Without question, the most powerful products in mortgages today are developed by Savings & Loan Associations/Portfolio lenders in the marketplace.

Morgan Stanley recently made a statement that "in the next 20 years, only two major lenders (not including the conduits of FNMA, GNMA, FDMC that currently sell onto Wall Street) will survive. Both are Savings and Loan Association/Portfolio lenders." These companies fund their loans directly from their depositors' accounts, and, therefore, they are very conservative. These lenders (one of which Clear Creek Financial is a Net Branch office, one of only three businesses in Colorado with this relationship) offer similar types of products.

COFI, COSI, and CODI are acronyms that stand for Cost of Funding Index, Cost of Savings Index or Cost of Deposit Index. These indices are very similar and are attached to highly stable short-term lending and savings rates. COFI, the most well known index, is equated with the cost of funds (primarily savings and checking accounts) for member institutions of the Federal Home Loan Bank's 11th District. The three indices are weighted, trailing averages, creating the most stable economic mortgage indices in the market place.

There are two primary ingredients to these loans. One is the index itself that changes with market conditions. The other is the margin, which is determined by credit issues of the borrower, the equity in the home, and the loan-to-value.

These products are available primarily only to borrowers with "A "credit ratings (no major credit issues) and with loan-to-values in the 70-90% range. Typically, these loans also have a 3 year "prepayment penalty." That means if you sell or refinance the house within that period of time you may be assessed 2% of the principal. In some cases the Penalty decreases with time. Sometimes this prepay is considered a soft pre-payment penalty and allows you to sell your home or refinance again as long as you use the same lender with a similar loan type and loan amount. The penalty is also waived if the buyer of your property uses the same lender to finance their mortgage with a similar product. You also have an ability to make payment of up to 20% of the loan balance per year with no penalty whatsoever, even during the three year prepay period.

These loans have two fundamental features that make them unique. One is that the borrower is allowed to make very low payments (typically 1.95%) for the first year. The second feature is that the loan re-amortizes each time a principal reduction is made, shaving several years off the life of the loan.

A rule of thumb is that a borrower with a $100,000 loan under this program will have a low pay rate of $367.12 per month in payments for the first year. Payments will increase a maximum of 7½ % per year for the first five years.

Thus, on $100,000 loan with a start pay rate of 1.95%, the yearly pay rate and maximum increases schedule would be as follows:

Year 1 1.95% $367.12

Year 2 $394.65

Year 3 $424.25

Year 4 $456.07

Year 5 $490.28

*Please note that these figures are P&I (principal and interest) only and do not include taxes and insurance.

At the end of 5 years the payments go to a fully-indexed rate. Currently the fully-indexed rate is approximately 4.8%. Any increase to principal on the note due to deferred interest from the pay rate is completely negated by making bi-weekly payments via auto debit.

Over a period of 4 years the savings will be nearly $7,000 over what a typical fixed-rate mortgage would be with a rate of 6.5%.

Our programs enable us to provide this type of lending for owner-occupied re-finances or purchases 70-90% LTV, as well as non-owner occupied re-fi's or purchases. Each loan is available for those that are able to provide full documentation of their income and/or asset base and are able to state the income. Variations of the above scenarios depend on credit issues as well as equity position and the property itself.

The CODI products afford great payment flexibility and allow homeowners to optimize and maximize their cash flow. With the additional cash that is generated through the refinance, we recommend that wise and prudent investments be made. One solid and prudent investment is, of course, real estate. Real estate provides several means by which an individual can enhance their financial picture. In addition to appreciation on a leveraged investment, one is able to receive additional tax benefits (such as depreciation and other expenses) that may generate additional cash flow. These benefits are particularly enhanced when one takes advantage of the CODI type of products. Oftentimes, the return on investment is double digit. We have the ability to finance personal residences as well as income properties.