What Is The Fed Funds Rate?

The Federal Open Market Committee adjourns from its two-day meeting this afternoon and is widely expected to lower the Fed Funds Rate. This does not mean that mortgage rates are being lowered, too.

The definition of Fed Funds Rate from the Federal Reserve:

The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day. The target federal funds rate is set by the Federal Open Market Committee (FOMC).

Notice that the words "consumer" and "mortgage" are nowhere to be found. That's because the Fed has nothing to do with them.

The Fed does not control mortgage rates.

The Federal Reserve's policy-changes impact banks, which then impacts consumers in the form of "looser" or "tighter" credit standards.

In lowering the Fed Funds Rate, the Federal Reserve stimulates the economy. In raising the Fed Funds Rate, it slows the economy. The big risk, therefore, is lowering too much (which promotes inflation) or raising too much (which retards growth). It's a difficult dance.

The FOMC will release its policy statement at 2:15 P.M. ET.

Source
FRB: FAQs: Monetary Policy
http://www.federalreserve.gov/generalinfo/faq/faqmpo.htm#3

How To Save Money By Choosing A Better Closing Date

When a loan officer locks a mortgage rate for you, that rate is tied to an expiration date.

The expiration may be 30 days, or 75 days, or 90 days, or more into the future, but so long as the rate is "locked", the bank is committed to delivering that rate to you at your closing.

What most people don't know is that the longer the rate lock, in general, the higher the interest rate and/or fees and that's because banks can't predict the future.

The more time that passes between today and your rate lock expiration, the more likely it is that market conditions will have changed from where they are today, and the bank will be "below market" on your individual loan.

Therefore, banks compensate for this "time risk" by increasing their rate of return (i.e. your mortgage rate), and/or charging "extended lock fees" to borrowers.

To lenders, rate locks represents a huge risk -- what if its prediction of the future is wrong?

Rate locks vary from lender to lender, but in general, they move in 15-day increments -- 15-day, 30-day, 45-day, et cetera. After 90-days, rate locks tend to move in 30-day increments. The shorter the time, generally, the lower the rate and/or fees.

So, when you're negotiating a new contract on a home, it makes more sense to set a closing date 30 days in the future as opposed to 40 days; 45 days as opposed to 46. By keeping your rate lock commitment days as low as possible, you'll help save money long-term.

There's no sense in paying for extra rate lock days if you don't need them.

The Week In Review (October 29, 2007) : What To Watch For

Strong earnings from Apple, American Express, Microsoft and Boeing helped to keep markets in balance last week after reports of weak business spending and poor housing data (again).

The available data doesn't seem to match corporate earnings reports and that is giving investors fits.

Mortgage rates bounced around last week on the lack of conviction from the markets.

The uncertainty may be resolved this week, though, after several major events make their way through trading circles.

The first major event is the Federal Open Market Committee's two-day meeting, beginning October 30-31.

The FOMC meets eight times annually and, at its last meeting, the FOMC voted to lower the Fed Funds Rate by 0.500% to 4.750%. When this happened, mortgage rates briefly dipped, and then soared.

As of today, markets are predicting another decrease, but are unsure of how large the decrease will be. If you are currently floating your mortgage rate, or shopping for a mortgage, you'll likely have much different pricing prior to the Fed's meeting than after it so be aware.

Then, on Thursday, the next major event hits: the Personal Consumption Expenditures. This is the Fed's preferred inflationary gauge and PCE is expected to show a 1.7% increase. If the number comes in hotter than expected, though, the dollar should weaken on inflation concerns, thereby causing mortgage rates to rise.

And, lastly, on Friday we'll get October's employment report.

It's expected that the economy added 90,000 jobs in October and that the unemployment rate held flat at 4.7%. Each month, this data point is a huge market mover because more working Americans means that more Americans can afford to consume goods. More consumption pushes the economy forward so as we head into the Holiday Shopping season, the employment data should impact Retail Sales for October, November and December.

It's a busy week, everyone, and mortgage rates could be very different from day-to-day. If your rate looks good today, perhaps you should consider locking it.

