The Mortgage Reports

Mortgage approvals are getting more difficult.  Again.

After reviewing recent unemployment data and market fluctuations, plus patterns of mortgage fraud, Fannie Mae is making major mortgage guideline changes for the first time in more than 6 months.

The changes are broad, impacting 15 separate areas of the mortgage approval process as detailed in Fannie Mae's official announcement.

Across-the-Board Guideline Changes:

• Credit, income and asset documentation can't be more than 90 days old. The former guidelines allowed for 120 days.
• Lenders must compare actual federal tax returns from the IRS to a borrower's supplied income documentation. Previously, this review step was at the lender's discretion.
• "Tip" income must be verified.
• Trailing secondary wage earning is now prohibited. This means that P&G employees relocating to Cincinnati can't use a spouse's "expected" Cincinnati income until that spouse actually has a job.
• Stocks, bonds and mutual funds get assigned 70% of current market value. Formerly, this was 100%.
• Retirement assets get assigned 60% of current market value. Formerly, this was 70%.

By themselves, these bullet points would kick more than a handful of home loans out of the underwriting queue but of all the changes Fannie Mae is making, the most impactful one may new its new restrictions on mortgages for 2-unit properties.

Until now, Fannie Mae had treated duplex homes as somewhat "safe", granting them the same liberal underwriting policies as for a single-family home.  Because of defaults and fraud prevention efforts, though, Fannie Mae decided to make getting approved for a 2-unit property decidedly more difficult.

Minimum credit scores are higher and maximum loan-to-values are lower.

When your 2-unit is your Primary Residence:

• Purchase: Maximum LTV lowered to 80%; 640 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 80%; 640 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 75%; 680 minimum FICO.

When your 2-Unit is an Investment Property

• Purchase: Maximum LTV lowered to 75%; 660 minimum FICO.
• Rate-and-Term Refinance: Maximum LTV lowered to 75%; 660 minimum FICO.
• Cash Out Refinance: Maximum LTV lowered to 70%; 680 minimum FICO.

Overall, Fannie Mae's new 2-unit guidelines restrict loan-to-value limits by as much as 15 percent and raise minimum FICOs by up to 40 points -- 2 major shifts in policy.  Because of it, going forward, fewer 2-unit mortgage applicants will qualify for mortgages and that should slow both purchase and refinance activity in the 2-unit market until the market returns to balance.

It's especially tough for owners of more than 4 financed properties.

Fannie Mae has said September 1, 2009, is the "effective date" for its underwriting changes so not every lender is underwriting to the new rules just yet.  It's expected that by August 1, all of them well.

Therefore, if you know that you have a 2-unit home to refinance, or that you need your stock and/or retirement portfolio to qualify for your mortgage, consider moving up your timeframe to the next two weeks.   Lenders often implement new guidelines without advance warning and that could leave you in the cold.

Better to get a good rate today than to be ineligible for a great rate tomorrow.  If I can help you plan for an upcoming mortgage, call or email anytime.

Share on Facebook

It's transcended trending -- it's now a given.  Foreclosures regionalize.

In June, for the brazillionth time in as many months, just 3 states accounted for half of the country's foreclosure-related activity.  The top 10 states accounted for 75%.

Clearly, the foreclosures crisis doesn't impact every state in the same way.

Setting aside the personal pain foreclosures can cause, the massive mortgage default numbers have a silver lining.  Both first-time home buyers and opportunistic real estate investors can now buy foreclosed homes at relatively low prices and finance them at attractive mortgage rates.

Not every foreclosure is going to a "diamond in the rough" but there are some great deals to be had out there.  It may help explain why distressed properties accounted for nearly half of all home resales in April and for one-third of May's.

Meanwhile, to meet the burgeoning demand for foreclosed homes, several real estate companies built high-powered Foreclosure Search Engines geared at general home-buying public.  Whether you're a home buyer, real estate investor, or just curious about your neighborhood, there's lot of ways to find a foreclosed home.

Foreclosure search engines are rarely free but often come with "trial periods".  Trial memberships are usually full-featured and you can use your 7 free days to make an unlimited number of queries to help ascertain whether or not the foreclosure market is a good fit for your personal real estate goals.

For example, if you're looking for foreclosed homes to convert into turn-key rental properties or a vacation home, you may want to use a trial membership to search the 3 states in which foreclosures are most prevalent.

• You can search for foreclosures in California with a click
• You can search for foreclosures in Arizona with a click
• You can search for foreclosures in Nevada with a click

Or, just search for foreclosures in general. This form, in particular, lets you search for foreclosures by ZIP code.

According to RealtyTrac, the number of Q2 foreclosures was the second highest on record so there's deals to be had if you know where to look.  And when you find that deal and want to finance it, be sure to reach out to me directly by phone or email.

I'd be happy to work with you.

Share on Facebook

Are mortgage rates going up? Are mortgage rates going down? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may point you in the right direction.

The Bankrate.com survey is for conforming mortgages only. It does not apply to FHA mortgages, VA mortgages, jumbo mortgages, or foreign national mortgages. For rate quotes, .

The group's 30-day prediction for mortgage rates:

• 50% predict mortgage rates will increase
• 25% predict mortgage rates will decrease
• 25% predict mortgage rates will remain unchanged

I predict that rates will increase over the next 30 days.

Unfortunately, this week's survey is a few days too late to do anyone much good.  Since Monday, rates have been on a rocket-ride to the moon.  But besides, it's not like my prediction for the next 30 days ahead is going to necessarily fit your particular situation.

Here's what I told Bankrate.com:

"Risk-taking is back in vogue. Stock market up, mortgage rates up."

Okay, a couple of things are happening in markets right now and none of them are good for mortgage rates.  If we use our 20/20 Hindsight Glasses, we probably could have seen it coming.

