rule also establishes that time restrictions do not apply to the sale of properties acquired by an employer or relocation agency in connection with the relocation of an employee.

With the exception of an Heir selling a home or a person who is forced to relocate due to a job transfer, the HUD definition of flipping applies to all transactions by individuals (non-agencies) who purchase or refinance using FHA funds. Greg Frost advises that if you determine that a potential buyer is really an investor looking for a quick turnaround, steer away from FHA financing entirely and seek to place the buyer in a conventional loan.

* See http://www.hudclips.org/sub_nonhud/cgi/pdf/28050.pdf

ARM Indexes: A 10-Year Comparison

On October 31st, the Fed announced its second consecutive decrease in rates, cutting another 0.25% from the Fed Funds Rate. This change could directly impact millions of American borrowers.

Are you one of them?

Adjustable Rate Mortgages
If you currently have an ARM that is scheduled to reset in the next 14 months, then this news is good for you. Now is the time to investigate your options. Even if you have a pre-payment penalty or you're behind in your payments, don't delay. There may still be options available to get you out of your ARM and into a mortgage you can afford, including FHA or the new FHASecure program introduced by the President.

Important: The FOMC does not meet in November, so ask yourself this: Can you really afford to roll the dice until its next meeting in mid-December?

Buying at the Bottom of the Market
If you're looking to invest in real estate in the next six to twelve months, and recent rate cuts have inspired you to start taking action, now is the time to prepare yourself for intense credit scrutiny. There are a lot of great real estate deals to be had today. But if your credit doesn't stand up in today's tight-fisted credit environment, then you could easily miss out on an exceptional opportunity.

What's the point of taking advantage of discounted home prices if you can't qualify for the right mortgage or interest rate that makes it all worthwhile? Get pre-approved now and know exactly what you can afford. And with the right REALTOR® on your side, you can have incredible negotiating power in a buyers' market!

Refinancing - Know Your Options
While rate cuts often spark ideas of refinancing, this may not be the best choice for everyone. In some cases - especially in a market where home values are declining - refinancing may be impossible or disadvantageous. Call me today for a free mortgage review. Based on your individual goals and financial needs, we can explore every available option for you and your family.

I look forward to hearing from you soon.