You'll Get The Best Mortgage Rates If You Watch Certain Patterns

When it comes to mortgage rates, sometimes it's better to "act now".

On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would "employ all available tools" to resuscitate the economy.

On Wednesday, however, the markets had second thoughts.

After considering the long-term implications of a near-zero percent Fed Funds Rate, and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation -- the enemy of low mortgage rates.

As a result, mortgage markets unwound.

At first, the exit was slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday's big gains were erased.

In hindsight, the reversal Wednesday wasn't all that surprising -- it's the same trading pattern we've seen twice already this year. The first time was after the Fed's "surprise" rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.

Sharp rate drops tend to be followed by immediate bounce-backs, it seems.

But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that "waited for rates to go lower" are likely kicking themselves about it.

Going forward, mortgage rates may fall, or they may not. We can't possibly know. But, we've now seen the pattern 3 times -- when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.

Sleeping on it for even one night may end up costing you dearly.

(Image courtesy: The New York Times)

What It Means When More Than Half Of The Delinquent Homeowners Go Delinquent Again

Earlier this year, and under pressure from the government, mortgage lenders made more than 200,000 loan modifications to delinquent homeowners.

The modifications came in one of three forms, or a combination:

1. Interest rate reduction
2. Loan term extension
3. Principal forgiveness

But, despite the modifications, as of October 1, more than half of the homeowners that received assistance were already two months behind on their modified monthly payments.

This late-pay statistic was a focal point on Capitol Hill yesterday as the government admitted delinquencies "were larger than [they] thought they'd be". Loan modifications are proving inadequate at slowing foreclosures, and yesterday's session opened the door to more effective foreclosure prevention measures.

However, of all of the statistics published, there was one of particular interest.

Based on its loan modifications to-date, the FDIC has found that modified borrowers default far less when new monthly payments are less than 38 percent of monthly household income. This is important because Freddie Mac guidelines for ordinary mortgage applicants currently cap that rate at 45 percent.

If the 38 percent figure holds up long-term, it may lead mortgage lenders to permanently reduce maximum debt-to-income allowances. Already, mortgage insurers have taken this step so it's not out of the question for lenders. Tighter guidelines mean fewer mortgage approvals.

If you're unsure of whether now is a good time to buy a home, consider that mortgage rates are low, mortgage guidelines are tightening, and foreclosure prevention efforts reduce the supply of available homes.

Prices may not have bottomed, but the market is giving everyone a lot of reasons to consider buying now.

(Image courtesy: The Wall Street Journal)

Mortgage Markets In Review : December 8, 2008

In a week in which mortgage markets struggled to find direction, mortgage rates edged higher overall. The weekly increase was the first since mid-November and it may signal higher rates as we head into 2009.

The week's most talked-about story hit the wires Friday.

According to the government, the U.S. economy shed 533,000 jobs last month and the national Unemployment Rate rose to 6.7%.

This was the largest number of jobs lost in any one month since the recession of 1974.

In a normal market, job losses of this magnitude would have caused stock markets and mortgage rates to fall. But, stocks and rates didn't. That story had already been told. On the contrary, both rose. This is because -- while the jobs reports was the most talked-about story last week -- it wasn't the most important one.

Last Monday -- officially -- we learned that U.S. economy is in recession.

Although most of Wall Street knew it already, the official determination was an acknowledgment that "bad economic data" is not only acceptable, but normal given the current conditions.

In other words, when the jobs data was released Friday morning, one reason why mortgage rates rose was because markets somewhat shrugged off the data, saying: "Yeah, of course job losses are up -- we're in a recession, after all."

This is an unfortunate development for rate shoppers because bad data usually anchors mortgage rates lower. Going forward, that won't likely be the case -- at least until the recession is declared to be over.

This week, without much new data being released, markets should trade largely on news of federal intervention and expectations for the U.S. economy. As retail sales figures drip in from the weekend, be wary of stronger-than-expected numbers as that could pull mortgage rates higher. The same goes for Friday's official Retail Sales data for November.

Either way, expect volatility throughout the week -- same as we've seen all year long.

(Image courtesy: Wall Street Journal Online)

How November's 533,000 Jobs Lost May Ultimately Help Mortgage Rates Improve

According to the government, American businesses are cutting staff at an accelerated pace, most recently paring 533,000 jobs this past November.

It's the largest one-month decline since December 1974 and raises the year-to-date job losses to 1.9 million workers.

However, there is a silver lining in the data for all Americans -- both employed and unemployed.