1. Home prices are no longer on a steep decline
2. Consumer Confidence is rising
3. The financial system is returning to profitability

Furthermore, Americans no longer have Recession on the Brain like they did last September and October.  Back then, the financial crisis was the leading story of every news-related show on TV and in print.

The notable absence of these The End Of The World As We Know It-like messages may be one reason why consumer purse strings are starting to loosen.  For the fourth straight month in May, Retail Sales figures were hotter-than-expected.

Consumer spending accounts for the majority of the economy's activity and, now that spending is up, Wall Street is betting that businesses will prosper.  The Dow Jones is up 5 percent since Monday.

It shouldn't surprise you, but mortgage rates have tanked over the same period of time.

In 2008, mortgage rates benefited from the stock markets' losses.  Investors fled risk and parked their dollars in the relative safe haven of the mortgage-backed bond market.  Now, in 2009, as the stock market improves, some of those safe haven trades are getting unwound.

Over the next few weeks, at least, gains in the stock market should come at the expense of mortgage rates.

Remember, though, mortgage rates move quickly.  If you're not already working with a loan officer and know you'll want a new mortgage soon, you should consider being a part of my Rate Watch program.

Call or and I'll take a full loan application from you to keep on file and queued up. I'll ask you to pick a "target rate" and then, when I see it available on the rate sheets, I'll submit and commit it for you. We then start working toward your closing.

Or, if you prefer watching rates from the sidelines, my Twitter timeline is http://twitter.com/mortgagereports. I post several mortgage updates each day.

Share on Facebook

I recently rebuilt my database for CAN-SPAM compliance, asking my clients to opt-in for mortgage-related email.  Not every one appreciates getting random notes, though -- even if it's from their loan officer. Then I thought: My readers might appreciate another way to keep up with the markets, too.

So, if you want, give your address and you'll get via email:

1. A weekly blog summary in digest format
2. Important news I typically reserve for client
3. Other propaganda that I see fit to send.

Thanks -- and share with a friend!

Share on Facebook

Mr. Deeds: [Stepping into an elevator] So how's the elevator business treating you, Reuben?

Reuben: Oh, it has its ups and downs.

It's been a wild few months in the mortgage markets and a trying time for mortgage rate shoppers.

Making sure you get the absolute "lowest rate" has never been tougher.  Rates are up.  Then, rates are down.  Rates are up.  Then, rates are down.  Over the past 5 weeks, mortgage rates have carved out a 1.500 percent range.

• Mid-May : 30-year fixed rates were near 4.750 with 0 points
• Early-June : 30-year fixed rates were near 6.250 with 0 points
• Late-June : 30-year fixed rates were near 5.500 with 0 points
• Early-July : 30-year fixed rates were near 5.000 with 0 points
• Mid-July : 30-year fixed rates are near 5.375  with 0 points

It's been a stomach-dropping ride for people trying to time a market bottom before locking in a rate and it's all happening because traders can't seem to answer to the most important question on Wall Street right now:

Is the recession ending, or getting worse?

It would seem like a simple yes or no -- there's plenty of available data , after all -- but the data is conflicting.  As soon as we get cause for optimism from one sector of the economy, weak data presents itself somewhere else.

Furthermore, when it comes to predicting the future of the U.S. economy, not all data is created equal.  Unemployment statistics tend to lag, for example, whereas Retail Sales may be more immediate.

So, what's a home buyer or would-be refinancer to make of it all?

Well, first of all, it's important to recognize that markets are moving on momentum and fundamentals right now.  That's a dangerous combination because even the smallest market event could lead to a mortgage rate surge  The other side, of course, is that rates could fall on new news, but mortgage rates usually rise much faster than they fall.

There's an old adage: Mortgage rates take the elevator on the way up, but take the stairs on the way down.

Lately, we've even seen this IRL.  There have been days where rate are up by as much as half-percent as investor flee from the bond market, but when rates recover lower, they seem to be dropping just an eighth of a percent at a time.

Floating your mortgage rate is fine, but given the current market conditions, you may be playing with house money right now and this is as good a time as any to cash in your chips.  All it will take a series of strong earnings from the banks this week and some hotter-than-expected inflation data to push rates back near 6 percent again.

The world moves quickly and mortgage rates do, too.  If you're not already working with a loan officer and are looking for a specific mortgage rate before locking, you may want to participate in my Rate Watch program.  You pick your target interest rate and when it's available on the open market, I'll lock it for you.

Call or .  I'll take a full loan application from you to keep on file, ready for when rates fall.

Or, if you prefer watching rates from the sidelines, my Twitter timeline is http://twitter.com/mortgagereports.  I post several mortgage updates each day.

Share on Facebook

Whether you're buying a home in Cincinnati or refinancing one, there's lots of ways to make a play for lower mortgage rates or fewer loan fees.

1. Have a higher credit score
2. Make a larger downpayment
3. Do your Good Faith Estimate homework

But, sometimes, the easiest way to save money on your mortgage is by picking a better closing date.

It's all about Rate Lock Commitments.

A Rate Lock Commitment is a bank's promise to honor a specific mortgage rate for a specific period of time.  It's a contract, of sorts, in which the lender says: "Provided you close on your loan in the next however-many days, we'll make sure you get your locked rate."

In many respects, a mortgage lender's profitability is linked to its ability to accurately predict what mortgage markets will look like at the end of a Rate Lock Commitment.

It's a dangerous game to predict the future and banks know that the farther into the future they try to predict, the more likely their predictions will be wrong.  It's why longer rate lock commitments tend to carry higher interest rates, higher fees, or both -- banks are purposefully hedging against "time risk".