Is A Fed Funds Rate Cut Good News Or Bad News? It Depends On Your Perspective.

The Federal Open Market Committee is widely expected to lower the Fed Funds Rate next week.

For holders of credit cards and home equity lines of credit, this is good news.

Both of these financial products feature interest rates tied to Prime Rate. Prime Rate is tied to the Fed Funds Rate.

When the Fed Funds Rate comes down, therefore, so does the rate of borrowing for credit cards and HELOCs.

For mortgage rate shoppers, a drop in the FFR could be bad news.

When the Fed lowers the Fed Funds Rate, it signals that the U.S. economy is weakening and that tends to weaken the U.S. dollar. When the dollar weakens, the value of dollar-denominated securities weaken, too.

Mortgage bonds are denominated in dollars, of course, so when the dollar loses value, mortgage bonds lose value as well. This causes mortgage rates to move higher.

After the Fed's last meeting, it lowered the Fed Funds Rate by 0.500% and, predictably, mortgage rates headed higher in response.

According to Bloomberg, as of this morning, market players are predicting with 90 percent certainty that the Fed will lower the Fed Funds Rate by at least a quarter. That means that the currently low level for mortgage rates may not last much longer.

Monthly Reiteration: Real Estate Is Not A National News Story

The Wall Street Journal used a lot of ink this morning on September's Existing Home Sales data, including the chart below. It's frightening to the lay person who may not know how to interpret data like this.

Remember: real estate is local.

Yes, on a national level the number of homes for sale is increasing and the housing market is showing weakness, but on a local level, the story is always different.

And, despite chunking the national data into 28 "Major Markets", the figures below still can't be considered "local". The Miami-Fort Lauderdale market, for example, is a 31.6 mile tract of land.

The Association of Realtors has actually stated that the current state of the mortgage market is not permanent and that there has even been an improvement in recent weeks regarding the availability of "Jumbo Loans" (Mortgage Loans that exceed the current $417,000 limit established as a prerequisite for loans that can be purchased by Fannie Mae and Freddie Mac).

Real estate markets vary by neighborhood and even by street. It's why one zip code may be hot, and a neighboring zip code may be flat. It's also why we should ignore national real estate price patterns and focus on the local trend instead.

(Image courtesy: Wall Street Journal Online)

Protecting Your Credit During Divorce

Samuel Pabón, CMPS
Certified Mortgage Planner
Premier Investments Mortgage, LLC

UPPER MARLBORO, MD – When a marriage ends in divorce, the lives of those involved are changed forever. During this time of upheaval, one thing that shouldn’t have to change is the credit status you’ve worked so hard to achieve.

Unfortunately, for many, the experience is the exact opposite. Unfulfilled promises to pay bills, the maxing out of credit cards, and a total breakdown in communication frequently lead to the annihilation of at least one spouse’s credit. Depending upon how finances are structured, it can sometimes have a negative impact on both parties.

The good news is it doesn’t have to be this way. By taking a proactive approach and creating a specific plan to maintain one’s credit status, anyone can ensure that “starting over” doesn’t have to mean rebuilding credit.

The first step for anyone going through a divorce is to obtain copies of your credit report from the 3 major agencies: Equifax, Experian®, and TransUnion®. It’s impossible to formulate a plan without having a complete understanding of the situation. (Once a year, you may obtain a free credit report by visiting www.AnnualCreditReport.com.)

Once you’ve gathered the facts, you can begin to address what’s most important. Create a spreadsheet, and list all of the accounts that are currently open. For each entry, fill in columns with the following information: creditor name, contact number, the account number, type of account (e.g. credit card, car loan, etc.), account status (e.g. current, past due), account balance, minimum monthly payment amount, and who is vested in the account (joint/individual/authorized signer).

Now that you have this information at your fingertips, it’s time to make a plan.

There are two types of credit accounts, and each is handled differently during a divorce. The first type is a secured account, meaning it’s attached to an asset. The most common secured
accounts are car loans and home mortgages. The second type is an unsecured account. These accounts are typically credit cards and charge cards, and they have no assets attached.