With each piece of negative news about the economy, Washington is more likely to pass new stimulus packages to the benefit of household budgets.

On one front, Federal Reserve Chairman Ben Bernanke has already alluded to further Fed Funds Rate cuts at the Fed's two-day meeting starting December 15. Because the Fed Funds Rate is directly tied to Prime Rate, any cut in the benchmark lending rate would lead "floating" interest rates lower on home equity credit lines and other revolving debt.

And, this talk from the Fed comes on the heels of its $500 billion pledge to buy mortgage-backed bonds. That demand-shifting move was announced last week and drove mortgage rates lower. It also marked the official start of the refinancing boom.

And, lastly, Capitol Hill is already responding to the jobs data with calls for "urgent" action. It's a vague term, to be sure, but history has shown that Congress could pass any number of measures, each meant to put more money into household budgets nationwide.

The U.S. is in a verified recession and Washington is throwing the kitchen sink at it.

The end result is that today's job data is a non-event of sorts for active home buyers. Mortgage markets expected a poor reading and they got it. Normally, data like this would cause mortgage rates to spike, but this is not a normal market.

Source
Employers cut 533,000 jobs in Nov., most since 1974
Barbara Hagenbaugh
December 5, 2008, USA Today

The Truth About Those "4.500 Percent Mortgage Rates" You Keep Hearing About

Business television was abuzz yesterday morning with talk of "four-point-five percent mortgage rates"; the clip above ran on NBC Today. The news stems from a leaked story that the U.S. Treasury will intervene in the mortgage market, lowering rates a full percentage point below their current levels.

As cited by every journalist in every publication, however, the story is 100% speculation. Naturally, that doesn't stop the press from covering it. When hope for homeowners gets spread in this manner, it's important to remember some facts:

1. The Treasury does NOT set mortgage rates -- Wall Street traders do. Historically, rates are based on the Supply and Demand for mortgage-backed bonds.
2. Treasury intervention does NOT guarantee low rates. That mortgage rates were up by a half-percent since last week proves it.
3. Zero details about the plan have been confirmed, quoting CNBC. Everything you've heard about 4.5 percent rates is a guess at this point.

But, perhaps most importantly, nearly every analyst interviewed has expressed a belief that a Treasury-sponsored stimulus would apply to home buyers only. Homeowners wanting a refinance, in other words, would be ineligible.

Mortgage rates were very low yesterday compared to where they've been in 2006, 2007 and 2008. If you think your mortgage rate is too high for this market, reach out to your loan officer to review all of your options. If rates really do reach 4.500 percent, you can always refinance again later.

How 78 Consecutive Days Of Falling Gas Prices Helps Sell Real Estate

For the 78th consecutive day, gas prices fell nationwide yesterday. At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.

And, although gas prices vary by locale, the cost of a fill-up is worthy of national news.

The main reason why national gas prices matter is because of something called the Wealth Effect -- people's tendency to spend more money when they have a perceived feeling of being worth more.

Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide -- the primary driver of the U.S. economy.

But, more important than the Wealth Effect is the reverse Wealth Effect. That's when consumers have a perceived feeling of being worth less, and their spending reflects it. This past summer is a terrific example of it.

Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy. It follows, therefore, that retail sales figures plunged in September and October. Once the election passed, however, and gas prices fell, a gentle optimism returned.

Not surprisingly, consumer confidence rose in November.

All of this matters to real estate because as Americans regain their confidence and feel more "wealthy", they will be more likely to make "move up" purchases, buy new home appliances, and take other actions that propel the economy forward.

Oh, and mortgage rates trolling at 3-year lows certainly helps, too.

(Image courtesy: GasBuddy.com)

Looking Back And Looking Ahead : December 2, 2008

Government action fueled a mortgage market rally last week, leading mortgage rates lower for the second consecutive week.

Despite soft housing numbers and evidence of a slowing economy, mortgage rate shoppers found reason to celebrate:

• Citigroup was "rescued"
• Wall Street liked the new economic team
• The government pledged $600 billion to buy investment-grade mortgage bonds

These 3 elements helped drive mortgage rates to their lowest levels since January 2008 -- in some cases shaving a full percentage point off the offered rate.

Homeowners responded to the dip, and refinance activity reached "a frenzy". As evidence, at least one national mortgage bank reported more loans were locked on Tuesday, November 25 than for the first 24 days of the month combined. Anecdotally, other lenders saw similar action.

However, low rates rarely stick around.

The last time that rates dropped like they did last week, markets recovered within a week and rates returned to "normal". This week provides ample chance for that to happen again.

