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The Federal Open Market Committee meets today and will vote to keep the Fed Funds Rate unchanged. But don't rest on your rate-locking laurels.

Mortgage Rates Are Made On Wall Street

When the Federal Reserve votes to leave the Fed Funds Rate unchanged, it's different from the Fed keeping mortgage rates unchanged.  Actually, the Fed can't leave mortgage rates unchanged because its powers don't extend to the mortgage markets. Mortgage rates are "made" on Wall Street, in open trading.

The Fed Funds Rate is unrelated to mortgage rates.

Looking back 20 years, the difference between the two benchmark rates has been as wide as 5 points and as narrow as 1. And, prior to that, in 1973-74 and again in 1980-81, the spread went negative. 30-year fixed mortgage rates were actually less the Fed Funds Rate.

If the Fed Funds Rate directly related to mortgage rates, the spreads would be linear.

The Fed's Statement Will Make Rates Change

The Fed doesn't set mortgage rates and the markets will make that clear again this afternoon.  Despite the Fed announcing its intent to keep the Fed Funds Rate near zero "for an extended period of time", mortgage rates will dance.

If the Fed's press release carries a positive tone about the economy and economic growth, mortgage rates will rise.  If the tone is negative, rates will fall.

Today is not a good day to float your mortgage.

What To Do If Your Loan Isn't Locked Yet

If you're not locked in, talk to your loan officer in advance of the Fed's 2:15 P.M. ET announcement. Rates are more likely to rise than to fall.

Or, if you don't have a loan officer, with your details. I'm happy to get your rate locked right away -- before potential changes for the worse.

Foreclosure-related filings topped 300,000 last month, according to foreclosure-tracking firm RealtyTrac.

Nationwide, 1 in every 418 households was served some form of foreclosure notice but -- as always -- foreclosures are more common in some areas than others.

Many Foreclosures, Few States

In February 2010, 4 states accounted for more than half of the country's foreclosure-related activity:

• California : 22.2 percent
• Florida : 17.5 percent
• Michigan : 6.5 percent
• Illinois : 5.6 percent

Combined, these four states represent 56% of foreclosures but just 25% of the population. Clearly, foreclosures are a local phenomenon.

They're also the spring season's biggest story.

Foreclosures Are A Growing Percentage Of Total Sales

Because foreclosures and other "distressed" homes tend to sell at a discount, they now account for 38 of all home resales.  This is up from 33 percent in the month prior.

For first-time homebuyers, move-up homebuyers, and even for investors with more than 4 properties, buying foreclosures in Cincinnati and Chicago has never been easier.

Foreclosures are big business and new listings are available 24/7.

Where To Find Foreclosures Online For Free

My clients have told me that there 3 websites, in particular, are a good place to start for foreclosures, if that's what interests you. Each site offers a free, 7-day pass and that's usually enough to help you scout the market for something worth buying.

1. RealtyTrac offers free access to foreclosure listings
2. Foreclosure.com offers free access to foreclosure listings
3. HUDForeclosed.com offers free access to foreclosure listings

Then, when you see something you like, talk to your real estate agent about it, or to a skilled foreclosure-specializing agent. Negotiating for a bank-owned home is different from negotiating for a "regular" home.

You're going to want somebody experienced on your side.

How To Get Pre-Approved For A Foreclosure

High foreclosure levels have led to interesting buying opportunities. Do your search and see what comes up for you locally. Then, when you're ready for your pre-approval letter, call me and I'll take care of you.  I'm experienced with short sales and REOs and would be happy arrange for your mortgage.

My rates are very good and my bank can close loans quickly.

Need a mortgage rate prediction? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may help you.

Conventional, Conforming Mortgage Rates

By way of disclosure, the Bankrate.com survey is for conventional, conforming mortgages only. It does not apply to FHA mortgages or jumbo mortgages. Nor is the survey specific to North Carolina or Texas mortgage rates. Furthermore, unique property types including non-warrantable condos and condotels may be excluded.

for a real-time rate quote.

