Rodil's Mortgage Report -- Rodil San Mateo, Mortgage Blogger

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

Tue, 18 Nov 2008 07:17:00 -0700

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

Mon, 17 Nov 2008 08:14:00 -0700

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

Fri, 14 Nov 2008 08:45:00 -0700

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 change 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 that getting great terms on a loan that fits.

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

Thu, 13 Nov 2008 09:12:00 -0700

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 nation's foreclosures last month.

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

Their respective popularity with retirees and real estate investors
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 to 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, relative.

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"?

Wed, 12 Nov 2008 08:05:00 -0700

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 are.

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

Mon, 10 Nov 2008 08:45:00 -0700

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 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)

Weak Employment Data May Boost The Affordability Of Homes

Fri, 07 Nov 2008 10:07:06 -0700

On the first Friday of every month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report. More commonly, it's called the "jobs report" and the October's data is trending with the rest of 2008.

After shedding another 240,000 jobs last month, the economy has now put 1.2 million Americans out of work this year and unemployment rates have climbed to 14-year highs.

As a strange twist, though, today's weak jobs data may lead to a positive turn for the economy and for housing in 2009.

In the wake of the jobs report, members of Congress are already calling for both tax cuts and direct stimulus to reverse the course of the economy. Both of these actions would put money back into U.S. citizens' household budgets, spurring consumer spending nationwide.

Because consumer spending accounts for 70 percent of the economy, this would be expected to push the economy forward at a time when it natural forces are slowing it down.

In addition, markets are betting that the Federal Reserve will cut the Fed Funds Rate below its current 1.000 percent level. This, too, would spur spending because the Fed Funds Rate is directly tied to consumer credit card rates and business credit lines.

Expectations for stimulus are one reason why mortgage rates have not risen today as high as they otherwise would have if this were a "normal" market.

Mortgage rates are slightly elevated as we head into the weekend, but don't be surprised if there's a late-afternoon push that brings them lower. For active home buyers, this could help home affordability as we cruise towards the holiday season.

(Image courtesy: USA Today)

As LIBOR Falls, Homeowners With Adjusting ARMs Get Lower Rates

Thu, 06 Nov 2008 08:27:00 -0700

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 12-month LIBOR, and the constant is often fixed at 2.250 percent.

LIBOR is the equation's variable. Therefore, it's of paramount import 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 to an 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, 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 that 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.

Wed, 05 Nov 2008 08:45:00 -0700

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-incomes

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

Tue, 04 Nov 2008 08:45:00 -0700

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

Mon, 03 Nov 2008 08:45:00 -0700

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 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 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

Fri, 31 Oct 2008 08:40:00 -0700

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:

It restored failing confidence in the U.S. mortgage markets
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)

Wed, 29 Oct 2008 19:58:00 -0700

The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent today. 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:

Consumer spending is falling
Business equipment spending is falling
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 notes, 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 today'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

No Matter What Happens To The Fed Funds Rate Today, Markets Are Going To Turn Up The Volatility A Notch

Wed, 29 Oct 2008 08:45:00 -0700

The Federal Open Market Committee adjourns from its scheduled 2-day meeting today at 2:15 P.M. ET and the markets are eagerly awaiting the central bank's press release.

In it, Fed Chairman Ben Bernanke is expected to address the U.S. economy, the future of credit, and the new Fed Funds Rate.

It's this last point to which mortgage rate shoppers should pay attention -- when the Fed Funds Rate falls, mortgage rates tend to rise.

The inverse relationship between mortgage rates and the Fed Funds Rate is based on the idea that cuts to the Fed Funds Rate are designed to add gas to U.S. economic engine.

In theory, over time, Fed Funds Rate cuts work to improve Corporate America's balance sheets, thereby rewarding shareholders. Therefore, when the Fed Funds Rate falls, or is expected to fall, investors often rush to buy stocks before their prices get bid up. Part of that process, of course, includes selling the "safe" parts of their portfolio which are usually loaded with mortgage-backed bonds.

If you were looking for a reason why mortgage rates tanked Tuesday while the Dow Jones added 11%, now you have it.

The Fed Funds Rate stands at 1.500% and markets are split about how far the FOMC will cut it this afternoon:

A "pause" is expected by 2 percent of traders
A 0.250% rate cut is expected by 5 percent of traders
A 0.500% rate cut is expected by 45 percent of traders
A 0.750% rate cut is expected by 40 percent of traders
A 1.000% rate cut is expected by 8 percent of traders

Without a consensus opinion among traders, no matter what the Fed does today, a lot of investors will be forced to rebalance their portfolios to account for their "bad bets". This will add to market volatility for sure.

Mortgage rates are calm this morning. The calm likely won't last. If you are floating your mortgage rate and want to avoid additional risk, consider locking your rate prior to the FOMC press release.