Throughout the early part of the week, 5 members of the Fed will make public appearances, including Fed Chairman Ben Bernanke. With the Fed's next meeting scheduled for December 15, markets will be looking for clues about how the Fed may change the Fed Funds Rate.

When the Fed Funds Rate falls, mortgage rates tend to rise on the news.

Then, on Thursday, retailers start announcing their "same store" sales figures for November. This will clue us in to the true health of the economy because consumer spending accounts for two-thirds of it. If same-store sales are dramatically lower, expect calls for a large Fed Funds Rate cut.

And lastly, Friday brings us the jobs report. As terrible as the employment reports have been this year, it will take an especially higher number of jobs lost in November, or an exceedingly high Unemployment Rate to have much of an impact on mortgage rates.

This month, weak jobs data should be harmful to mortgage rates because more out-of-work Americans may lead to more mortgage defaults nationwide, plus additional Fed Funds Rate cuts.

(Image courtesy: The Wall Street Journal Online)

You Locked In A Low Mortgage Rate -- Now You've Got To Close On It

Each Wednesday, the Mortgage Bankers Association releases its Weekly Applications Survey, a detailed look at new mortgage applications submitted over the previous 7 days.

This week's report will reveal what most of us already know -- plunging mortgage rates created a flood of mortgage activity.

If you're among the many Americans taking advantage of today's low rates, don't forget that when your rate was "locked", it was locked with an expiration date.

Most likely, that rate lock is for 30 days.

And, while 30 days may seem like a long time, it's not. Especially because rate locks made prior to Thanksgiving lose a combined 14 days to weekends and holidays, plus another 4 days to the Right To Cancel clause.

A 30-day rate lock, therefore, yields just 12 "working" days in which to underwrite and approve the mortgage and that's not a lot of time at all.

Making matters more difficult, many lenders are ill-equipped for boom.

Not only has staff been pared down in expectation of a slowing economy, but December is a prime vacationing month too. Lenders are short-staffed at a very inopportune time.

So, for active refinancing homeowners, the best way to preserve a 30-day rate lock is to be as responsive as possible to the process:

• If paystubs are requested, return them on the same day
• If a home appraisal is needed, schedule the appraisal immediately
• If a closing date is scheduled, don't postpone it by a day

As mortgage rates hang near 3-year lows, the number of refinancing homeowners nationwide will grow, further taxing lenders and their staff. If you already have a loan in process, be pro-active about it to prevent your 30-day rate lock from expiring.

Existing Home Sales Are Relatively Unchanged Going On 14 Months Now

In real estate, the term existing home refers to a "used" property; one that can't be classified as new construction.

The number of existing homes sold each month is tracked by the National Association of REALTORS. The report is often used as a gauge for the health of the real estate market nationwide.

In October, nearly 5 million existing homes sold across the U.S. This figure represents a slight drop from September's reading, and an equally slight drop from the October 2007 data.

But, October's Existing Home Sales figures marked the 14th straight month in which Existing Home Sales straddled 5-million units. This is a remarkable statistic because 14 months of anything is a pattern, not a blip. Despite what the news tells us, Americans are buying and selling real estate at a somewhat steady clip.

As we head into the Holiday Season, buyer activity should slow, reducing demand for homes. At the same time, however, widespread foreclosure moratoriums should reduce the number of homes available to buy. These forces should counter-act to help keep the market (and prices) in balance.

(Image courtesy: USA Today)

Looking Back And Looking Ahead : November 24, 2008

As the stock market retraced to its 1997 level, mortgage markets improved last week -- but not by much.

Mortgage rates closed out the week slightly lower, but the week wasn't without fireworks.

1. Calls of deflation grew louder
2. The automakers left Washington without a bailout
3. Citigroup's stock price fell to the equivalent of its ATM fee

Separately, each of these elements would have created confusion on Wall Street. Together, they created near chaos. Stocks traded at a pace last week that has never been equaled.

As a result, mortgage rates were volatile, too.

Over the 5-day workweek, multiple mortgage lenders issued 11 distinct rate sheets, meaning that consumer mortgage rates changed every 3 hours, 38 minutes on average last week.

This is why home buyers should rate shop quickly. Wait too long and the mortgage rate is gone. And, this week doesn't figure to be any less volatile.

To start, it's a holiday-shortened week. Fewer traders will be working as the week moves forward, making the Price Discovery process more difficult. With fewer active buyers and sellers, wild price swings are likely, and mortgage rates should feel the impact.