Breaking Down The Predictions

Here's the group's mortgage rates predictions:

• 57% predict mortgage rates will increase
• 0% predict mortgage rates will decrease
• 43% predict mortgage rates will remain unchanged

I expect mortgage rates to increase.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent watching the only working mousetrap ever made than reading my analysis.

Either way, here's what I told Bankrate.com:

"Home buyers are out in force. The economy wins. Rate shoppers lose."

Purchase activity is up. Talk with your friends in real estate, talk with your friends in mortgage, talk with, really, somewhat involved in the real estate business.  Home buyers are out and they're writing contracts.

It's good news for the economy and bad news for mortgage rates.

When You Buy A Home, You Buy "Stuff", Too

To understand why housing matters to mortgage rates and the economy, just think about the last time you moved and the purchases you made.  Especially if you moved to a bigger place.

Did you buy new furniture?  What about new blinds, drapes and window dressings? A new television (or three)? Not to mention the countless trips to Home Depot for little things like air filters, light bulbs, and key copies.

All of these purchases fall under the "consumer spending" category and consumer spending accounts for 70% of the economy.

More people moving means more consumer spending. And there's a lot more people moving.

Geopolitics Can't Keep Mortgage Rates Down

Meanwhile, the Federal Reserve ends its $1.25 trillion mortgage market commitment this month and, by all accounts, mortgage rates should be rising in advance of it. Instead, they're falling.

As Greece deals with debt worries, and China deals with inflation, and the U.S. dollar gains, mortgage markets have been a sound place to invest.  The extra demand for bonds is pushing mortgage rates down. But this rally rooted in geopolitics -- not in hard data.

It can't last.  Especially with the Federal Reserve meeting next week.

There'll be no rate changes from the Fed, but look for more optimistic verbiage from the Fed with respect to the economy's current and future prospects. The Fed speaks in data and data points to recovery.

Rate Increases Will Happen Quickly

If you need a rate lock, consider taking it this week.  The timing is right and locking a rate can never be wrong.

That said, you'll probably want some help to lock at the exact right moment. Mortgage rates change all the time. Make sure you're not locking too soon. It can be the difference between saving 1/8 percent or losing it. You're going to want your loan officer to help you with timing.

Or, if it's easier for you, with your situation and we'll get you set up with the lowest rate we can.

When home buyers opt to "escrow taxes" with a lender, there's a dollar-cost to starting that escrow account. It can add significant costs to a final HUD-1 Settlement Statement, depending on the time of year.

Defining "Escrow Your Taxes"

First, let's answer the question "What does it mean to pay taxes in escrow?"

Paying taxes in escrow is a two-sided agreement between homeowner and lender:

1. Homeowner pays 1/12 of his annual real estate tax bill to the lender each month
2. Lender holds the homeowner's payments in a reserve account, and pays the home's real estate taxes when they come due

Most lenders wants homeowners to escrow because it ensures the taxes actually get paid. As such, lenders penalize people that opt to pay their own taxes, without bank help.  The penalty is a fee and it's known as "waiving escrows".

The fee to waive escrows can be as high as 0.25 percent of your loan size, or $250 per $100,000 borrowed.

Starting Your Tax Escrow Can Be Costly

Meanwhile, seeding an escrow account can be costly, depending on the season, with the schedule dictated by the local taxing authority.  In Southeastern Ohio, we're entering the Expensive Season.

Because semi-annual tax bills due in June and July, lenders want to make sure there's enough money on-hand to pay the pending bills.  In Hamilton, Warren, Butler and Clermont counties, up to 8 months of tax reserves are required for mortgages closing in the months of May and June, and November and December.

The reserves are broken up into two parts:

1. 6 months worth to pay the semi-annual tax bill
2. 2 months worth of reserves in case tax bills increase unexpectedly

My experience is that most homeowners understand the "one-twelveth" part of paying escrows each month, as well as the reason why seeding an escrow accounts gets more costly as bills come closer to their due date.

It's the "extra 2 months of reserves" that throws folks for a curve.  Here's the explanation.