The Strength In New Home Sales Shows That Banks And Builders Have Figured Out The Market

Tue, 28 Oct 2008 08:12:54 -0700

Despite turmoil on Wall Street, the housing sector continues to deliver good news.

Last month, led by a 22 percent surge from the West Region, New Home Sales rose 2.7 percent over August.

A "new home" is a newly-built residence, never before lived in. New homes are usually built and sold by real estate development companies and their respective marketing firms.

The surge in New Home Sales volume is consistent with the other good news we've seen from the housing sector. It marks the 4th positive signal in the last two weeks.

October 8: Homes under contract to sell surge 7.4 percent
October 23: Foreclosed homes fall 12 percent in September
October 24: The supply of "used homes" falls to an 8-month low
October 27: The supply of new homes falls by 7 percent

However, it can't be ignored why housing is showing a statistical improvement. The main causes are two-fold:

Banks are getting better about selling foreclosed homes
Builders are keen to dump their excess inventory

Both of these factors drive down home sales prices nationwide which, in turn, draws value-seeking home buyers back to the market. In addition, because the number of active sellers dwarfs the number of active buyers, today's home seekers enjoy a tremendous amount of negotiation leverage, making real estate even more attractive.

But, as with everything in business, markets seek balance. As home supplies dwindle, buyers' ability to negotiate sales prices and closing costs will fall. It's Supply and Demand -- as supplies drop, relative demand rises, and prices rise with it.

In every American neighborhood, homes that are priced "right" are selling quickly. And now that banks and builders have figured out the formula, more homes are going under contract than at any time since 2007.

Much of the current economic climate is being blamed on housing. If the data is accurate, though, we can infer that the climate may not last much longer.

(Image courtesy: AP.org)

Looking Back And Looking Ahead : October 27, 2008

Mon, 27 Oct 2008 08:45:00 -0700

Mortgage markets followed the recurring trading pattern of 2008 last week -- volatility, volatility, and more volatility.

After opening with a strong performance that drove rates down, late-week fears of a global recession reversed that path. Mortgage rates ended the week unchanged.

This was an unexpected outcome for the week considering that:

The dollar gained 5%, making bonds "worth more"
Oil fell 11%, helping to spur consumer spending
LIBOR dropped slightly, signaling a credit thaw

Each of the above factors usually helps to generate new demand for mortgage bonds, pressuring mortgage rates lower.

But, this market is anything but normal. Because of the stock market's weak showing last week, several hedge funds were forced to liquidate their holdings and move into cash. The rampant selling dumped an excess supply of mortgage bonds onto the market, offsetting the favorable bond market conditions, and causing mortgage rates to rise sharply from Wednesday to Friday.

Unsuspecting rate shoppers found this out the hard way.

This week, mortgage markets should be similarly unpredictable -- there is a bevy of economic news and government news on which markets will chew, digest, and attempt to swallow.

On the economic side, the two most influential data points are the Consumer Confidence survey, and Personal Consumption Expenditures. The former will be used to predict Holiday Season shopping -- a weak reading should cause mortgage rates to rise -- and the latter is the Federal Reserve's measure of inflation.

If PCE is low, expect calls for more economic stimulus which would help mortgage rates to recede.

And, on the government side, the Federal Reserve will hold its scheduled 2-day meeting Tuesday and Wednesday. It's widely expected that the Fed will lower the Fed Funds Rate by at least 0.250 percent, maybe more.

Often, when the Fed Funds Rate falls, mortgage rates rise in the immediate wake of the announcement. Be aware of this if you are currently floating a mortgage rate.

(Image courtesy: Wall Street Journal)

Home Sales Are Up, Home Supply Is Down -- This Is What A Recovering Market Looks Like

Fri, 24 Oct 2008 09:37:00 -0700

Statistics are what you make of them, but sometimes, they can provide good perspective.

For example, from its peak in 2005 to its trough in late-2007, the number of "used" homes sold nationwide plunged.

In 2005: Roughly 7 million homes sold annually
In 2007: Roughly 5 million homes sold annually

Through all of 2008, though, Existing Home Sales volume has been essentially flat. Some months up, some months down, but always hovering near the 5 million unit mark.

The data from September is no different.

For the 13th consecutive month, the number of home resales nationwide straddled the 5 million benchmark, clocking in at 5.18 million units. This tells us that everyday Americans are still buying and selling real estate at a fairly steady clip -- despite what the news keeps telling us.

Versus August, September sales volume grew by 5.5 percent.

Now, couple this two other data points and we can see that the housing market is showing multiple signs of strength:

The national home supply is now down to 9.9 months
The number of homes under contract is up 7.4 percent

Again, though, statistics are what you make of them. Just as there are positive signals about real estate, there are negative ones, too. The credit markets are one example of that.