Rate locks typically come in 15-day increments with the 30-day rate lock serving as the basis for all other pricing:

• 15-day rate lock : Often 1/8 percent lower than the 30-day rate lock
• 30-day rate lock : The basis for all other pricing
• 45-day rate lock : Often 1/8 percent higher than the 30-day rate lock
• 60-day rate lock : Often 1/4 percent higher than the 30-day rate lock

Based on the chart, you can see why choosing a closing date matters.  A simple 1-day difference can lower your mortgage rate by 0.125% -- an annual $380 savings against a $400,000 home loan.

And the math doesn't just apply to purchase mortgages.  It applies to refinances, too.

A refinance that can close in 30 days is going to be better priced, in general, than one that takes 45 days to close.  It's one reason why being responsive to documentation requests is so important -- quicker to process means quicker to close.

Managing a mortgage rate lock commitment is an often-neglected method for keeping mortgage rates and loan fees down -- mostly because homeowners and real estate agents rarely know how to do it, and loan officer rarely talk about it.

So, before choosing a closing date for your pending home purchase, or starting to work on a new refinance, consider the impact of time on your bottom line.  The shorter your rate lock commitment, the more money you're likely to save.

(Post licensed and adapted from Bring the Blog)

Share on Facebook

Are mortgage rates going up? Are mortgage rates going down? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may point you in the right direction.

The Bankrate.com survey is for conforming mortgages only. It does not apply to FHA mortgages, VA mortgages, jumbo mortgages, or foreign national mortgages. For rate quotes, .

The group's 30-day prediction for mortgage rates:

• 19% predict mortgage rates will increase
• 37% predict mortgage rates will decrease
• 44% predict mortgage rates will remain unchanged

I predict that rates will remain unchanged over the next 30 days.

In a world where every rate shopper has their own risk tolerance, though, remember that my prediction may not be appropriate for your particular situation. I can't even promise this will be the best 4-minute recap you see today.

Here's what I told Bankrate.com:

"Mortgage markets may sputter along until Labor Day."

There's an interesting dynamic on Wall Street right now.

5 weeks ago, Wall Street was mostly convinced that the economy was about to turn a corner.  At the time, traders were piling into the stock market, chasing big gains and selling everything risk-averse.  Mortgage bonds were in very low demand and the supply glut pushed rates north of 6 percent.

Since then, the world has calmed down a bit.

Housing and manufacturing continue to show strength, but some key pockets of economic weakness have poked investors into taking some profits off the table.  The Dow has since shed some of its gains since March and the action is causing mortgage bonds to improve.

If inflation fears made rates soar to June, concerns of a slowdown are helping them fall in July.

Now, this doesn't mean that rates will fall for certain.  Sometime last week, key government officials broached the topic of Economic Stimulus Part II.  Worried that the first stimulus is not taking hold fast enough, the second package is being purported to hasten a recovery.  It would also commit additional U.S. dollars to the effort.

To mortgage markets, printing cash would be a strong kick in the gut.  Monetary inflation is as insidious as commodity-fueled inflation and -- in any form -- inflation is terrible for mortgage rates.

The world moves quickly and mortgage rates do,too.  If you're not already working with a loan officer and know you'll need a new mortgage soon, it's probably okay to float your rate for a little bit but you may want to participate in my Rate Watch program.

Call or and I'll take a full loan application from you to keep on file and queued up. I'll ask you to pick a "target rate" and the, when I see it available on the rate sheets, I'll submit and commit it for you. We then start working toward your closing.

Or, if you prefer watching rates from the sidelines, my Twitter timeline is http://twitter.com/mortgagereports. I post several mortgage updates each day.

Share on Facebook

There's an old saying that goes "All Real Estate Is Local".

In a nutshell, it means that real estate markets differ from state-to-state and from city-to-city.  But it gets even more granular than that.   Because of school district boundaries and public services, real estate markets are even different from block-to-block.

As an exercise on how this works in real life, look at the six images above.  Then, imagine each to represent a neighborhood near your home.

Note how each block of photos has its own vibe, character and flavor.  Some have dogs, some are yellow, some are hip.  Some are young, some are old, some are blurry.  Each "neighborhood" above is distinct.

Now, look at the photo below.

This photo represents the national real estate market.

If you look closely at the bigger picture, you can see your six neighborhoods mixed in. One's up in the sky, another one's in the grass, another one's in the For Sale sign, and so on.  The picture is comprised of literally thousands of "neighborhoods", each serving as a tile in a national real estate photomosaic.

It's a fitting analogy for how we often get our news on real estate.

Consider business television.  CNBC features stories about "rising home prices" in America and "an increasing number of foreclosures".  What they're really talking about the photomosaic -- not the individual tiles where we all individually live.

For a home buyer, getting that "whole picture" is about as helpful as having Al Roker report that the national temperature to be 77 degrees.

Sure, maybe the national picture matters on some levels, but not nearly as much as the ultra-local one.  We don't live in all 50 states at the same time, after all, and for a person buying a home in Cincinnati, what's happening in the Chicago condo market is mostly irrelevant.

Homes exists in one place and one place only; as a tiny little square on the face of the national real estate market.  And when we say "All Real Estate Is Local", this is what we mean.

Each real estate market has its own characteristics which drive home values, buyer activity, and average days on market.  You can't get that kind of news from TV, either -- you can only get it from a local source.

If you're buying or selling a home and need to be connected to someone that knows the neighborhood inside and out, just . I'd be happy to connect you to people I know and trust.

Share on Facebook

ARM-holding homeowners often assume that when their mortgage is about to adjust, it's time to refinance it -- no matter what.

The math,  however,  says otherwise.

If your adjustable rate mortgage is due to reset in 2009 and 2010, the smart play may be to let it change.  After all, adjustable-rate mortgages have been adjusting downward for pretty much all of 2009 and there are no closing costs on a ARM adjustment like there would be for a brand-new fixed rate mortgage.

