Are You Eligible To Get Rid Of Your PMI Payments?

If you're currently paying Private Mortgage Insurance (PMI) and have been for several years, it may be time to petition your lender to have the PMI payment removed.

PMI protects lenders from homeowners that stop making payments on homes with small amounts of equity. It's an insurance policy that is "cashed in" if the homeowners defaults.

However, federal law allows homeowners to petition the end of PMI if their loan-to-value (LTV) drops below 78%.

An example of 78% LTV is a home that is worth $100,000 on which $78,000 is owed to mortgage lenders.

If you are paying PMI and think you are eligible to have it removed, contact your mortgage lender and ask them about their procedure to remove PMI.

The lender may require that you have your home appraised (at your expense) and that may cost anywhere from $200 to $400 -- but if your petition is successful, the cost of an appraisal is still less expensive than the ongoing monthly cost of PMI.

The Week In Review (May 30, 2007) : What To Watch For

Mortgage rates continued their climb higher last week as markets dealt with contradictory data about the health of the housing and the economy.

New Home Sales registered its biggest gain in 14 years while Existing Home Sales reached a 4-year low; and purchases of "big-ticket" items such as computers, appliances and furniture unexpectedly jumped while the inventory of homes for sale rose to 8.4 months.

It's enough to confuse even the most experienced investor.

As a result of the data, traders postponed their expectation for a Fed Funds Rate decrease and that helped push mortgage rates higher on the whole.

This week should provide little relief from mortgage rate volatility.

Tuesday's Consumer Confidence revealed how consumers are feeling in the face of record-high gas prices and today's FOMC Minutes unmasked the inner discussions of the Fed's meeting earlier this month. Both can have a moderate impact on mortgage rates.

Friday, however, is the big day -- we'll get three major reports:

• Personal Consumption Expenditures: The Fed's preferred inflation gauge
• Personal Income and Outlays : A look at American savings and spending habits
• Non-Farm Payrolls: May's jobs report, including unemployment

All three releases on the same day, and into a nervous market, give this the potential for an Economic Perfect Storm. Expect extreme rate volatility heading into, and through, Friday.

(Image Courtesy: Warner Bros)

Saving A Nickel May Have Cost You A Dime

This cartoon by Wiley applies to mortgages in 2007 like it did to stock trading in 1999.

The least expensive mortgage options aren't always the least costly. A quick look at the Sunday paper's Foreclosure Notice section can verify that.

The right loan at a fair price saves far more money than the wrong loan at any price.

Enjoy the long weekend everyone!

Why You Should Re-Pre-Qualify Yourself Today

If you're in the process of buying a home and are working without a rate lock, take notice: over the past two weeks, mortgage rates have spiked to their highest levels since November 2006.

Your actual mortgage payment will be higher than you originally anticipated.

Depending on your preferred mortgage product, rates have increased by as much as one-half of one percent.

Mortgage experts expect the surge to continue over the next 30 days, at a minimum.

If your mortgage pre-approval is dated prior to May 9, call your lender and ask him to re-run it using today's rates and market conditions. If you don't have a pre-approval yet, today would be a good day to get one.

How Lenders Protect Against Losses When Mortgage Markets Deteriorate

The graph at right shows the path of mortgage rates in May. The rate run-up continued yesterday.

After a fairly tame start, yesterday's action rapidly slipped away from mortgage rate shoppers beginning at 12:00 P.M. ET.

Many lenders responded by invoking their right to a mid-day reprice as well, with some adding as much as 0.25% to their prices.

A mid-day reprice signals rapid changes in mortgage market conditions. They don't happen everyday, but on days like yesterday when the market deteriorates as quickly as it did, lenders don't like the idea of offering interest rates that are "below market" rate.

When you consider that we're talking about banks, this is a concept that's fairly easy to grasp.

Unfortunately, though, when markets take the opposite course and improve rapidly, lenders are not so quick to mid-day reprice; they'll usually opt to just wait to embed the changes in the next morning's rate sheets.

Again, when you consider that we're talking about banks, this is a concept that's fairly easy to grasp.