But, either way, with a full year of stable sales volume behind us and stories of recovery in beat-up markets like California, we can't ignore the idea that housing may be done trolling its bottom.

It takes willing buyers and willing sellers to turnaround a market. It appears that housing may have both.

(Image courtesy: The Wall Street Journal Online)

Foreclosures Fell 12 Percent in September 2008

Thu, 23 Oct 2008 08:32:14 -0700

According to foreclosure-tracking service RealtyTrac, the foreclosure rate is falling nationwide.

Versus August, foreclosures fell by 12 percent in September 2008 as more than half of the states showed month-over-month improvement.

Most interesting in the data is that several states that led the foreclosure boom in 2007 now appear to be leading the charge out of it.

For example:

In Arizona, foreclosures are down 9.43 percent
In California, foreclosures are down 31.64 percent
In Colorado, foreclosures are down 6.22 percent
In Illinois, foreclosures are down 5.14 percent
In Michigan, foreclosures are down 22.43 percent

But despite September's promising data, the press is choosing to report that foreclosures are up 71 percent over the same period last year. The data is accurate, but not necessarily relevant.

When home buyers and sellers engage real estate markets, they rarely think in annual terms. For them, it's about buying or selling this month, or next month, or the month after that. When someone is "in" the market, their mentality is "right now".

In other words, annual data is more befitting of an economist, while month-to-month data is more befitting of you. Of course foreclosures are up 71 percent since last year -- a lot has happened since then. But on a monthly basis, signals point to improvement.

September's foreclosure data may be a signal of market recovery, or it may just be a blip. Time will tell, really. Either way, RealtyTrac's foreclosure data reinforces what most real estate professionals already know and that's that markets all over the country are showing signs of life.

Simple Real Estate Definitions : Amortization

Wed, 22 Oct 2008 09:12:00 -0700

In the widest definition possible, amortization (pronounced: am-ohr-tih-ZAY-shun) is the scheduled process by which a loan's principal balance pays down to $0.

The opposite of an amortizing loan is an interest only loan for which there is no scheduled principal repayment schedule.

With respect to mortgages, amortization is what determines how much of a monthly payment goes to principal, and how much goes to interest. Amortization schedules are the same for all fixed rate, non-interest only home loans including 15- and 30-year fixed rate mortgages, as well as all non-interest only ARMs.

Monthly principal and interest payments on a mortgage are based on the mathematical formula above, where:

P = principal
A = payment
r = monthly interest rate
n = number of payments

Now, if you've ever paid on an amortizing home loan, you don't need to use the formula to know that mortgage amortization schedules are dramatically front-loaded with interest.

In other words, in the early years of loan, the interest due on a mortgage is relatively high versus the principal due. And, if you've ever heard someone say, "You don't pay down much of a loan in the first few years," now you know -- mathematically -- why that is.

This interest-heavy mortgage repayment schedule helps banks to collect as much loan interest as possible up-front, offsetting potential loan losses.

But, just because the bank sets an amortization schedule doesn't mean that a homeowner can't change it. In any given month, a borrower can prepay extra principal to the lender, thereby changing the formula and accelerated the loan payoff date.

There are calculators online that do the prepayment math for you, but before making extra payments, talk with your loan officer or financial advisor first. Prepaying your mortgage could trigger a stiff penalty from your lender, or put your liquid assets at risk. Prepayment is not a bad plan, but it may be a bad plan for some.

(Image courtesy: Mortgage News Daily)

Effective December 13, 2008, Some Conforming Mortgages Will Require Larger Downpayments To Get Approved

Tue, 21 Oct 2008 09:18:00 -0700

In an effort to limit risky borrower behavior, Fannie Mae announced a new round of mortgage guideline changes last week.

Unlike previous its previous 20-plus updates that raised income requirements and minimum credit scores (among other changes), Fannie's latest guideline tweaks focus on the value of its underlying mortgage assets -- home equity.

Effective December 13, 2008, Fannie Mae will require larger equity positions on some of its insured purchases and refinances.

A few of the updates include:

Limiting primary residence, cash out refinances to 85% loan-to-value
Requiring 10% downpayments on second/vacation homes
Requiring a 25% equity position on all investment property refinances

And, while the above changes represent 5 percent equity increases over the current mortgage guidelines, some of the other updates call for increases of as much as 20 percent.

As we head into the election and Congress mulls over another economic stimulus package, it's unclear if mortgage rates will move higher or lower as we close out the year. We do know, however, that getting approved for a conforming mortgage will, in general, be harder come December 13, 2008.

If you're finding yourself on the fence about your next move -- whether it's to buy or to refinance -- consider taking the necessary steps before the guidelines change.

Low, low mortgage rates don't mean much if you don't have enough home equity to get a home loan approval.

(Image courtesy: The New York Times)