Here's how most conforming ARMs work:

1. For some fixed period of time, the homeowner's mortgage rate is constant
2. When the fixed time period ends, the mortgage rate adjusts to a new rate based on some pre-determined formula
3. On each subsequent adjustment anniversary, the mortgage rate re-adjusts on the same,  pre-determined formula

The pre-determined formula by which ARMs adjust is something similar to:

And just what is the "variable" and the "constant"? It depends on your mortgage.

The variable and constant can be just about anything, really -- favorable-to-the-bank numbers or favorable-to-the homeowner numbers.  This is a frightening reality for people that aren't aware of how their own ARM works either because it was never explained to them, it was never explained to them clearly, or because they forgot the explanation altogether.

However, if you have a home loan that's set to adjust in 2009 or 2010, the chances are extremely high that your ARM is structured in what is now the "standard" for conforming ARMs.  This is because practically every 3-year ARM, 5-year ARM and 7-year ARM made from 2003 to 2009 carries the same variable-constant formula.

• The variable is usually the 1-year LIBOR -- currently near 1.5 percent
• The constant is usually 2.250 percent

All homeowners with expiring conforming ARMs are facing at the same basic math for their respective adjustments. The math is in the chart above.  Most ARMs are adjusting down near 4.000 percent.

Some are even below 4 percent.

But,  just because your mortgage rate might adjust lower in 2009 or 2010 doesn't mean you should automatically let it.  Even with a falling-rate adjustment, there are certain situations in which you may want to convert an existing ARM into a fixed-rate mortgage:

1. If you intend to eventually pay off your home loan in full
2. If your ARM changes from "interest only" to "principal + interest" upon adjustment
3. If you lose sleep over keeping an uncertain household budget

And, because conforming ARMs adjust annually, the same "Should I Refinance My ARM" question will come up again next year.  If LIBOR returns to its historical average near 5 percent, the pending adjustment most certainly won't be lower.

Letting your mortgage adjust to the market may be a smart decision for this year, but foolish for the years ahead.

Therefore, in the end, allowing your ARM to adjust lower makes sense for the same reasons why a person would take ARM in the first place -- the risk of adjustment was worth it versus lower monthly payments along the way.

If your ARM is due for adjustment and you want to know whether it's better to refinance or let the adjustment occur, and we can talk about making a plan.

LIBOR can change suddenly and overnight so what makes sense today might not make sense when your loan is due to adjust 4 months from now. Having a plan with contingencies in a place is the best way to manage an ARM's adjustment.

Share on Facebook

Are mortgage rates going up? Are mortgage rates going down? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may point you in the right direction.

The Bankrate.com survey is for conforming mortgages only. It does not apply to FHA mortgages, VA mortgages, jumbo mortgages, or foreign national mortgages. For rate quotes, .

The group's 30-day prediction for mortgage rates:

• 8% predict mortgage rates will increase
• 46% predict mortgage rates will decrease
• 46% predict mortgage rates will remain unchanged

I predict that rates will decrease over the next 30 days. 

In a world where every rate shopper has their own risk tolerance, however,  my prediction may not be appropriate for your particular situation.  I can't even promise this will be the best 4-minute recap you'll see today.

Here's what I told Bankrate.com:

"Markets unwind their inflation fears. Slowly."

It's been a crazy few weeks in the mortgage world, to say the least.  Shortly after Memorial Day, on the heels of better-than-expected economic data and surging oil prices, mortgage rates took off .  Partly, rates moved on fears of runaway inflation, and partly because of $4.00 gasoline seemed suddenly likely.

In just over 10 days, 30-year fixed rate mortgages increased 1.250 percent.

It was a fit of self-fulfilling prophecy, in hindsight. As concerns about inflation induced investors to sell mortgage bonds, mortgage rates rose because bond prices and bond yields move in opposite directions.  Then, as mortgage rates rose, Wall Street convinced itself that the Fed had no choice except to intervene so that rates could come back to good-for-the-economy levels.

Wall Street also knew the only way the Fed could make a material impact on mortgage rates was to increase it's $1.25 trillion commitment to the market -- an inflation-inducing event if there ever was one -- and that, too, led rates higher.

In other words, each rate tick higher begat another rate tick higher -- all based on expectations of the Federal Reserve.

Therefore, the Fed did the only thing it could do.  It stayed quiet.

While mortgage rates crossed into the 6 percent range, Fed Chairman Bernanke and Treasury Secretary Geithner said and did nothing about the situation, giving market participants no choice but to rethink the government's urgency for low borrowing rates.

Eventually, expectations began to shift and mortgage rates stopped rising.

Then, after last week's Federal Open Market Committee meeting, Bernanke again stayed silent on the matter of  rising mortgage rates, prompting another dip.

Now, today, mortgage rates are still higher than the government's "ideal" sub-5 percent level, but Wall Street isn't worrying about inflation as much.  Data has improved in a lot of sectors, but it can't necessarily be categorized as "strong". Plus, gas prices are falling.

Both of these developments are making a positive impact on mortgage rates and should continue to pressure rates lower over the next few weeks.

All of that said, however, all it takes is one shock to the system for rates to blow right past 6 percent and never look back.

Therefore, if you're not already working with a loan officer and know you'll need a new mortgage soon, you may want to participate in my Rate Watch program.

You can call or and I'll take a full loan application to keep on file and queued up. You'll also pick your "target rate" for me. It will then be my job to watch for your target rate and, when I see it, submit and commit your rate lock for you.  We then start working toward your home loan closing together.

Or, if you prefer to watch rates from the sidelines, consider adding me to your Twitter timeline at http://twitter.com/mortgagereports. I post several mortgage updates each day.

Share on Facebook

A "rate sheet" is a mortgage lender's official pricing menu and for the first time since November 2008 -- a month marked by financial market hysteria -- mortgage lenders issued 100 separate rate sheets over the last 2-month period.