It's the old adage: mortgage rates take the elevator up, but take the stairs down.

If you received rate quotes yesterday morning and did not lock, be sure to check back in today -- your quoted rate will be higher.

(Image source: Bankrate.com)

One Method To Reduce The Amount Of Sub-Prime ARM Foreclosures

The graphic at right comes from The Wall Street Journal and it illustrates something that we all intrinsically know: Sub-Prime ARMs foreclose at a faster pace than all other home loan types.

When adjustable rate mortgages reach the end of their "fixed rate" period, some homeowners are unprepared for the upward-adjusting mortgage payments and that can lead to payment shock.

It doesn't mean that sub-prime mortgages are bad for all homeowners, however.

A little known fact: Nearly all sub-prime ARMs carry an initial fixed period of 24 months or more. This means that the sub-prime borrower has at least two years to make financial adjustments that include:

1. Paying collections, charge-offs and other delinquent accounts
2. Making timely payments on loans, credit cards, and open charge accounts
3. Reduce his monthly debt load with systematic payments to creditors

All of these actions help the homeowner ascend from sub-prime borrower status and into the realm of "prime" loans. It's the responsibility of the loan officer to help guide the way.

A trusted loan officer will help a sub-prime borrower to develop a financial plan and will hold them accountable. Then, as the borrower's status changes from "sub-prime" to "prime" because of better credit scores and payment history, the loan officer will remortgage the borrower out of his sub-prime loans and into a new, more favorable (fixed-rate, perhaps?) loan.

For borrowers who follow "the plan", their sub-prime loan will never adjust --they'll get rid of the loan before that two year period ends.

This is a terrific method for reducing sub-prime ARMs in foreclosure -- improve a homeowner's credit rating so they can leave the sub-prime world on their own accord and before their payment ever has a chance to change.

The Week In Review (May 21, 2007) : What To Watch For

Mortgage rates moved substantially higher last week as traders reacted to Thursday's Initial Jobless Claims.

The amount of new unemployment filing dropped below 4-week trend line is now at its lowest levels in a year.

Fewer unemployment claims coupled with increasing employee wages raised fears of inflation and inflation nearly always pushes mortgage rates higher.

This week is practically devoid of data but there are two key housing releases -- Thursday's New Homes Sales and Friday's Existing Home Sales -- that could move mortgage rates.

In addition, as investors look for higher returns, they siphoning money from their bond investments and moving it into the stock market which has seemed unstoppable as of late.

This, too, is placing sell-side pressure on mortgage bonds.

As mortgage bonds sell off, it pushes mortgage rates higher for homeowners. Expect traders to ride last week's wave until Thursday, at least.

If you're shopping for mortgages today, it may be prudent to lock your rate and avoid fighting the current rate trend.

How "Repair Credits" To The Buyer Can Sabotage Your Home Sale

When buyers and sellers look for common negotiating grounds, it's common for the buyer to request home improvements to be made prior to the sale.

The request may be phrased in any number of ways:

• "The hardwood floors are warped and we think the seller should pay for it."
• "There is a leak in the plumbing that needs to be fixed to prior to moving in."
• "The roofing reached the end of its life. It needs to be replaced."

The seller may agree to meet the buyer's demands, but making repairs to a home fixture, such as a roof, isn't convenient while a person still occupies a home.

And this is how the "repair credit" gets introduced into the contract. A repair credit is a dollar amount granted from the seller to the buyer to be used to cover the costs of the requested repair(s).

For a seller, repair credits offer a way to "pay for" the handyman work without actually going out of pocket; all of the funds for the buyer are taken directly from the home sale's proceeds instead of from a bank account.

Unfortunately, when granting the repair credit, many sellers go about it in the complete wrong way, putting their buyer's ability to acquire home financing for the purchase at risk.

That's because -- as a rule -- lenders do not allow concessions for home repairs to be line-item credited on the final settlement statement.

This is for two reasons:

1. The lender has no way of knowing that the repair will actually be made by the buyer
2. The lender has no way of knowing whether or not the repair is actually needed

Put the two together and it raises the red flag we call "Fraud Alert".