Lenders Want Your Tax Bill, Plus Some Extra

Real estate taxes tend to increase over time.  Homeowners know it, and lenders know it, too.  It's inevitable.  Therefore, instead of running the risk of holding too little tax money, lenders aim to hold too much.

This way, if-and-when tax bills rise, lenders are using your "excess" instead of their own.  And so long as taxes increase by less than 16.67% annually, the banks should never be short on your funds.

When you're planning for your closing, don't forget to budget for escrow reserves.  If you want help with your math, call or . I'll do my best to walk you through it.

Editor's Note: The chart above does not apply to refinances. Refinances in the Cincinnati area have a slightly different escrow reserve chart. The theory is the same, the withholding is different.

Credit scoring is a huge part of the mortgage world.

A given credit score can mean the difference between a 5 percent rate and a 6 percent rate; a conventional mortgage and an FHA mortgage; an underwriting approval and an underwriting denial.

And yet, there's a persistent belief among Americans that "having your credit checked" is a bad thing.

In some instances, yes. In most instances, though, no.

See, not all credit applications are created equal. At least, not in the eyes of the bureaus.

A formal credit pull by a mortgage company is treated differently from applying to get 10% off at Target.  To understand why, let's start with some credit scoring basics.

Credit Inquiries Are A Formal Process

A "credit inquiry" is a formal request to review a person's credit report.

Credit inquires are grouped with other traits into a credit-scoring category called "New Credit". New Credit represents 10 percent a person's complete credit score.  On the scale of 300-850, therefore, credit inquiries represent a tiny portion of a maximum of 85 points to a FICO.

There are many times of credit inquiries, but really only 4 of the set can impact a person's credit score:

1. A credit check for a mortgage loan
2. A credit check for an auto loan
3. A credit check for a credit card application
4. A credit check for a store credit card, or consumer loan

These 4 types are singled out because, in each case, the inquiry is made by the applicant in order to get access to more debt.  Because extra debt increases the probability of default, credit inquiries can sometimes foreshadow trouble.

Even then, however, the risk of default varies by application type.

For example, credit card applications can be more damaging to a credit score than a mortgage application.  This is because credit card debts tend to revolve higher over time versus a mortgage which eventually pays down to $0.

So, all things equal, a credit card application will harm your credit score more than an application for a home loan.

A Credit Inquiry Lowers Your FICO By 5 Points

When compared to the other credit scoring elements, Credit Inquiries is a relative nothing.

In the official FICO scoring model, Payment History and Credit Utilization account for 65% of a score, combined, and the amount of time during which you've had credit to your name accounts for 15%.  These three areas are over-weighted because the bureaus are more concerned with what you've already done with your credit versus what you might do with more of it.

Your credit past is the best clue to your credit future and it's one of two reasons why it's okay to give your social security number to as many lenders as you want. The impact of a credit inquiry is tiny next to the value of being a Model Credit Citizen.

A mortgage credit inquiry is estimated to lower a credit score by just 5 points.

Unfortunately, we'll never know for sure because the very act of examining the credit score causes it to move. In Physics, this is called the Heisenberg Principle.  On MTV, it's called The Jersey Shore Syndrome.  Put a camera on something, and it changes.

The Credit Bureaus Don't Hit Your FICO Twice

The second reason you should shop around with lenders is that -- unlike applying for multiple credit cards -- applying for multiple mortgages won't count as multiple, consumer-initiated inquiries. This is a common thing.

You might apply for 5 credit cards and use them all. You're not going to be approved for 5 mortgages.

As such, the credit bureaus have made it formal policy to permit "rate shopping".  Talk to as many lenders as you want in a 14-day time frame; have your credit checked as often as you'd like; compare rates and fees.  All of the inquiries will be lumped into a single application.

It's good for you and it's good for the bureaus. Your credit scores stay high and TransUnion, Equifax and Experian collect more fees from the banks.

