Tuesday, November 2, 2010

BOOK REVIEW: Cracking the code on home finance

Book Review
Title: "The Mortgage Encyclopedia: The Authoritative Guide to Mortgage Programs, Practices, Prices and Pitfalls (Second Edition)"
Author: Jack Guttentag
Publisher: McGraw-Hill, 2010; 352 pages; $24.95

If ever there was a time America needed a mortgage professor, that time would be now. In the subprime days, consumers needed mortgage education, but they didn't know it, because it was so easy to achieve their overarching aim of qualifying for a home loan.

Now, not only is it much more difficult to qualify for a mortgage, the average American's mortgage goals center more around making the best decision, selecting the best mortgage for their lives, and, ultimately, scoring the best mortgage deal, than simply taking any mortgage that comes their way.

To feed America's next-generation mortgage education needs, enter Jack Guttentag, professor of finance emeritus at Wharton (and also a columnist for this column's syndicator, Inman News), with the second edition of his book, "The Mortgage Encyclopedia: The Authoritative Guide to Mortgage Programs, Practices, Prices and Pitfalls."

Guttentag, known as the "Mortgage Professor" for decades, has added 100 terms to this latest edition of his book that specifically address the latest developments in the mortgage market.

"The Mortgage Encyclopedia" is certainly a handy reference guide, but bits and pieces of it are readable and useful more in the vein of a primer and decision guide than an occasional reference.

Specifically, the sections on interest-rate locking, refinancing and the various loan program types (from adjustable-rate mortgages to reverse mortgages) are highly detailed yet user-friendly briefings on these topics, not only defining them but also delving into the decision points, pros and cons that mortgage consumers need to know about.

The section on lease-to-own arrangements, not even a mortgage topic in the strict sense, offers a great example of Guttentag's evolution of the encyclopedia format into something much more worthwhile for consumers than a traditional reference-only guide.

The Mortgage Professor first, as with every entry, offers a very basic, plain-English definition of a lease-to-own arrangement: a "transaction in which a hopeful homeowner-to-be leases a home with an option to buy it within a specified period at an agreed-upon price."

He then goes on to break down the essential provisions of a lease-purchase contract, and defines each of them in detail, offering examples of the trade-offs and possibilities for how each element can be structured.

Before wrapping this section up, Guttentag explores the various scenarios in which lease-options are used by both buyers and sellers and briefs readers on potential "Dangers to Buyers." It's a fairly thorough treatment of such a confusion-engendering topic, all in a couple of pages.

"The Mortgage Encyclopedia" would be an ideal buy for homeowners and wannabe homeowners at virtually any stage in the homeownership lifecycle.

Those in the process of even thinking about and planning for buying a home will find it extremely informative and empowering at deciphering the alphabet soup of mortgage jargon they will inevitably face while seeking to understand how much mortgage and home they can qualify for, and what cash they will need to come up with to close the deal and maintain their mortgage obligations going forward.

Due to today's lenders' tight lending guidelines, acronyms ranging from LTV (loan-to-value ratio) to DTI (debt-to-income ratio) will have a fairly dramatic impact on the eventual homes, finances and lifestyles of today's homebuyer-to-be, and Guttentag offers clarity on these critical concepts.

However, this book is at least as useful -- maybe more -- for current homeowners. Last week, the big mortgage news story was that the interest rate on a 30-year-fixed rate mortgage was 4.45 percent -- the lowest it's been since 1953, as long as the government has been tracking this metric.

And that's not all. Get this: In 2007, only 1 in 10 refinancing homeowners chose a 15-year fixed-rate loan; so far in 2010, 1 in 4 refinanced into a 15-year fixed vs. a 30-year loan, according to mortgage data company CoreLogic.

With all the refinancing, (attempted) loan modifying, short-selling and even walking away that's going on around the country right now, it seems to me that this is precisely the right time for "The Mortgage Encyclopedia."

Tara-Nicholle Nelson Inman News October 19, 2010

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