Next, markets will debate the Citigroup Bailout, wondering whether this will (finally) mark the market bottom. It's a conversation about which Wall Street never tires, and with each bit of optimism, money should flow into stocks to the detriment of mortgage bonds and mortgage rates.

And lastly, there are 9 economic releases crammed into Monday, Tuesday, and Wednesday of this week, including two housing reports and an inflationary gauge behind which the Fed puts a lot of credence.

Signs of stabilization should buoy both stock markets and mortgage rates -- Wall Street is craving balance of some sort to carry it into the New Year.

There are no Fed speakers scheduled for this week so watch for data and market sentiment to lead the markets. For rate shoppers, this means more rate sheets.

(Image courtesy: The Wall Street Journal)

Deflation And What It Means To Americans

Business television and newspapers have made deflation a hot topic this week and, since Monday, Google has tracked 13,000 mentions of it.

Deflation is a recurring cycle in which the prices of goods and services fall. Isolated to one industry or sector, falling prices is the natural result of competition.

For example, when DVD players were first introduced, they were tagged at $800.

Today, you can buy them for less than $20.

Across many industries, however, and happening at the same time, falling prices can shut down the economy. Rather than buy things on the cheap, people stop buying anything at all. And why would they? The same items will cost less tomorrow.

And, this is the problem with deflation -- it halts consumer spending and consumer spending makes up two-thirds of the U.S. economy. When it stops, the economic result is dwindling corporate revenues which leads to:

1. Layoffs of the workforce, which leads to...
2. Less consumer spending, which leads to...
3. Dwindling corporate revenues, which leads to...

And the spiral continues.

Deflation can be much more insidious than its expansionary counterpart -- Inflation.

Inflation is when the prices generally rise over time, and it's an economic condition through which governments can comfortably navigate. Deflation, on the other hand, is more rare and, therefore, fewer practical control measures exist.

Whether the U.S. economy will slip into deflation is a matter of debate.

The Fed has cut the Fed Funds Rate to promote economic growth, and those changes can take up to 12 months to work their way through the economy. Deflationary pressures that we're seeing today, in other words, may have already been addressed and corrected by Ben Bernanke's 10 rate cuts in the last 14 months.

Until the market figures it out, though, expect that each mention of deflation will hurt the stock market and help the bond market -- including the mortgage-backed variety. This could help lower mortgage rates and make homes more affordable.

(Image courtesy: The Wall Street Journal)

Plunging Housing Starts Is Bad News For Spring 2009 Home Buyers

When it comes to housing data, there are always two questions to consider:

1. How does this impact buyers?
2. How does this impact sellers?

This is why housing data is rarely positive or negative on a universal level -- one group of Americans is going to see benefit.

Today, it's home sellers.

From the government, we learn that Housing Starts fell to their lowest levels since 1947 last month. A "Housing Start" is a new housing unit on which construction has started. Building permits are down, too.

This is all good news for people selling their homes in the coming months. As fewer homes are built nationwide, there is less inventory from which home buyers can choose. With fewer homes for sale, this shifts the supply-and-demand curve, adding a stronger support floor to home prices.

For home buyers, though, the Housing Starts data may not be as welcome.

With fewer new homes coming on the market, owners of "used" homes may feel less pressure to lower asking prices or to make other concessions. Home buyers often pay more when home supply is falling, or find that sellers are less willing to add "throw-ins" to a contract.

For all of the analysis that surrounds real estate data, in the end, home prices are based on the supply of homes versus the demand for homes. When supply outpaces demand, home prices fall, and vice verse.

Homebuilders know this, and October's Housing Starts data reflects it.

(Image courtesy: The Wall Street Journal)

Mortgage Rates Buck Conventional Wisdom And Rise Despite The Plunging Cost Of Living Index

If the presence of inflation causes mortgage rates to rise, then the absence of inflation should cause mortgage rates to fall. And, in most markets that's true.

Today, it's not.

Despite a deep, month-over-month dip in consumer prices not seen since 1947, mortgage rates are inching higher this morning.

The main reason why rates are rising today is that the Cost of Living didn't just ease last month -- it plunged.

In fact, the monthly drop was so severe that Wall Street now questions whether this summer's record-breaking inflation will lead to equally-strong deflation this winter.

In economic terms, deflation is the opposite of inflation -- it's when prices and wages chase each other lower. The two can be equally bad for the economy. What's often best for Americans are moderate, steady readings.

Because of the rapid decline, markets fear that Consumer Prices may have swung way past moderate in October and started a downward spiral. As always, however, market opinions can change quickly and when they do, they usually take mortgage rates with them.