Advice From The Credit Bureaus On Getting Low Rates

To promote rate shopping and to lessen The Fear of Credit Inquiry, the people behind the FICO brand spell out for you the best way to get the best mortgage rates possible:

1. If you want the best rate, you should "shop around"
2. Limit rate shopping to 14-day timespan to keep your credit scores high
3. Mortgage lenders can't give accurate rate quotes without a credit score so give up your social security number

Metaphorically, not letting your lender see your FICO is like not letting your doctor check your blood pressure. You'll get a diagnosis when the appointment is over -- it just might not be the right one.

Sometimes, it's not getting the mortgage approval that's so tough. It's keeping the approval.

Short Sales Are Slow To Close

Unless you're applying for a conventional mortgage or going FHA, getting to the closing table can take up to 2 months, depending on the speed of appraisal, bank signoff, and other factors.

It's especially bad with short sales, foreclosures and short refis.

During those 60 days, a lot can happen to a person that changes their underwriting disposition.  For example, one could lose their job, get injured, or have a home damaged by storm.

And, the more time there is between application and closing, the more likely a catastrophic event is to occur

Of course, catastrophe tends to lead to a mortgage turndown and,  sometimes, bad things just happen.  However, there are things that you can plan for; things within your control.

Good Behavior Matters in Mortgages

Mortgage approvals are fragile, living things and nothing's done until it's done. Good behavior matters.

Keeping that in mind, here are 8 things you should absolutely not do between the date of application and the date of funding.  I've been doing this long enough that I can say with certainty: Ignore these rules at your own peril.

Bad Mortgage Behavior, Defined

1. Don't buy a new car or trade-up to a bigger lease
2. Don't quit your job to change industries or start a new company
3. Don't switch from a salaried job to a heavily-commissioned job
4. Don't transfer large sums of money between bank accounts
5. Don't forget to pay your bills -- even the ones in dispute
6. Don't open new credit cards -- even if you're getting 20% off
7. Don't accept a cash gift without filing the proper "gift" paperwork
8. Don't make random, undocumented deposits into your bank account

Now, it may be impractical to have follow every rule to the letter.  I know that.  For example, if your car lease is expiring,  you have to do what you have to do.  But before renewing the lead, check with your loan officer to see if renting a car for the short-term would be a better solution instead.

It may prove more costly today, but it could be much, much cheaper over the next 30 years of your mortgage.

The same goes for accepting cash gifts from parents.  There's a right way and a wrong way to accept a cash gift and doing it the wrong way may preclude your ability to use the gift as a source of downpayment.

Tread Carefully And Keep Your Credit Scores High

There are a bevy of "gotchas" in Mortgageland and with underwriting times getting longer, it's more likely that the average applicant will trip into one.

Following these 8 rules, though, is a good start.

Need a mortgage rate prediction? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may help you.

Conventional, Conforming Mortgage Rates

By way of disclosure, the Bankrate.com survey is for conventional, conforming mortgages only. It does not apply to FHA mortgages or jumbo mortgages. Nor is the survey specific to Cincinnati or Chicago mortgage rates. Furthermore, unique property types including non-warrantable condos and condotels may be excluded.

for a real-time rate quote.

Breaking Down The Predictions

Here's the group's mortgage rates predictions:

• 43% predict mortgage rates will increase
• 0% predict mortgage rates will decrease
• 57% predict mortgage rates will remain unchanged

I expect mortgage rates to increase.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent watching the only working mousetrap ever made than reading my analysis.

Either way, here's what I told Bankrate.com:

"Markets adjust to Life After Fed Intervention."

We can say it a thousand times and it would still be a thousand times too few -- the Federal Reserve is withdrawing its mortgage market support March 31, 2010.  Indeed, the Fed's barely a player even now as its intervention winds down to nothing.

Last week, it bought just $11 billion worth. And here's why it matters.

The Biggest Bond Buyer Is Going Bye-Bye

Since the end of 2008, the Federal Reserve has been the biggest open-market purchaser of mortgage bonds and the net impact of that intervention is lower mortgage rates by 1 percent. In other words, mortgage rates are 5 percent right now. They'd be 6 percent without the Fed.