Accounting for weekends and holidays, that's 2.38 rate sheets per day on average, or roughly 0.38 more than the number of meatball sandwiches Johnny Utah is asked to buy for Angelo. Mortgage rate volatility is back in a big way, folks.

To put the pace of change in perspective, consider this:

• In the last 60 days, lenders issued 4 or more rates sheets in a day once per week
• In the last 1 year, lenders issued 4 or more rates sheets in a day once per month

The last 2 months have been a mortgage rate whirlwind.  For homeowners and home buyers in places like Cincinnati and Chicago, it's been difficult to zero in on mortgage rates and lock them in.  With rates are "expiring" every 2 hours 57 minutes, it's enough to make a person want to go back in time to, say, February and March.

The good news here, though, is that the recent volatility may be a signal that mortgage rate collusion among Big Bank Lenders is ending.

There's no evidence to support a claim like this, but for a very long while, rates trended tightly among the biggest players with very little difference in rates or points. Then, starting about 10 days ago, pricing started to open up a bit; to separate from bank to bank.

The volatility we've seen lately may really just be the return of competitive pricing to the mortgage space.  This idea is backed by the VIX -- otherwise known the "Fear Index".  The VIX is currently at its lowest levels since the September 2008 collapse of Lehman Brothers.

Or, deferring to Occam's Razor, mortgage rates may be jumpy because there's still a lot of uncertainty about the U.S. economy.

Either way, life is tough for home buyers and people wanting to refinance.

As a guy who sees rates change all the time and without much notice, I'll say this: unless you're prepared to accept a higher rate that what you've just been quoted, you may not want to gamble on getting a lower one.  An eighth-of-a-percent can add up over time but for some reason, it seems to add up a lot faster when you're wasting money instead of saving it.

If you don't have the means to watch mortgage rate changes in real-time, consider following me on Twitter.

Now, if you've never been on Twitter, it's seriously simple.  When you go to follow me, Twitter will ask you to register for a free account.  Do it.  Then, whenever you log back into Twitter, you'll see my last series of updates.  It will give you a feel for whether rates are improving or worsening.

Share on Facebook

Adjectives play an important role in the English language.  They modify nouns.  Because of adjectives, we can linguistically separate good movies from bad movies, rainy days from sunny days, and sore losers from lovable losers.

Sometimes, adjectives can be superfluous.  For example, this is a mortgage blog. When I write "rates are lower", it's implied that I'm talking about mortgage rates.

In some cases, though, omitting adjectives can lead to dangerous misunderstandings.  One of the most common examples in the Mortgage World recurs each time the Federal Open Market Committee adjourns.

The FOMC meets at least eight times annually and, at each meeting, the Fed votes to raise, lower, or leave unchanged the Fed Funds Rate.  The vote has huge implications for the U.S. economy and often makes worldwide news.

Unfortunately,  when reporting on the FOMC's decision, press members often fail to include the leading adjective.  They'll say something like, "The Fed voted to raise rates today" instead of "The Fed voted to raise the Fed Funds target rate today".

It's an important distinction because most Americans never learned about the scope of the Federal Reserve's control; they don't know how the Fed influences banking.

Furthermore, because Americans tend to believe that the Federal Reserve controls mortgage rates, when people hear that "rates were raised", they assume it to mean that mortgage rates were raised, too.

Mortgage rates and the Fed Funds Rate don't move in tandem.  The chart proves it.

Since 2000, the spread between the Fed Funds Rate and the 30-year fixed rate mortgage has been as narrow as 1 percent and as wide as 5 percent -- hardly a direct relationship.  There was even a period in the 1970s and 1980s where the spread was negative; where mortgage rates were lower than the Fed Funds Rate.

One reason why the two rates move semi-independently is that the Fed Funds Rate is an overnight rate and the 30-year fixed rate is a long-term rate.  Borrowing and lending is much less risky over an 8-hour period versus a 263,000-hour period.

Last week, the Federal Open Market Committee voted to hold its benchmark lending target rate between 0.000 percent and 0.250 percent.  Mortgage rates fell on the news.

Share on Facebook

Are mortgage rates going up? Are mortgage rates going down? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may have your answers.

The Bankrate.com survey is for conforming mortgages only. It does not apply to FHA mortgages, VA mortgages, jumbo mortgages, or foreign national mortgages. For rate quotes, .

The group's 30-day prediction for mortgage rates:

• 23% predict mortgage rates will increase
• 46% predict mortgage rates will decrease
• 31% predict mortgage rates will remain unchanged

I predict that rates will decrease over the next 30 days. My prediction may not be appropriate for your individual situation, however, and in that case, you definitely won't want to dance like a robot.

Here's what I told Bankrate.com:

"Government intervention drops mortgage rates."

Yesterday, the Federal Open Market Committee adjourned from a scheduled 2-day meeting and didn't do 3 things:

1. It didn't raise or lower the Fed Funds Rate
2. It didn't increase or decrease its commitment to the mortgage bond market
3. It didn't change its meh forecast for the U.S. economy

The post-meeting press release was plain, basic, and boring -- just 3 paragraphs recapping the economy, its threats and its outlook.  The Fed said nothing new and stayed on message.

In other words, it was everything a rate shopper could hope for.

See, before the FOMC meeting, markets pretty much knew the Fed wouldn't change the Fed Funds Rate.  What they didn't know, however, was whether Bernanke & Co would restate their outlook on the economy or introduce new tools meant to manage markets.

Everyone was a little on edge about it, actually.

With rising mortgage rates threatening the housing market's recovery and the employment sector showing signs of life, there was this pervasive nervousness on Wall Street pre-FOMC that the Fed would make a bold statement to keep the economy on track. This would have been awful for mortgage rates.  More Fed action would have  stoked inflation fears and inflation is a mortgage rate killer.