When it comes to a secured account, your best option is to sell the asset. This way the loan is paid off and your name is no longer attached. The next best option is to refinance the loan. In other words, one spouse buys out the other. This only works, however, if the purchasing spouse can qualify for a loan by themselves and can assume payments on their own. Your last option is to keep your name on the loan. This is the most risky option because if you’re not the one making the payment, your credit is truly vulnerable. If you decide to keep your name on the loan, make sure your name is also kept on the title. The worst case scenario is being stuck paying for something that you do not legally own.

In the case of a mortgage, enlisting the aid of a qualified mortgage professional is extremely important. This individual will review your existing home loan along with the equity you’ve built up and help you to determine the best course of action.

When it comes to unsecured accounts, you will need to act quickly. It’s important to know which spouse (if not both) is vested. If you are merely a signer on the account, have your name removed immediately. If you are the vested party and your spouse is a signer, have their name removed. Any joint accounts (both parties vested) that do not carry a balance should be closed immediately.

If there are jointly vested accounts which carry a balance, your best option is to have them frozen. This will ensure that no future charges can be made to the accounts. When an account is frozen, however, it is frozen for both parties. If you do not have any credit cards in your name, it is recommended you obtain one before freezing all of your jointly vested accounts. By having a card in your own name, you now have the option of transferring any joint balances into your account, guaranteeing they’ll get paid.

Ensuring payment on a debt which carries your name is paramount when it comes to preserving credit. Keep in mind that one 30-day late payment can drop your credit score as much as 75 points. It is also important to know that a divorce decree does not override any agreement you have with a creditor. So, regardless of which spouse is ordered to pay by the judge, not doing so will affect the credit score of both parties. The message here is to not only eliminate all joint accounts, but to do it quickly.

Divorce is difficult for everyone involved. By taking these steps, you can ensure that your credit remains intact.

Sam Pabón, CMPS, is affiliated with Premier Investments Mortgage, LLC, a Licensed Broker, MD Department of Labor, Licensing and Regulation. If you would like to obtain a free Consumer Credit Scoring Booklet, and currently live in MD,VA, or DC, please contact Sam Pabón at 301.702.0190 x130.

Appraisals are as much art as science

The number of home valuation Web sites continues to grow.

A simple Google search for "How much is my home worth?" shows 119,000 results and seems to get larger month-over-month.

For home sellers, these programs can give a false sense of security (or insecurity!) about what price a home should be listed for sale.

Computer programs can never replace the role of licensed home appraisers and that's because valuing a home is not as simple as providing some inputs (traits) in order to get some output (value). There is a "fuzzy logic" that computer programs just can't produce in the same way that appraisers and real estate agents can.

Even with tax records, recent sales data, and a full description of a property, valuing a home is as much "art" as "science".

There are "human" considerations that include neighborhood quality and curb appeal that a computer can't measure. Nor can a program take into account how a kitchen may require $20,000 worth of work to bring it "up-to-date" or inline with neighbors' homes.

Besides, the real value of a home is what somebody is willing to pay for it. Therefore, one can never truly know what a home is worth, until it has sold.

So, while automated valuation tools are a good start to finding a home's value, they're not equipped to finish the job.

(Image courtesy: Kirchoff Appraisals)

How The Stock Market Is Directing Traffic For Mortgage Rates

As we talked about yesterday, the stock market appears to be directing traffic for the bond market.

Monday was a flat day for stocks, and it was a flat day for bonds, too. Mortgage rates idled.

Tuesday, with no economic data hitting the wires, market participants will be looking for direction elsewhere.

Some likely candidates include:

1. The price of oil. If oil prices continue to rise, it will place inflationary pressure on businesses and consumers. That is bad for mortgage rates.
2. The value of the dollar. A recent rally in the dollar should attract foreign investors to the U.S. markets. That is good for mortgage rates.
3. Corporate earnings statements. Apple and American Express both showed well in Q3. A rally in the broader stock market will pull money from the bond markets. This is bad for mortgage rates.