The correct way to offer a repair credit is to reduce the home's sale price by the amount of the credit and make that the new purchase price. In the end, the seller goes home with the same amount of money.

How Psychological Factors Are Pushing Mortgage Rates Higher

Mortgage rates have held in a very tight range over the past few months, but little by little, they are inching higher.

Mortgage rates are not picked from thin air. Just like stock prices, they are based on facts, opinions, and psychology.

There is a lot of news and data to interpret but, for the first time since last Fall's precipitous decline in rates, psychological factors are now the driving force.

Mortgage bonds recently pushed through a "barrier" that should place continued pressure on mortgage rates to increase. In the last two years, mortgage prices have crossed this barrier just one time.

Trends tend to last for extended periods of time in the mortgage business and, for now, the trend is not your friend. If you're shopping for a mortgage, today would be a good day to lock.

Hot Housing Starts Figure May Push Mortgage Rates Higher

Each month, the Commerce Department releases a statistic titled "Housing Starts" that measures residential construction activity.

This morning, the Commerce Department released April's Housing Starts data (PDF) and the headline data reflected a 2.5% (±9.3%) increase in new construction.

Markets had anticipated a 0.8% decrease. This coincided with a decrease in available homes, as shown on the graph at right.

Housing Starts details the number on residential units on which construction started in the reported month.

Housing Starts can provide terrific guidance on the future direction of our economy for several reasons:

1. Home construction creates jobs in the construction industry
2. Home builders spend dollars on raw materials, fixtures and appliances when building a home
3. Home buyers spend money on furniture, electronics and services (i.e. movers) after buying a home

So, as more homes are built, more jobs are created, and more money is pumped back into the economy.

A hot Housing Starts number can predict strong economic growth 6-9 months out on the horizon and that is one reason why economists watch it intently.

Another reason Housing Starts matters is because the Federal Reserve is inflation-wary.

It has stated many times that growth is strong but that housing is dragging down overall growth to a more comfortable level. The housing sector, it believes, will create a gradual economic slowdown.

Today's data may prove otherwise.

In response, expect mortgage rates to rise today on inflation concerns.

When You Can't Pay The Mortgage, Pick Up The Phone Pronto

According to RealtyTrac, one out of every 783 homes in the United States filed for foreclosure in April. This is down one percent from March, but up 62 percent from one year ago.

If you are struggling to pay your mortgage and have not yet entered foreclosure, the best thing to do is to call your lender and notify them of your difficulties.

There is no need for a long sob story -- just the facts will do.

Remember: foreclosure is a difficult and expensive proposition for mortgage lenders and they want to avoid it just as much as you do. Often, they'll help you craft a payment plan to get current on your loan(s) -- but they have to hear from you first!

Anything you can do to preserve your credit rating serves you well in other areas of your financial world including credit card interest rates, auto loans, and insurance payments.

Bad situations happen to people who otherwise have good credit all the time. Don't let a temporary problem destroy your credit or threaten your home.

No one benefits from drastic action taken against you, so give the lender a call and work things out to everyone's satisfaction.

As Expected, Housing Drags Down Retail Sales

When consumer spending slips, it can send shockwaves through the economy. Consumer spending, after all, makes up 70% of the economy.

The best measure of consumer spending data is Retail Sales, a monthly figure describing how much money Americans are spending, and where they're spending it.

Retail Sales unexpectedly fell in April and that would usually push mortgage rates lower on the prospect of a slowing economy.

Not so much this month, though, and the answer lies in the sector-by-sector breakdown.

Against expectations of a 0.4% increase, sales were down 0.2% in April. That downturn was clearly led by the performance (or lack thereof) in the Building and Garden Stores sector.

Its sales decreased by 2.3% month-over-month and the industry served as a parachute slowing down spending that is, otherwise, consistent and strong.

As we keep hearing in the press, housing is the most likely candidate to slow down the economy. It's not a surprise or a secret and markets are acutely tuned in to the sector.