(Image courtesy: The Wall Street Journal Online)

The 2009 FHA Loan Limits For Every U.S. County

In March 2008, HUD temporarily raised FHA loan limits around the country. Effective January 1, 2009, FHA loan limits revert.

FHA home loans are mortgages made by private lenders and insured by the federal government.

Historically, FHA home loans have been "easier" for which to qualify than their conforming mortgage counterparts and, therefore, tend to be associated with borrowers of tarnished credit quality.

Today, that's the not the case.

The FHA home loan underwriting process can be as tough -- or tougher -- than a conforming mortgage underwrite. There is extra documentation required and the home appraisal process is often more thorough.

Where FHA home loans shine is in their limited downpayment requirements.

To purchase a home with a FHA-insured mortgage requires a 3 percent downpayment as of today; in January, it moves to 3.5 percent. Versus the typical conforming mortgage requirement of 5 percent or more, FHA serves as somewhat of a home affordability product for Americans. In addition, FHA allows larger "cash out" refinances than Fannie Mae or Freddie Mac.

The 2009 FHA loan limits (in most areas of the country) are:

• 1-unit : $271,050
• 2-unit : $347,000
• 3-unit : $419,400
• 4-unit : $521,250

Note that the loan limits don't apply to all areas of the country equally. Higher-cost regions feature higher loan limits, based on typical home values. Homes in Los Angeles County, for example, can be FHA-insured up to $625,500 in 2009, and there are exceptions made for Alaska and Hawaii.

The official FHA announcement published all of the counties with access to higher loan limits, spread across two spreadsheets. The first spreadsheet lists each county at the $625,500 maximum; the second list is everyone else.

If your home county is on neither list, use the "base" numbers above.

Looking Back And Looking Ahead : November 17, 2008

In another week of up-and-down trading, mortgage rates ended the week slightly higher last week.

Ping-pong action like this has defined mortgage markets lately. It's increasingly common for rates to soar one day, and then come crashing down the next.

In response to market volatility, mortgage lenders issued as many as 8 distinct rate sheets in a holiday-shortened, 4-day trading week. Lately, shopping for a low mortgage rate has been as much about timing as anything else.

There wasn't much economic news to digest last week save for Friday's Retail Sales data.

The numbers reflected what most of us already know -- consumers are not spending as freely as in the past. And, because consumer spending accounts for 70 percent of the U.S. economy, retail restraint can mean the difference between a growing economy and a slowing one.

October marked the 5th straight month of declines for Retail Sales.

This week, markets will have their hands full with new data, 7 Fed speakers, and ongoing rescue effort discussions from Washington.

From a data perspective, the two most important data points are the Producer Price Index and the Consumer Price Index. Both measure the "cost of living" as it applies to businesses and consumers, respectively, and both can signal inflation when the readings are too high.

Falling energy prices will likely cause PPI and CPI to post negative readings, but if those negative numbers post higher than expected, mortgage rates should rise in response.

Regardless, mortgage rate shoppers should standby in Ready Mode. Changes to the mortgage market -- like changes to the stock market -- have been furious and swift, measurable in minutes, not hours. The only way to beat a market like this is to not play in it.

Once you find a rate-and-payment combination that suits your household budget, consider locking it in with your loan officer. The risk of not committing can be too great in a market moving as quickly as this one.

(Image courtesy: The New York Times)

How The New Good Faith Estimate Form Can Help You Save Money On Your Mortgage

To help demystify the mortgage process, the federal government is giving the much-maligned Good Faith Estimate document a makeover. Effective January 1, 2010, the current, 2-page form will be replaced by a new, easier-to-understand version, spanning 3 pages.

The biggest strength of the new Good Faith Estimate is that it uses everyday English to explain how the mortgage works. For example, in one section titled "Loan Summary", the Good Faith Estimate specifically answers:

• What is your interest rate?
• Can your interest rate rise?
• Does your loan have a prepayment penalty?

Using today's disclosures, the answers are spread across 3 separate forms.

In addition, the new-look Good Faith Estimate identifies what charges are legally allowed to be charged at the time of settlement, and how a mortgage applicant can opt for higher fees in exchange for a lower mortgage rate, and vice versa.

These educational elements are lacking from the current model.

But, for all of its clarity, the Good Faith Estimate doesn't address the issue of suitability. As in, is this the right loan for the right borrower? The new Good Faith Estimate won't prevent homeowners from choosing "bad loans" -- it will only educate them about the loan's facts.