"Without the Fed" starts in 27 days.

Mortgage rates have been low lately, and falling. It's unexpected.  Also, it's easy to get lulled into thinking that rates are down because markets are shrugging off the Fed's deadline.  Don't make that mistake.

Mortgage rates are lower for a few reasons, all of which increase demand for U.S. mortgage bonds.  More demand mean higher bonds prices and, therefore, lower mortgage rates.

1. Greece is having debt issues, pushing investors to buy "safe" securities like bonds
2. Economic growth is steady, but precariously balanced. Without clarity, investors seek safety.
3. Rumors that the Fed (or another agency) will extend the program beyond its original expiration date.

Don't expect these conditions to last.

They've been lucky so far but, pretty soon, mortgage rate shoppers are soon to face the music. You don't want to be on the wrong side of this bet. Rate jumps will be fast and fierce.

Rate Hikes Will Be Fast And Fierce

If you need a rate lock, take your chips off the table and get it done.

That said, locking mortgages is a timing game and you'll still want some help to get it right. On some days, rates will over-react higher, and on other days, they'll retreat.  You're going to want your loan officer to offer some coaching.  Call "your guy" or, if it's easier for you, with your situation.

I handle all of my own mail and I would love to get you a good rate. It's what I do best.

Plus, my bank has good, low mortgage rates. Just ask me about it.

Conforming mortgages are appropriately named; they "conform" to the mortgage underwriting guidelines of Fannie Mae or Freddie Mac. Mortgages meeting these criteria are securitized on Wall Street as mortgage-backed bonds.

Since 2007, though, as mortgage performance has weakened, Fannie and Freddie's lending standards have tightened.  Today's would-be borrowers are asked to document more income, deeper reserves, and higher credit scores.  One underwriting area that hasn't tightened, however, is the maximum allowable loan size.

Conforming Loan Limits Vary By Property Type

For the 5th consecutive year, the 1-unit conforming mortgage loan limit is $417,000.

As released by the Federal Housing Finance Agency, the official 2010 conforming mortgage loan size limits are, by property type:

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

Note, however, that maximum conforming loan limits vary by market.

Conforming Loan Limits Vary By ZIP Code

Counties in which "typical" home prices dwarf the conforming loan limits are declared "high-cost" areas. Each gets its own, individual conforming loan limit that ranges up to $729,750.

For example, a home in Denver, Colorado is capped conforming at $417,000 but a home in Snowmass, Colorado gets clearance up to $729,750. Same for Mason, Ohio as compared to Athens, Ohio.

Mason's maximum loan size is $417,000; Athens' is $432,500.

Unfortunately, there's no breaks for residents of Chicago's tony neighborhoods -- Lake Forest, Lincoln Park, Hinsdale and elsewhere. Because each of the Chicagoland counties are a melange of housing types and socioeconomic class, none have sufficiently high median sales prices to justify the High-Cost Treatment.

According to the government, neither Lake County, Cook County, Dupage County, nor the collars count as high-cost.

What To Do If Your Mortgage Is "Jumbo"

Mortgages that exceed conforming loan limits are considered "jumbo" or "super jumbo". Excellent pricing is still available, you just have to know where to look.  And it's not at Fannie Mae.

There are just 197 designated high-cost areas in the U.S. -- 6% of the country. For the majority of homeowners, therefore, the 2010 conforming loan limit is $417,000.

To find your local market's loan limit and confirm it, check the Fannie Mae website.

Mortgage rates were more volatile in February than in January, making mortgage rate shopping a little bit more difficult.  Lenders averaged 1.55 rate sheets per day.

What Is A Mortgage Rate Sheet?

A rate sheet is a mortgage bank's "menu". It lists the rate-and-points combination for every product available. Some lender rate sheets are 1 page long; some are 10 pages or more. They include prices for products including:

• 30-year, 20-year and 15-year fixed rate mortgages
• Short-term ARMs like 1-year and 3-year products
• Long-term ARMs like 5-year, 7-year and 10-year products
• All variations of jumbo and super jumbo mortgages
• The complete line of FHA and VA mortgages
• Loans for condotels and non-warrantable condos

Rate sheets change with the market and although last month's rate sheets were relatively change-free as compared to last summer, there were some interesting footnotes.