But, because the Fed went the boring route, mortgage rates didn't move yesterday and remain in the same range they've been in all week.

That said, rates may be resting higher than where the Federal Reserve wants them to be.

It's been said a few times that sub-5 percent mortgage rates are optimal for the housing markets.  Couple that with the  Federal Reserve's remaining hundreds of billions of dollars against its $1.25 trillion commitment to mortgage bonds and it's a small step to see what the Fed might do if rates don't fall by natural causes.

All the Federal Reserve has to do is accelerate the pace of its purchases, creating a near-term demand for mortgage bonds that causes rates to fall.

And the higher that mortgage rates get, the more likely we'll see government-led action to being them back down and when that happens, we'll get an immediate dip in rates that won't last long.

Generally, markets over-react when politicos mess with economics and, in this case, the emotion will bring rates lower than they'd naturally fall.  The corresponding emotional correction comes shortly thereafter -- usually in 36 hours or fewer.

In fact, we've seen this pattern 6 times  in the past 12 months.  It will happen again.

Therefore, if you're not already working with a loan officer and know you'll need a new mortgage soon, you may want to participate in my Rate Watch program.  You can call or and I'll take a full loan application to keep on file and queued up.   You'll also pick a "target rate".   Then, when your target rate is available in the open market, I'll just submit your rate lock for you and it's off to the races.

You won't have to stress about watching mortgage rates each day to know when it's time to lock.  The advance preparation is totally worth it.  Plan ahead.

Or, if you prefer watching rates from the sidelines, consider adding me to your Twitter timeline at http://twitter.com/mortgagereports. I post several mortgage updates each day.

Share on Facebook

The Federal Reserve starts a 2-day, policy-setting meeting today, one of 8 scheduled Fed meetings this year.

The purpose of the oct-annual meetings is to review economic conditions around the country and, when deemed necessary, create new monetary policy to stimulate or retard growth.

Now, for the last 21 months, you have to remember that the Federal Reserve has been in stimulus mode, fighting this recession blow-for-blow.  It's been a knock-down, drag-em-out fight and -- finally -- it looks like the Fed is winning the battle.

• Key housing stats are turning positive
• Layoffs and jobless claims appear to be slowing
• Inflation is still within tolerance

But beating the recession has come at a terrific price -- both figurative and literal.  Not only has the Fed dropped the Fed Funds Rate as far as it can possibly go, it's committed well over 1 trillion dollars to the effort which, as PageTutor reminds us, is a million-million.

Both of these actions are kindling in the economic fire and, when they catch, Wall Street expects the flames to burn the bright colors  of inflation.  It's why mortgage markets have been all jacked up lately.  Investors know inflation's coming -- they're just at odds about when it's coming.

So that brings us to today's Federal Open Market Committee meeting.

Looking at the chart at top, markets are 99.3% certain that the Federal Reserve won't raise the Fed Funds Rate from its current range of "near-zero".  Investors have come to this conclusion because the Fed has repeatedly said it will keep the Fed Funds Rate as low as possible for as long as possible.  There's no real reason to raise it now.

But just because the Fed Funds Rate won't be changing doesn't mean that mortgage rates won't be changing.

In the Federal Reserve's press release, it will undoubtedly talk about rising energy costs nationwide, the nascent economic recovery, and the country's prospects for the next few quarters.  Furthermore, Chairman Bernanke & Co. will likely acknowledge how rising mortgage rates could hamper recent housing strength.

Any or all of these points will shake the mortgage markets at their core, causing rates to rise or fall.  The problem here is that we don't know what the Fed will say and how it going to impact mortgage rates.

Therefore, if you need to lock your mortgage rate in the next week or so and you lose sleep over the thought of mortgage rates going up, do yourself a favor and just lock it up now.  Mortgage rates may end up falling post-FOMC tomorrow, but then again, they may not.  I wouldn't want to be on the wrong side of that bet. #justsayin

However, if your rate-locking timeframe is a little more elastic, consider waiting this one out.  Mortgage rates may rise post-FOMC Wednesday afternoon, but the higher that rates get, the more likely the Fed will intervene to bring them back down.

Remember, the government has said repeatedly strong housing markets are essential for a full economic recovery and there's lot of high-paid lobbyists telling Congress that high mortgage rates are a threat to housing.  Furthermore, the Federal Reserve has anted up twice in the mortgage-backed bond market to help keep rates down.

There's history here, folks, and mortgage rates should take one more run through 5 percent.  It may not happen after the FOMC adjourns tomorrow, but it will happen sometime soon.  When it does, make sure you're ready. Low rates rarely last long.

Share on Facebook

To a consumer, one of the most difficult facets of shopping for a mortgage is figuring out just what mortgage rates are doing at any given time.

Despite countless websites and blogs devoted to the topic of mortgage, the most important part of a person's research -- the darn price -- can't be found hardly anywhere online.

It's a horrifying revelation for people vis-à-vis the way we've all been trained to use the internet.  After all, we're conditioned to use the internet as a means to eliminate information asymmetry; to know the price before we ever step foot in the store, so to speak.  That way, we can be sure we're negotiating the best possible deals for ourselves.

Except it doesn't work like that for mortgages.  Prices are elusive.

Through the course of doing mortgage-related research online, most people actually learn a lot about home loans.

• They learn that mortgage rates are based on mortgage-backed bonds and not the 10-year Treasury Note
• They learn the intricacies of how FHA Streamlines work and about MIP refunds
• They learn how Conforming Loan Limits apply to their specific zip code

Beyond that, however, it's an information abyss.

When you want to know what mortgage rates are doing, there's no crawler you can watch on CNBC.  There's no ticker symbol to track on Google Finance.  There's not even a section on the Investor’s Business Daily website for it.  So, in the absence of timely mortgage rate information -- unfortunately -- people turn to whatever information they can find.