For suitable advice -- as always -- talk with a trusted mortgage professional who will both listen to your needs and help you make plans for them. Getting the "best terms" on an unsuitable loan can be far worse than getting great terms on a loan that fits.

4 States Account For 51 Percent Of The Nation's October 2008 Foreclosures

Foreclosure is a hot topic among the press lately. It's hard to turn on the television or open up a newspaper without seeing a story about it.

But, what's most interesting about foreclosures is that they appear to be concentrated in certain areas of the country.

According to the foreclosure-tracking service RealtyTrac, 4 states accounted for more than half of the nation's foreclosures last month.

And those 4 states -- California, Florida, Arizona, and Nevada -- share some very similar characteristics including:

1. Their respective popularity with retirees and real estate investors
2. Their large home value increases earlier this decade

In looking at the rest of the country's foreclosure data, the remaining 46 states combined accounted for just 48.8 percent of October's foreclosures.

That's 1.06% per state on average.

Now, this isn't meant to diminish the impact of foreclosures on the economy -- quite the opposite. Foreclosures harm the national housing market because most mortgage lenders are national. But, we highlight statistics like this to show that the foreclosure "problem" isn't so bad in most parts of the country, relatively speaking.

Furthermore, mortgage lenders are intervening to slow the flow of defaults nationwide. Following the lead of JP Morgan and Bank of America, CitiMortgage just announced a sweeping plan to help homeowners avoid default and keep their homes.

In a way, for as good as this news is for homeowners, it's equally bad news for home buyers.

As the number of foreclosures decrease in any given market, it reduces the inventory of homes for sale. Lower supply levels often lead to higher sale prices and less room to negotiate.

And, this may be what the banks are trying to accomplish.

How Big Can A Mortgage Be And Not Be Considered "Jumbo"?

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called "jumbo", or "super jumbo" home loans, depending on their size.

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans.

There are loan limit exceptions, however.

Left over from the Economic Stimulus Act of 2008, specific, "high-cost" areas around the country have their own conforming loan limits, not to exceed $625,500. There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on "typical" housing costs around the country. Since 1980, as home prices have increased, so have conforming loan limits. As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

Looking Back And Looking Ahead : November 10, 2008

Mortgage rates fell last week, marking just the second time since September that rates improved on a weekly basis.

The biggest news of the week was the U.S. Presidential Election. Markets appeared to cheer the Republican-to-Democrat transfer of power, posting large gains Tuesday, Wednesday and Thursday.

This in spite of a spate of negative economic news:

• Auto makers are bleeding cash
• Jobless claims at a 25-year high
• Retail sales appear to be stalling

Instead, mortgage markets shrugged it off.

The general consensus among traders last week was that the Democratic White House will make every effort to ignite the economy and, if those efforts fail, it will try again. This bodes well for businesses and for the banking system and is one reason why mortgage rates dropped post-election.

This week, without much new data, markets should move on corporate earnings and momentum. It's been a while since corporate earnings meant so much to mortgage rates.

U.S. businesses are the backbone of the economy, spending money on goods and services and employing 144 million Americans. When business is strong, more workers get hired who then, in turn, spend their money and force the hiring of even more workers.

It's a self-reinforcing cycle; so if retailers post better-than-expected numbers this week, expect stock markets to gain favor worldwide as investors chase returns. This will force money to pull out from bond markets of all kinds -- including mortgage-backed bonds.

Less demand for bonds causes mortgage rates to rise.

Also, look at Friday as a volatile trading day. Not only will October's Retail Sales figures be announced, but Fed Chairman Ben Bernanke is sharing the stage with his European Central Bank counterpart, talking about monetary policy.

Word choice is a delicate matter on Wall Street; so if Bernanke's comments are viewed as too anti-inflation, or too pro-inflation, expect for mortgage rates to move by a lot. If you're shopping for a mortgage right now, consider locking before Bernanke's 9:00 AM speech.

(Image courtesy: The Wall Street Journal Online)

As LIBOR Falls, Homeowners With Adjusting ARMs Get Lower Rates

The interest rate against which adjustable-rate mortgages change is falling -- evidence that the global banking system is starting to stabilize.

On any adjustable-rate mortgage, the initial "starter rate" remains fixed for some period of time, and then adjusts according to some pre-determined rules.

For a conforming mortgage, an ARM will typically adjust once per year, based on this formula:

(Adjusted Rate) = (Variable) + (Constant)

Where the variable is often assigned to the 12-month LIBOR, (though not always), and the constant is often fixed at 2.250 percent.