Under The Surface, Not So Tame

February's mortgage market could be categorized as "on edge". For the most part, rates didn't change intra-day.  It was common for lenders to issue rate sheets in the morning and stick to their pricing through market close.

In February, rates held firm 13 out of 20 days -- 65% of the time. That's more than double December 2009's frequency and the highest of the last 2 years.

On days in which rates did change, though, they changed a lot. There were two days on which rates changed 3 times and one day on which rates changed 4 times.

Prior to last month, we hadn't seen a 4-sheet day since October 2009.

Mortgage Rates Will Change Rapidly In March

As the United States fortifies its economy with slow, steady growth, and as the Federal Reserve withdraws its support for mortgage markets, mortgage rates are poised to spike.  However, sporadic reports of economic weakness have undermined that eventuality.

If you've been floating a mortgage rate in 2010, you've played with fire and not been burned. Going forward, get out the turnout gear. Rates are going to rise -- and they're going to rise quickly.

Be ready for it because you won't see the rate hike in the news until it's too late.  You won't see it in real-time.

But I will.

Get Rate Sheet Updates As They're Happening

As a loan officer, I track mortgage data that's unavailable to the public, and I summarize it online via my Twitter stream and occasionally on Facebook. I send alerts before new rate sheets come out.

Furthermore, if you're actively rate shopping in Cincinnati or Chicago or somewhere else that I lend, make sure to . I work for a self-funded bank and my bank's rate sheets are often cheaper as compared to my peers.

(Author's Note: Thank you, Jake Planton, for your help with research)

A fair number of my readers are mortgage- and/or real estate-related businesses.  Consider this a public service announcement.

No Pitching, Just Good Info

REtechSouth is March 25-26, 2010 in Atlanta -- 4 weeks away. It's an industry conference with hands-on learning, practical pointers, and seminar-style sessions from the brightest minds in the country.

REtechSouth draws raves because it's not a series of Glorified Sales Pitches. It's the exact opposite, in fact. REtechSouth focuses on the technologies we use in business, and how we can all get more from them.

It's not just blogging, either.

Speakers cover topics like: RPR, Web Design, IDX, WordPress, MLS Tools, Email Marketing, Facebook, Twitter, LinkedIn, Blogging, Community Building, Lead Capture, Social Capital, iPhone, Blackberry, Digital Photography, Video Marketing, Broker Tools, and Association Management Technologies.

Clearly, there's something for everybody.

Hands-On Sessions For Every Type Of Learner

Content comes in 4 forms, too.  The format is ground-breaking:

1. REtechCamp: Targeted content offered over a span of 2-plus hours to a niche audience
2. REtechLab: Hands-on environment with tables, power-strips, and WIFI for mobile learning. Free-form format with less presentation and more conversation.
3. REtechKnowledge: Group presentations meant to inspire and challenge. A peak into the minds of industry leaders and innovators.
4. REtechTraining: Group presentations meant to educate using real-life examples fro industry leaders and innovators.

When you leave Atlanta, you'll have business ideas you can implement right away, and the skillset to actually do it.

Get A 10% Discount Because I'm An Event Sponsor

My blog-for-you company, Bring the Blog, is pleased to be a REtechSouth sponsor.

As a Spotlight Sponsor, Bring the Blog gets an exclusive discount to share with our friends. Use the code "bringtheblog" when you register online and REtechSouth will drop your prices 10 percent.  It's kind of a sweet deal.

Last year, REtechSouth sold out.  This year, it's expected to do the same.  Once sales reach 750 tickets, the event will close.  That's expected to happen within the next 2 weeks.

Atlanta is a surprisingly easy city to which to commute and the conference is held at the world-class Gwinnett Center. Please join me there March 25-26, 2010.

It'll be among the best mortgage and real estate technology conferences you attend all year.