Mostly, markets are taking very few risks in advance of the Federal Open Market Committee meeting next week. Momentum rules.

The Week In Review (October 22, 2007) : What To Watch For

Rising oil prices, weak housing data, and ongoing credit concerns pushed mortgage rates lower last week as investors sought safety for their dollars. Stock markets took losses and bond markets -- including mortgage bonds -- booked gains. Remember, when mortgage bonds go up in price, mortgage rates come down.

To understand why mortgage rates tend to drop when stock markets have a sell-off, we should look at the situation from an investor's perspective.

When lots of investors are selling stock positions, stock markets fall. The investors get cash in return for their sold securities. But cash doesn't offer much of a return on investment. So, investors look for "better" places to invest their cash.

The bond market usually fits the bill.

As more dollars enter the bond market, the relative demand for each type of bonds increases. With the higher demand, bond prices move higher, thereby pushing yields down. And mortgage bonds are just one type of bond that benefits like this -- there are municipal bonds, corporate bonds, and treasury bonds/notes, too.

This week, the biggest news will be Wednesday's release of the Existing Home Sales report, and Thursday's New Home Sales. Both are expected to show relative weakness from August's figures but because the weakness is expected, the news shouldn't move mortgage rates.

The biggest threat to mortgage markets this week will be changing expectations about the Federal Open Market Committee's meeting next Tuesday and Wednesday. If markets believe that the Fed will try to spur economic growth, expect money to flow back into stocks (at the expense of bonds) which will pull mortgage rates higher.

(Image courtesy: Google Finance)

Wall Street Bloodbath!

The above headline is from the New York Post on October 20, 1987. Today marks the 20th anniversary of the single largest percentage stock market sell-off in history.

The Dow Jones Industrial Average fell 508 points or 22%, triggering a reduction in the value of all U.S. outstanding stocks in the sum of $500 billion and earning that fateful day the unenviable title of Black Monday.

Prior to that wild meltdown, 1986 and 1987 had been banner years for the equity markets - fueled by hostile takeovers, leveraged buyouts and merger mania.

The response was quick and decisive as the Federal Reserve stepped forward to help during this event and pumped liquidity into the system by lowering short term interest rates. Experts believe that it was the quick thinking on the part of the Fed that enabled both the Dow and the S&P 500, which had fallen to 225.06 from 282.7 on Black Monday, to regain their lost value within 24 months.

The relatively quick recovery eliminated the very serious possibility of a recession. There was no repeat of the sorrowful recession and depression that followed the 1929 crash.

Brought to you, courtesy of The Mortgage Market Guide

Just Because You Can Borrow From a 401(k) Plan Doesn't Mean That You Should

According to the Wall Street Journal, the number of Americans taking loans against their 401(k) plans is increasing because most plans allow participants to borrow funds to purchase a home or to avoid foreclosure.

But just because the avenue is there, though, doesn't mean that borrowing from a 401(k) is a good idea.

Here's why: When you put money into a 401(k) plan, you use pre-tax dollars but when you repay a 401(k) loan, you use post-tax dollars.

Therefore, if your tax rate is 28%, it takes $1,388 of income to repay each $1,000 increment of your loan. Then, when you withdraw the funds at retirement, the money is taxed again.

Double-taxation is costly, but the other less-well-known impact of a 401(k) loan is that you can lose the long-term power of compounded interest on your entire portfolio.

This isn't to say that a 401(k) loan is bad, it just may not be right for you. So, if you're planning to withdraw from your 401(k), be sure to talk with a qualified financial professional first.

If you'd like a referral to a trusted professional, call or email me anytime.

How Terrible Housing Data Can Actually Help Push Home Values Higher

Once again, the headlines may be misleading you. It's a good thing that Housing Starts dropped last month -- despite what the papers say.

A "housing start" is a new residence on which construction has started. Yesterday, the government released September 2007's Housing Starts data for the country.