And that's when the trouble starts.

One of the most widely-recognized mortgage rate surveys is the Freddie Mac's Primary Mortgage Market Survey.  Published since 1971, it's the basis for national mortgage rate news stories, for Home Affordability studies, for congressional research, and about anything else mortgage-rate related.

The Freddie Mac survey gets a lot of ink in the nation's newspapers and, for most people, it's the only news they hear about whether mortgage rates are rising or falling.

The study is flawed in a big way, however.  Huge.  The problem is with the survey's methodology.

According to Freddie Mac, Primary Mortgage Market Survey results are collected from survey participants Monday through Wednesday, and then published to the public Thursday.  The survey is grouping mortgage rates into a static data point when, in fact, they're anything but static.

It's an egregious example, but across those 3 days last week, lenders issued 9 separate rate sheets with a 1/2 percent spread between them. Survey results were destined to be skewed depending on which day survey participants checked back with Freddie Mac.

Furthermore, because Freddie Mac embargoes the survey results until Thursday morning, there's even another day through which mortgage rates can change.

Again, looking at last week, markets sold off with force Thursday morning, causing rates to rise 0.375 percent before noon.  By the time the Freddie Mac survey was published, therefore, it had zero practical application to rate shoppers in Cincinnati or anywhere else.

The Freddie Mac Primary Mortgage Market Survey reported "average mortgage rates" well below what was actually available at the time its publication.

So, for active home buyers and people wanting to refinance, it's not tough to find information about mortgages, it's only tough to get information about mortgage rates.  Specifically, mortgage rates as they apply to your personal profile.

One solution is to watch my Twitter feed at http://twitter.com/mortgagereports.

If you've never been on Twitter, it's a low-impact workout.  Sign up for a free account, follow me (@mortgagereports), and then check back as often as you'd like.  Whenever you re-visit my Twitter page, you'll see the last series of updates and you can get a feel for whether rates are improving or worsening.  I update the feed several times per day -- more often when markets are turning quickly.

If after some time you find that my Twitter feed isn't "personal" enough for you, and ask to be on the Rate Watch list.  I'll reply back with a request for some basic information and we'll get a feel for today's interest rates as they apply to what you've got going on.  Then, if everything makes sense for you, we can put a Rate Lock agreement in place at your request so that when your target interest rate hits, we'll be ready to lock it on your behalf.

Mortgage rates move quickly and you can't wait for Freddie Mac to tell you what they are.  It's the most heavily-relied upon sources of mortgage rates and it's outdated before it's ever published.  Instead, consider relying on me.

Share on Facebook

Mortgage rates are rising in this summer but don't look so shocked -- rates seem to rise every summer.

As recorded by Freddie Mac, since 2006, 30-year fixed-rate conforming mortgage rate have made a habit of rising in May, June, July and August before settling down through football season. 

This year, the June Swoon looks especially strong.  Mortgage rates are higher by 3/4 percent versus late-May and we're only at the start of the summer trend.

The biggest reason why mortgage rates are up is because of inflation fears. 

Inflation devalues the U.S. dollar and renders fixed-rate investments -- a set that includes mortgage-backed bonds -- less attractive to investors.  When the dollar worth less, bond repayments are worth less, too.  This is why traders don't like holding mortgage bonds in their portfolios when inflation looms -- it can be a real money-loser.

So, mortgage bond tend to sell-off when inflation is coming which, in turn, causes mortgage-backed bond prices to fall. Lower bond prices yields higher mortgage rates.

Now, it's tough to know what's happening with inflation in real-time because most officially-published government data lags by a few weeks.  However, you can sometimes use your local gas station as a proxy.  Rising gas prices are often considered inflationary so if you notice a rising cost to fill-up is rising, it may be a predictor of higher mortgage rates ahead.

Share on Facebook

Mortgage rates have risen sharply since the last week of May, putting a large dent into the Cincinnati homebuyer's monthly budget.  And as if you needed proof that rising mortgage rates are a "story", the mainstream media has seen fit to cover the story.

I've given a few interviews on the topic and in this 3-minute piece with First Business, I answer some mortgage- and housing-related questions, including:

1. What impact does rising rates have on the housing market? << Little impact
2. Will mortgage rates get back to 5 percent? << Yes, they will
3. What's the bestrate lock strategy for today's homebuyers? << Be proactive

Soon, I expect mortgage rates to fall from their current, lofty levels.  So, if you can afford to be patient with your rate lock, you may find better rates down the road versus what you're seeing today.

And as for being proactive, in advance of rates falling, I've been taking loan applications for my clients and drafting new loan terms for them.  The idea is that when rates do fall, we've already agreed on rates and costs and I can lock at the precise minute that rates plunge.  The last time rates bottomed-out, you'll remember, it lasted just 90 minutes. 

Having a plan is better than not having a plan and I'm happy to monitor markets for you, too.  If you're not already working with someone,  and we'll get working on your terms right away.

Share on Facebook

If real estate is local, foreclosures must be, too.

According it May 2009 foreclosure trends report, foreclosure-tracker RealtyTrac showed that more than half of the country's foreclosure last month were concentrated across just 3 states:

1. California
2. Florida
3. Nevada

On a population basis, these 3 states represent 19 percent of the U.S. population.

The statistic can be startling, but no matter in which state you live, it's important to understanfd that foreclosures "somewhere else" have far-reaching influence.  This is because -- unlike you and I both -- a mortgage lender's personal geography isn't limited to just one city or one state.

In contrast, lenders "live" everywhere. 

As foreclosures degrade lender loan portfolios, consumers have to deal with things like higher downpayment requirements, tougher underwriting hurdles, and larger fee sets. 