So, as Building and Garden lays an egg and drags down the overall Retail Sales figures, markets shrug. Overall this week, mortgage rates are slightly higher, still recovering from the Fed's press release Wednesday.

Making English Out Of Fed-Speak (May 2007 Edition)

The Fed left the Fed Funds Rate unchanged again today for the seventh time in a row after 17 consecutive hikes. But, we knew that was going to happen.

The Fed's press release highlights a growing concern in mortgage markets: growth is slowing overall even as inflation threats remain.

This combination is sometimes called stagflation, but has also be referred to as "slowflation" by economists that don't want to invoke memories of the early-1980s interest rate cycle.

Mortgage markets did not take favorably to the Fed's press release and mortgage rates are slightly higher this morning.

Source
Parsing the Fed Statement
The Wall Street Journal Online
May 9, 2007
http://online.wsj.com/public/resources/documents/info-fedparse0705.html

Today Is FOMC Day : What Will They Do/Say?

The Federal Open Market Committee meets today and markets will be hanging on their every word.

There is virtually no chance that the Fed will change the Fed Funds Rate from its current 5.250% level, so its the Fed's press release that will get all of the attention.

We'll disect the message in tomorrow's blog post.

Important to know: The Fed does not control mortgage rates. At least not directly -- their words can cause mortgage markets to make bets on the future and that can change mortgage rates.

The Fed only directly controls the Fed Funds Rate.

FFR matters to you and me because it is used to calculate Prime Rate, a popular consumer interest rate used for credit cards and home equity lines of credit.

When the Fed holds the FFR at 5.250%, it means that the interest rate on our collective credit card and home equity line debt will remain unchanged, too.

The "Kick 'Em While They're Down" Rule

In his weekly syndicated column, Kenneth Harney pulled back the curtain on a nasty piece of IRS tax code that can penalize homeowners with foreclosures and short sales.

Because the IRS treats canceled debt as ordinary income, homeowners that "work something out" with their lender may inadvertently add tens of thousands of dollars to their annual tax liability.

According to the tax code, when a creditor agrees to cancel a personal debt of $600 or more, it is required to submit a 1099-C, Cancellation of Debt form to the IRS. And, when the IRS receives this form, it treats the canceled debt as income.

So, if your mortgage lender agrees to "forgive" $40,000 on your mortgage in a short sale, you are required to report that $40,000 as income to the IRS -- even though you never physically held the $40,000.

This is how a person's tax liability can dramatically increase. Imagine if you were taxed on $40,000 that you never "earned".

Capitol Hill is taking steps to offer relief to homeowners by modifying the tax code related to cancellation of debt.

The Mortgage Cancellation Tax Relief Act of 2007 would amend the tax code to forgive debt cancellations on primary residences and is currently before the House Ways and Means Committee, the primary tax legislation body of Congress.

(Image Courtesy: Paul Johnson)

The Week In Review (May 8, 2007) : What To Watch For

Data painted a dismal picture for the economy last week including tempering inflation readings, slowing job growth, depressed home sale data, and ever-higher gasoline prices. This gave markets hope that the Fed may start to ease up on the Fed Funds Rate.

But, while the stock market rallied on the news, the bond market continued its same blah performance that stretches back three weeks. Once again, mortgage rates were left relatively unchanged.

That all might end this Wednesday when the Federal Open Market Committee adjourns and releases its statement to the markets. Expect the Fed to hold the Fed Funds Rate at 5.250%, but as always, it's not what the Fed does that matters as much as what the Fed says.

If the press release indicates that the Fed sees weakness in the economy, mortgage rates will fall. If the Fed indicates persistent strength in the economy, mortgage rates will rise.

In the Fed's statement, expect to see verbiage about rising oil prices, stabilizing housing markets, and questions of the American consumer's ability to sustain its spending habits.

Then, Friday morning, we'll get our first look at how that question may be answered. The April Retail Sales report will be released at 8:30 A.M. ET and if it shows up weaker than expected, mortgage rates will fall.

Where Does Your Town Rank Of America's Top 100 List of 2007?