1. There was a 10.2% drop in Housing Starts versus August 2007
2. There was a 30.8% drop in Housing Starts versus September 2006

The headlines are trying to tell us that this is bad news for the U.S. economy. On the contrary -- this is excellent news!

Determining a home's value is mostly based on Supply and Demand for that particular home. In its own neighborhood, an over-supply of like homes can be a significant drag on the value of all homes in the neighborhood This is a concept many people understand.

So, when builders stop adding new supply to the housing market -- on a neighborhood-by-neighborhood basis -- the existing demand for homes can "catch up" with the existing supply of homes. This can rebalance the Supply and Demand equation and place upward pressure on home values.

Many homeowners (and future homeowners) can agree that rising home values is a good thing. Rising home values creates wealth and opportunity.

So, just because the headlines read that the news is bad, that doesn't mean that it really is bad. Housing Starts are down and that is a good thing.

(Image courtesy: The Wall Street Journal Online)

How Japan And China Can Impact The Mortgage Rate On Your Home

Mortgage rates are determined by the prices of mortgage bonds; this, we've covered before. As bond prices go up, bond rates come down.

And the price of a mortgage bond is a matter of Supply and Demand.

The greater the demand for a bond, the higher its price. High demand for bonds is one reason why mortgage rates remained relatively low for the period spanning the last few years.

That period may be ending soon.

In August 2007, for the first time since 1998, foreign nations sold more long-term U.S. securities in a month than they bought, thereby increasing the market supply. This happened for a number of reasons including:

• The Federal Reserve lowered the Fed Funds Rate
• Fear of a U.S. credit market collapse
• General uncertainty about the strength of the U.S. economy

When the supply of securities outweighs its demand, there is a downward pressure on the price of that security. This is one reason why mortgage rates trended higher in August and September; the excess supply of mortgage bonds forced mortgage bond prices to drop and that, in turn, pressured mortgage rates higher.

Worth noting is that the top two holders of U.S. debt -- Japan and China -- trimmed their holdings in August by 4.1% and 2.2%, respectively. If Japan, China and other nations continue this trend of selling U.S. debt in the months ahead, mortgage rates will continue to feel the pressure to move higher.

If all of this sounds "foreign", remember that, like the price of a stock, mortgage rates are not divined from thin air. Rates come from the price of mortgage bonds -- nothing else.

And, those prices are determined by simple Supply and Demand.

Source
Bond Market Update
Briefing.com
October 16, 2007

(Image courtesy: Directopedia)

How Mortgage Calculators Can Be Misleading

Mortgage calculators are ubiquitous on real estate-related Web sites but that doesn't mean that they're helpful.

See, Internet-based mortgage calculators take three figures into consideration when determining "how much home can you afford".

• Income
• Debt
• Downpayment/Equity

Next, the calculator figures in your downpayment, multiplies your income by a factor of .38 and spits out an answer: "You can afford x amount of a home."

By contrast, a true mortgage approval takes twenty-six factors into consideration.

Mortgage calculators like the one above specifically don't ask about:

• Credit score
• Recent bankruptcies
• Collection items
• Outstanding judgments or liens
• Intended use of property (i.e. investment property)
• Type of property (i.e. non-warrantable condominium, 6-unit)

And this is why mortgage calculators are dangerous and misleading.

Even assuming a person's credit history is "perfect", mortgage calculators can still steer you wrong. That's because mortgage calculators ignore "compensating factors".

A "compensating factor" on a home loan application is an exceptional strength that cancels out an exceptional weakness that would otherwise cause the loan to be denied.

One example is a person whose monthly debts are relatively high versus their income. This person can still be approved for a loan if the equity position in their home is very strong. The large percentage of equity compensates for the relatively low income and, thus, a loan that may have otherwise been denied can now be approved.

Compensating factors are an important part of the mortgage approval process and the online calculators just can't account for it.

The best alternative to Web-based mortgage calculators is to speak with a human mortgage calculator -- otherwise known as "a trusted loan officer". Only a human can tell you both how much home you can afford, and for what loan amount you would be approved.