LIBOR is the equation's variable. Therefore, it's of paramount importance to holders of ARMs. LIBOR is the rate at which banks lend money to each other. The 12-month LIBOR, therefore, is the borrowing rate for a 1-year, interbank loan.

So, to take the formula and apply it to a real live mortgage, a homeowner's adjusted mortgage rate would be equal to whatever the 12-month LIBOR is at the time of adjustment, plus another 2.250 percent.

Looking at the chart, note LIBOR spiked in September. It's a direct correlation to the September 15 failure of Lehman Brothers. That bank-shutdown started a wave of "who's going to be next?" anxiety on Wall Street, but as global governments stepped up support for banks, LIBOR predictably fell.

For homeowners with adjusting mortgages, this is terrific news.

However, mortgage markets have rallied a bit this week, and created an interesting opportunity for some holders of ARMs. Depending on credit scores and the amount of home equity, mortgage rates on a new loan may be lower than the soon-to-be-adjusted mortgage rate of the old one.

In other words, getting a new loan may be smarter than letting your current mortgage change. Contact your mortgage lender to see which plan fits you best.

Planning To Buy A Home In 2009? Expect A Tougher Mortgage Road Ahead.

The Federal Reserve confirmed what most of us already knew -- getting qualified for a "prime mortgage" is increasingly more difficult.

In a quarterly survey of 84 banks, 75 percent of respondent banks tightened mortgage guidelines over the last 3 months for the most qualified of home loan applicants.

"Prime" is a vague term when it comes to mortgages, but, historically, a prime borrower is one that can document:

• A well-documented credit history
• Very high credit scores
• Very low debt-to-income ratios

Historically, banks bent over backwards to lend money to this class of borrower. Today, they're thinking twice.

The chart's steep ascent reinforces that members of all tax brackets face consequences from the current credit market turmoil. And, although some corners of credit looked poised to recover -- interbank lending, for one -- the mortgage market is yet unaffected and should be among the last to thaw.

All prospective home buyers should prepare for the likelihood that mortgage guidelines continue to toughen before they start to ease. Mortgage applicants on the cusp of being approved today will almost certainly be turned down for a mortgage in 2009.

Owning real estate can require a tremendous amount of advance planning and, sometimes, looking at the past is the best way to prepare for what's coming ahead.

According to the Federal Reserve's survey, what's coming ahead is more mortgage application scrutiny.

How The Presidential Election May Impact Mortgage Rates

More than a handful would-be home buyers stayed on the sidelines this year, waiting for Election Day to pass.

The prevailing thought was that once the new President-Elect was identified, credit markets will systemically unfreeze and housing markets will return to normal.

If history is a guide, this is an unlikely scenario.

Election Day doesn't figure to alter markets any more in 2008 than it did after the four previous presidential elections.

If anything, post-Election Day market reaction has been muted:

• 1992 : Dow closes down 0.9 percent the day after Election Day
• 1996 : Dow closes up 1.6 percent the day after Election Day
• 2000 : Dow closes down 0.4 percent the day after Election Day
• 2004 : Dow closes up 1.0 percent the day after Election Day

But, just because the stock market has a history of idling on the day after the election doesn't mean that mortgage rates will rest easy this week. The likely outcome is the opposite, actually.

If investors believe the President-elect will successfully stimulate the economy, stock markets would likely rally, causing mortgage bonds to sell off and mortgage rates to rise.

Or, if investors think the winning candidate will fail to revive the economy, money would flock to government bonds as a place of safety. This dollar flow would occur at the expense of the mortgage market, causing rates to rise in this scenario, too.

Of course, it's as difficult to predict post-Election market conditions as it is to predict the election itself, but one thing is for certain -- rates may rise and fall before the week is out, but credit guidelines will remain extra-tight. Getting approved for a mortgage won't be any easier -- no matter which party wins the Presidential Election.

Source
Will the election drive the Dow?
Eamon Javers
Politico
http://news.yahoo.com/s/politico/20081022/pl_politico/14826

Looking Back And Looking Ahead : November 3, 2008

As global credit markets deteriorated in October, mortgage markets displayed an unnerving amount of volatility.

Last week was no different.

But, unlike in previous weeks in which rates improved on some days and worsened on others, mortgage rates were mostly higher last week, finishing the month on a surge.

The biggest reason why mortgage rates rose last week is that hedge funds and other investors are still hard-pressed for cash and are dumping their mortgage-backed bond portfolios into the market. The excess mortgage bond supply drove prices lower last week, which, in turn, caused mortgage rates to rise.