Relocate-America.com selected Asheville, NC as their #1 city in the annual report "America's Top 100 Places To Live". This is the second time that the mid-size city of 70,000 ranked in the list's Top 10, compiled since 1998.

Rounding out the rest of the Top 10:

1. Asheville, NC
2. Traverse City, MI
3. Ithaca, NY
4. Chicago, IL
5. Cary, NC
6. Portland, ME
7. San Francisco,CA
8. Stevens Point, WI
9. O'Fallon, MO
10. Spencer, IA

You can view this year's complete list at http://top100.relocate-america.com/.

How The ADP Jobs Report Impacts Mortgage Rates

If yesterday's ADP Employment Report is any indication, tomorrow's jobs report may fall short of the 100,000 new job expectation from the Bureau of Labor Statistics.

ADP reported 64,000 new jobs were created in April.

The ADP report has never been in lock-step with the "official" report from BLS, including this well-publicized event in June 2006 when ADP reported 368,000 new jobs created versus the BLS's figure of 121,000.

In that week, mortgage rates swooned on the ADP news and then tanked on the BLS report. To say traders were surprised at the discrepancy is an understatement. Mortgage rates jumped 0.25% and fell 0.25% within 48 hours.

In the past 11 months, though, the ADP report is growing increasingly more "accurate" with respect to the Non-Farm Payroll report from BLS and that is why yesterday's 64,000 is getting some respect in trading pits.

If ADP is on track and job growth is lower than expected, mortgage rate shoppers should benefit from lower mortgage rates overall because fewer workers means fewer dollars spent in the economy.

Jobs Report Is The 800 Pound Gorilla In The Room

There's a palpable uneasiness in mortgage markets right now and Friday's payroll report looms large.

Remember: it's not the actual data that matters -- it's how close the data is to its expected levels.

All week, traders have been jockeying for position based on a projected 100,000 new jobs created and if the number is not 100,000, there will be a lot of scrambling.

If the actual figure is lower, than it signals additional weakness moving forward in 2007.

Fewer workers means fewer paychecks spent on food, clothing and housing so rates should retreat on economic weakness. Consumer spending, after all, makes up 70 percent of our economy.

The reverse is true if the actual jobs figure is higher. Rates should increase in that instance.

Expect a lull in market activity until tomorrow afternoon and then be prepared for shock waves Friday morning.

This is the last set of major data before next Wednesday's FOMC meeting and it will be closely monitored by traders the world over.

Why "Prime Rate" Is A Name And Not A Number

Pop Quiz:
Which interest rate is lower?

1. 8.25%
2. Prime Rate

If you answered anything other than "they are the same", then you can understand first-hand why banks refer to Prime Rate by name instead of by number.

It's a neat little piece of sales psychology that keeps people from recognizing their true cost of credit.

Prime Rate is based on the Fed Funds Rate and is pegged to be 3.000% higher. FFR is currently 5.250% (see chart at right) so Prime Rate is three percentage points higher, or 8.250%.

Since June 2004, Prime Rate has increased by 4.250% from 4.000% to today's levels (again, see chart at right). During that time span, the interest rate paid on home equity lines of credit have increased by 4.250%, too. For many homeowners, this is surprising (and costly) news.

And it's also one of the main reasons why Prime Rate is called by its name, and not by its value. Homeowners are less likely to pay attention.

For example, home equity lines of credit are based on Prime Rate and many homeowners know that their rate is "Prime + 0.500%", or something similar. Many, however, are unaware of the actual number that is their interest rate.

As Prime Rate has increased, homeowners that aren't paying attention to their mortgage(s) are carrying a household "blended" interest rate that may be much higher than anticipated.

What good is the 5.000% interest rate on the first mortgage if the second mortgage is clocking in at 9.000%? It may make sense to "rebalance" your loans to lower your overall payments because HELOCs are so much more expensive, relative to past years.

If you don't know your household's blended mortgage rate, or how changes to Prime Rate have impacted your monthly interest payment, ask your mortgage professional for help.