The Week In Review (October 15, 2007) : What To Watch For

The economy appears to have shrugged off August's credit market turmoil and is continuing to expand. This pushed mortgage rates higher last week as market players move money into stocks and hope to capitalize on the Dow Jones rally.

After the Fed's last meeting, the central bank lowered the Fed Funds Rate by 50 basis points, or 0.50%.

At the time, the economy was widely viewed to be in, or entering, a recession.

• The August jobs report showed a net loss of jobs
• Billions of dollars in value were wiped each day in the credit markets
• General economic indicators showed weakness

Since the last Fed meeting, though, the data is showing the same signs of explosive growth that it did from 2004-2007.

• The August jobs report was revised to a net gain of 89,000 and showed 110,000 new jobs in September
• Consumer spending grew by three times the expected amount in September
• Consumer confidence surveys show that the average consumer is optimistic

Could the Fed have reduced rates too far, too fast? Some traders think so because these "strength" points are causing the stock market to rally and retake its position north of 14,000.

Some of that money is coming from the bond market.

This is bad for mortgage rates, of course, because mortgage rates are determined by the price of mortgage bonds. As demand falls for mortgage bonds, so does the price. And, as price falls, the rate of return increases.

The American economy's strength is causing mortgage rates to rise.

This week, government groups will release data to give insight on the nation's manufacturing strength, housing growth, and "cost of living" increases. The stronger these data points are, the more money that will flow to stocks. That should pressure mortgage rates to move higher.

If the data shows weakness, expect mortgage rates to fall.

(Image courtesy: Wall Street Journal Online)

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Retail Sales Data Gives Mortgage Markets Something To Chew On

Until this morning, mortgage markets had been somewhat dormant over the course of the week. There was no new data for traders to chew, to digest and/or to spit out. Mortgage rates sat flat because of it.

Then, at 8:30 A.M. ET, the Commerce Department released Retail Sales data for September. Mortgage rates are headed higher this morning on its strength.

Retail Sales is an important data point because it reflects broader consumer spending patterns around the country. As two-thirds of the U.S. economy is tied to consumer spending, Retail Sales can be a terrific indicator of how fast the economy is growing (or shrinking).

Today, Retail Sales was shown to have increased 0.6% in September versus expectations of 0.2%.

Continuous growth in the economy eventually leads to inflation and that's why mortgage rates are higher today. Inflation erodes the value of mortgage bonds which, in turn, pushes mortgage rates northward.

Despite starting higher, though, there are some chances for a U-Turn later this afternoon; four Federal Reserves members are scheduled to speak publicly. Chairman Ben Bernanke, Dallas Fed President Fisher, San Francisco Fed President Yellen, and Vice Chairman Kohn all make appearances.

Markets will be listening closely to the speeches for clues about what the Fed may do next to speed up or slow down the economy. The Fed meets again for a two-day meeting October 30-31.

Making A Choice Of Mortgage Products Is Easier Today Than Most Days

In another sign that mortgage markets are a bit unpredictable lately, this morning's mortgage rates are virtually identical for conforming fixed rate mortgages and conforming adjustable rate mortgages.

This is an extremely uncommon market condition; usually, adjustable rate mortgages carry lower rates over their initial fixed rate period (i.e. 3 years, 5 years, 7 years) than corresponding 30-year fixed rate loans.

Mortgage pricing varies on a case-by-case basis, but right now, there is little incentive for a mortgage applicant to choose an adjustable rate mortgage today over a fixed rate mortgage, all else equal.

The "teaser rate" offered on an ARM is not really a tease when it's compared to the fixed rate offerings.

After the release of tomorrow's Retail Sales and Consumer Sentiment data, this condition could change, of course. The stronger the data, the more likely that fixed rate mortgages will resume their normal rate structure, sitting somewhere higher than what is offered on ARMs.

Jumbo Mortgage Rates Shed Some Of Their Risk, Rates Fall

As a sign that some normalcy is returning to mortgage markets, the premium attached to jumbo mortgage rates is getting smaller.