Furthermore, similar to the fate of homeowners insurance rates after a hurricane, borrowers with less than 20 percent equity find that the cost of their private mortgage insurance increases dramatically, or becomes generally unavailable.

These changes impact to homeowners in all states -- not just the 3 named above.  And in some cases, they mean the difference between a home loan approval and an underwriting turndown.

That said, foreclosure-seekers are finding excellent affordability in real estate right now -- especially Snowbirds in search of warmer-climate homes for vacation or retirement.  It's one reason why May's Existing Home Sales report showed West Region sales up by nearly 20 percent -- there's plenty of good value there. 

Additionally, first-time home buyers in all markets are finding foreclosed-home price points to be sometimes irresistable.

If you're interesting in buying foreclosures -- either for personal or investment use -- the good news is that foreclosure-related information is generally available to the public.  Your real estate agent, for example, should be able to produce a complete list of available foreclosed home for you in whatever your target market is without much effort.

Or, if you're just kicking the proverbial foreclosure tires, consider using a free, online tool like RealtyTrac's "homes for half price" database.  It's a comprehensive, state-by-state listing of foreclosures with a 7-Day free trial attached to it.

Share on Facebook

Are mortgage rates going up? Are mortgage rates going down? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may have your answers.

The Bankrate.com survey is for conforming mortgages only. It does not apply to FHA mortgages, VA mortgages, jumbo mortgages, or foreign national mortgages. For rate quotes, .

The group's 30-day prediction for mortgage rates:

• 57% predict mortgage rates will increase
• 29% predict mortgage rates will decrease
• 14% predict mortgage rates will remain unchanged

I am predicting that rates will decrease over the next 30 days. My prediction may not be appropriate for your individual situation, nor may my commentary be as enlightening at Biff's Question Song.

Here's what I told Bankrate.com:

"Fed intervention brings rates back toward 5 percent. "

I've hit this point a few times lately, but when something is important, you can't talk about it too many times.

1. The government has said that sub-5 percent mortgage rates are optimal
2. The Federal Reserve has implied it could boost its $1.25 trillion market pledge

Therefore, putting two-and-two together, I'm telling you for the last time: If mortgage rates get too close to 7 percent, expect the Federal Reserve to accelerate the pace of its bond buys and, possibly, look for an increase in its commitment to the markets, too.

At least temporarily, this would drive mortgage rates down.  Quickly.

Therefore, if you're among the many homeowners in Cincinnati or Chicago or wherever kicking yourself that you didn't refinance down to 4.750 percent last month when you had the chance, consider this your alert.  If's there's a pending Fed intervention, it will mark your second -- and likely last -- chance to capture low mortgage rates for a long while. 

If it happens, the market will make a knee-jerk reaction that will bring rates way down.  Before long, though, fears of monetary supply inflation will resurface in the markets and rates will bounce right back up.  We've seen this pattern too many times in the past 12 months to think it won't happen again.

If you're not already working with a loan officer and know you'll need a new mortgage soon,  and we'll take a loan application for you.  That way, you'll have your loan application all queued up for that exact moment when rates fall. 

It's a little bit of preparation, but totally worth it.  I've been in this field long enough to tell you with certainty -- if you wait until the Fed makes its announcement to give your loan application, you will miss your chance to lock in that low rate.  Plan ahead. 

Meanwhile, if you're not already doing it, consider following me on Twitter at http://twitter.com/mortgagereports. I post several mortgage updates each day and it can help you get a feel for what mortgage rates are doing at any given time.

Share on Facebook

Forget about that 4.500 percent, 0-point mortgage rate you passed on last month.  It's gone.  Today, conforming mortgage rates are bearing down on 6 percent.

For a homeowner in Cincinnati with a $300,000, fixed-rate home loan, the impact is huge.  Since the unofficial start of summer, rising mortgage rates have added $240 to a monthly mortgage payment.

There are two reasons why rates are rising -- one fundamental, and one superstition-like.  We can't ignore either.

The fundamental reason rates are rising is evidence is emerging that shows the global economy in recovery.  There's bound to be setbacks from month-to-month, but overall, the foundation for economic growth appears to be in place. 

Unfortunately for active home buyers and shoulda-woulda-coulda refinancers in Cincinnati and everywhere else, the recovery is coming faster and with more force than was expected.  The pace of the recovery is forcing traders to account for longer-term inflation and inflation just kills mortgage rates.

The superstition reason is important, too.  It's about heeding trends and patterns -- something Wall Street players call Technical Analysis.  It's not super-important that you get how Technical Analysis works, you just need to know the basic premise behind it.

Technical Analysis is a pseudo-science; a way of studying markets that says patterns repeat themselves over time. Ironically, in a blatant case of Self-Fulfilling Prophecy, because traders believe in pattern watching, they often cause the pattern to be fulfilled. 

This is why mortgage rates sometimes dip and soar for no apparent reason -- their strings are getting pulled by technical traders.  And, part of what's driving rates up right now should eventually drop them back down.  Maybe not to 4.500 percent, but somewhere close, perhaps.

If you've missed the bottom in rates, there's still hope:

• Technical trading patterns should eventually draw rates back down
• The Federal Reserve will likely accelerate its commitment to low rates
• Mortgage rates tend to be seasonal and cyclical

Make sure you don't miss the next rate drop.  It will happen -- we just don't know when. 

Of course, you have a day job and have probably spent more time researching rates than you want to already.  two terrific ways to get your mortgage rate news are to:

1. Follow me on Twitter at http://twitter.com/mortgagereports
2. Get this blog delivered by email each day

Rates move too fast to rely on slow-to-break stories on TV or in the papers.  You'll want mortgage rate news in real-time and you'll want my advice on whether to lock a rate or wait it out for something "better", too.  Reach out to me  and I'll put you on my mortgage rate "watch list".

Share on Facebook