However, forced selling by hedge funds wasn't the only force working against mortgage rate shoppers last week.

In a move meant to stimulate the economy, the Federal Reserve cut the Fed Funds Rate to 1.000 percent -- the same level widely attributed to starting the global credit crisis several years ago. Low interest rates may stimulate the economy in the short-term, but long-term, they can lead to runaway inflation.

This is terrible for home buyers because inflation causes mortgage rates to rise.

Looking ahead to this week, mortgage markets have a lot of information to digest.

First, there will be four separate speeches from members of the Federal Reserve, plus one appearance by Treasury Secretary Paulson. In each speech, each mention of the word "inflation" will cause mortgage markets to flinch and rates to tick higher.

In addition, Friday is the first Friday of the month which means that the Employment Report hits the wires.

Because markets expect to see high unemployment rates, they're also predicting a slow holiday shopping season. If the jobs data is stronger-than-expected, expect stock markets to gain and mortgage markets to lose, pushing rates higher.

And, lastly, Tuesday is Election Day. Presumably, markets already priced in the likelihood of either candidate winning the election. However, as the voter's President-elect becomes clearer throughout the day, expect volatility in rates as traders rush to change their positions.

Mortgage markets should move a lot Tuesday -- we just won't know in which direction until it happens.

(Images courtesy: The Wall Street Journal Online)

Why Mortgage Rates Haven't Fallen As Expected

When the government nationalized mortgage lending in September, housing analysts predicted lower mortgage rates.

For a brief two-week stint, they were right -- post-takeover, the 30-year, fixed rate mortgage fell below 6.000 percent nationally for the first time in 7 months.

Since then, however, mortgage markets have reversed. Rates are now at pre-takeover levels.

Now, this isn't to say that the nationalization was a failure -- far from it. The government's takeover of Fannie Mae and Freddie Mac accomplished two very important goals:

1. It restored failing confidence in the U.S. mortgage markets
2. It opened legislative channels for faster, more relevant housing reform

And, long-term, most people agree, these are essential elements for a U.S. economic recovery. Over the short-term, however, the plan has not delivered the sustained low mortgage rate environment that was envisioned.

The biggest reason why rates are higher is because of Wall Street's manic trading behavior. When the economic outlook shows hints of sun, investors sprint to risky stock markets; when it shows signs of gloom, they flee in favor of ultra-safe treasuries. The buy-sell patterns have led to some of the wildest trading days on record and it's not what the Treasury expected.

See, when the takeover was first announced, mortgage-backed bonds were elevated to "government status". This created new demand for mortgage bonds which helped to push down rates.

But, in the weeks that followed, the world's credit markets unraveled and traders sought the dual comfort of safety and liquidity in their portfolios.

That's a combination that only U.S. treasuries can provide. Versus "true" government bonds, mortgage-backed securities are just quasi.

We can't know where mortgage rates will move for certain, but, for now at least, the 4 percent range some had predicted is out of reach. Until credit order is restored globally, expect volatility to continue and rates to remain up.

(Image courtesy: The Wall Street Journal)

Making English Out Of Fed-Speak (October 2008 Edition)

The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent yesterday. The benchmark rate now stands at 1.000 percent.

In its press release, the Fed wasted no time addressing the key issue at-hand, stating that economic activity has "slowed markedly", pointing to three main causes:

1. Consumer spending is falling
2. Business equipment spending is falling
3. Slowing foreign economies are hurting U.S. businesses

Furthermore, the voting FOMC members are wary of an "intensification" of the current financial market turmoil.

The announcement's 4th paragraph is noteworthy, too. It lists the plethora of growth-stimulating steps that the Fed has taken so far this year and concludes that credit conditions should improve in time. It does note, however, that if markets don't improve in good time, the committee will "act as needed".

In the wake of the announcement, stock markets rallied. Investors liked what the Fed had to say, and it drew funds into the stock market from all corners of Wall Street. Unfortunately for mortgage rate shoppers, one of those corners happened to be the mortgage bond market.

The exodus from bonds caused mortgage rates to rise.

It's a common misconception that the Federal Reserve controls mortgage rates and yesterday's market action should help dispel that myth. As the Fed Funds Rate falls back near its 50-year low, mortgage rates are bumping up against a 3-year high.

Source
Parsing the Fed Statement
The Wall Street Journal Online
October 29, 2008
http://online.wsj.com/internal/mdc/info-fedparse0810.html