A "jumbo"-sized loan is one that exceeds $417,000 on a single-family residence, among other criteria.

Conforming 30-year fixed rate mortgages and jumbo 30-year fixed rate mortgages tend to move in the same direction over time. You can see that illustrated on the left-side of the graph.

But, as we move towards the right, we can see how, beginning in mid-August of this year, the general direction of mortgage rates for these two products diverged.

In mid-August, you'll remember, is approximately when the bottom fell out of the credit risk markets.

Since late-September, though, jumbo loan risk appears to be declining. The chart above from Bankrate.com shows that while conforming rates have been remaining relatively flat, jumbo mortgage rates have dropped by about 0.125%.

In mortgage markets, the credit pendulum tends to swing too far in both directions. Getting approved for a home loan may have been too easy last year, and it may have been too tight last month.

Today, though, the pendulum appears to be moving towards the middle once again.

NOTE: Bankrate.com publishes rates based on advertising, and not market conditions so the chart does not reflect actual mortgage rates. It does reflect a trend, however. The chart is meant to show how jumbo, 30-year fixed loans are moving lower with respect to conforming, 30-year fixed rate home loans.

The Week In Review (October 9, 2007) : What To Watch For

As expected, the big news last week was the Non-Farms Payroll report. What wasn't expected, though, was the strength of the report. Mortgage rates ended the week on a large up-tick.

110,000 jobs were created in September, according to the Bureau of Labor Statistics. This exceeded Wall Street expectations by 10% and -- in isolation -- shows that the economy may be stronger than economists think.

But the monthly jobs report also included a major revision to August's data, too.

Originally, the government had reported that 4,000 jobs were lost in August. In Friday's report, though, that figure was revised to 89,000 jobs gained. Suddenly, the economy didn't look so weak.

Investors pulled their money from the safe-haven of bonds and into the stock market in hopes of catching a higher return.

When there are more sellers than buyers of mortgage bonds, the rate of return goes up and this is why mortgage rates were higher Friday.

Friday's revision to August's numbers also introduced questions about the Fed and whether they lowered the Fed Funds Rate too soon. To many observers, it was August's supposed job loss that was the catalyst for the first decrease to the FFR since 2003.

This week, there will be some good data for markets to chew on, starting with today's release of the Fed's minutes from their September meeting and ending with Friday's Retail Sales report and Consumer Sentiment survey.

How Today's Employment Data Is Hurting Mortgage Rates

On the first Friday of each month, the Bureau of Labor Statistics releases its employment report for the United States.

Last month, the jobs report showed that the economy actually lost jobs for the first time since 2003. The total loss of jobs equaled 4,000 and contributed to the Federal Reserve's decision to lower the Fed Funds Rate for the first time since that same year.

Of course, today is First Friday so a new employment report hit the wires earlier this morning. The news was good for the economy, but not so good for people in the market for a new home loan.

The employment report showed that 110,000 new jobs were created in the United States, reversing the negative trend from August. More employed workers means more money earned means more money spent. That's why the news is good for the economy.

Now, for the bad news.

An important detail about the employment report is that it quantifies the number of jobs created in the month prior, and it also revises its calculations for the two months prior to that. These revisions are necessary because by the time First Friday arrives, there just isn't enough time to survey enough companies to make data 100% accurate.

Well, August's data was revised from a 4,000 job loss to an 89,000 job gain.

Psychologically, this is major because the job loss in August was a huge reason why markets screamed for the Fed to lower the Fed Funds Rate. Now, it appears, that move may have been premature.

Wall Street is frenzied on this holiday-shortened trading day. Could the Fed reverse its course now that it has new data? Mortgage rates are soaring higher as expectations adjust for the Fed's next meeting October 30-31, 2007.

Have You Ever Wondered Where The Money Goes?

Where does your money go? If you're like most Americans, more than half of it goes towards housing and transportation alone.

This is according to the Consumer Expenditure Survey performed by the Bureau of Labor Statistics.

The most recent study shows American household spending habits from 2005, but the percentages change little from one year to the next.

The largest expenditures by household are:

• 32.7% for housing
• 18.0% for transportation
• 12.8% for food
• 5.7% for healthcare
• 5.1% for entertainment
• 4.1% for apparel
• 2.0% for education
• 1.2% for personal care products/services
• 0.8% for life and personal insurance

With this industry-by-industry breakdown, we can see how changing where you live and how long you commute can be the best ways to keep your household budgets in check.

Saving money on haircuts, clothing and food can make an impact, too, but not nearly as much as living in a less expensive home or changing your driving habits.

FHA Bans Seller-Financed Downpayment Assistance Programs

Effective November 7, 2007, the Federal Housing Administration is expected to ban home buyers' use of seller-financed Downpayment Assistance programs.

DPAs are (were?) very popular in FHA mortgage circles as a way to help buyers finance their new homes.

FHA loans currently require a downpayment of at least three percent on a home purchase. That three percent, however, is not required to come from the buyer's own funds; it can come from a "gift" as long as the gifter is a family member or a non-profit organization.

Downpayment assistance programs are the latter, incorporated as non-profit organizations.

Typically, DPA programs works like this:

• Buyer makes an offer for a home
• Seller accepts the offer
  Seller contributes the necessary three percent to non-profit organization
• Non-profit organization "gifts" the three percent to the buyer while keeping a $500 service fee
• Buyer buys home with three percent gift as downpayment

The main reason cited for the ban is that downpayment assistance programs push home sale prices three percent higher than they otherwise should be. The extra three percent is not "home value" -- it's "help" and is repaid over time in the form of a higher loan amount.

One study cited by FHA and used to pass the ruling said that home buyers participating in downpayment assistance programs go delinquent with two times the frequency of home buyers that don't.

According to the Washington Post , there are more than 200 charities nationwide currently offering such programs.

How Much Does A 2,200 Square Foot Home Cost?

So, what does it cost to buy a 2,200 square foot home with 4 bedrooms, 2.5 bathrooms and a 2-car garage?

It depends on where you live.

In a study of 317 U.S. markets, Coldwell Banker concluded that the average price for such a home is $422,343.

Beverly Hills, CA ($2,206,883) sits on one end of the spectrum and Killeen, TX ($136,725) on the other.

The #1 and #317 markets are consistent with the respective neighboring towns. California and other coastal markets accounted for 35 of the 40 most expensive cities, while Texas is host to eight of the 40 most affordable ones.

New York City was omitted from the list because it lacks the number of homes required to make a fair comparison.

(Image courtesy: CNN Money)

The Week In Review (October 1, 2007) : What To Watch For

Even as home sales fall nationwide, the economy continues to move forward.

Year-over-year inflation as measured by Personal Consumption Expenditures registered 1.8%, well within the Fed's tolerance levels of 1-2% and suggesting that the economy is in "Goldilocks" mode -- not too hot and not too cold.

Many economists had predicted that weaker home values across the country would create a chain reaction, starting with fewer equity withdrawals and ending with fewer dollars spent in retail stores.

So far, that hasn't happened.

Personal Spending was up 0.6% in August over July's levels. This suggests that the American Consumer is undeterred by external market factors, including the "credit crunch". Incomes were also up in August, suggesting slight economic growth.

Presumably, the Federal Reserve lowered the Fed Funds Rate two weeks ago to stimulate the economy but data shows that many sectors are still growing with gusto. This week, therefore, could help set the expectations that dictate mortgage pricing until the next FOMC meeting October 30-31.

The major data release this week is Friday's Non-Farm Payrolls report which will report job growth (or loss) in the month of September. Markets are expecting that 100,000 new jobs were created and mortgage rates will move wildly if there is any variation off that figure.

If the actual number of jobs created is higher than 100,000, expect mortgage rates to rise because the strength in jobs reflects strength in the economy, making it less likely that the Fed will act to stimulate again.

In August, the economy lost 4,000 jobs.

(Image courtesy: The Wall Street Journal Online)