Life as an FHA borrower is getting tougher.

In an effort to shore up its flailing balance sheet and dwindling capital reserves, the Federal Housing Authority is rolling out sweeping financial changes. FHA borrowers have to look better on paper and be better credit risks.

Mortgage insurance premiums are rising, too.

Changes Effective April 5, 2010

In its official announcement, the FHA said its trying to better position itself to "manage its risk while continuing to support the nation’s housing market".

The changes are effective with case numbers assigned starting April 5, 2010.

One widely speculated change wasn't made -- the increase of the FHA minimum downpayment.  Homebuyers in Cincinnati, Chicago and elsewhere can still buy with just 3.5 percent down.  However, the group did roll out a number of other changes, including:

• An increase in Upfront MIP from 1.75 percent to 2.25 percent
• A reduction in maximum seller contributions from 6 percent to 3 percent
• A Congressional request to increase monthly mortgage insurance premiums

Furthermore, the FHA's new guidelines institute a minimum FICO requirement of 580 to make the minimum 3.5% downpayment, requiring 10 percent for any applicant whose credit score falls below that level.

2010: The Year Of Investor Overlays

But, just because the FHA allows 580 FICOs, banks don't have to allow it.

The official term here is "investor overlay". It's when that banks use Federal Housing Authority guidelines as a starting point for their own set of underwriting rules which are often more strict.

And banks have a good reason for making investor overlays.

In January, the FHA subpoenaed 15 lenders -- including the well-respected 1st Advantage Mortgage in Lombard, Illinois -- because of abnormally-high FHA default rates.  The act was a shot across the bow, it appears, because more lenders have been shut down since.

The FHA made a loan performance benchmark and if a  bank's defaults exceed the mean by x number of sigmas, said bank loses its FHA license. Period.

Expect FHA investor overlays to be a running theme of 2010.

A Mortgage Denial May Not Be Permanent

Guidelines will vary from bank-to-bank as lenders take a more active role in managing their originated mortgages.  What gets FHA-approved Bank of America, for example, may not be FHA-approved at Wells Fargo.

Many FHA loans will be denied in 2010 simply because the applicant applied at the wrong bank.

If your mortgage has been denied or you just want to have the best chance of being approved possible, call or with some notes on your situation. I work for Waterstone Mortgage -- a HUD-approved lender.  We underwrite and fund FHA mortgages from our own accounts, and work with the nation's largest investors as an approved conduit.

In other words, apply once and you'll be automatically aligned with the bank with the best pricing plus least amount of overlays. That's what I do for you as your loan officer.

When banks make fixed-rate, principal + interest home loans, a borrower's monthly payment gets calculated from amortization schedules (ah-mor-ti-ZAY-shun).  With respect to mortgages, amortization is the process of paying a loan to $0 over time.

The Early Years Are Interest-Payment Heavy

For homeowners, a mortgage amortization schedule's most important trait is that it creates interest-heavy repayments in a loan's early life, with very little principal reduction.

At today's rates, it would take 20 years to reduce the principal balance on a 30-year, fixed-rate product by half.

Amortization schedules are "bank-friendly".

Having said that, the schedules bring benefit to homeowners, too. This is because mortgage interest is often tax-deductible.  The early, interest-heavy years of a loan, therefore, can provide larger tax benefits to homeowners than the interest schedule throughout the loan's later years.

Compare Payback Schedules

Here's some stats. Comparing different $300,000 loans at a rate of 5 percent, after 10 years:

• A 15-year mortgage has been paid down by 58 percent
• A 20-year mortgage has been paid down by 38 percent
• A 30-year mortgage has been paid down by 19 percent

After 15 years, the numbers look similarly disproportionate:

• A 15-year mortgage has been paid in full
• A 20-year mortgage has been paid down by 65 percent
• A 30-year mortgage has been paid down by 32 percent

And then, as interest rates climb, the numbers get more skewed in favor of the banks. At a 6.5 percent mortgage rate, for example, after 15 years, a 30-year fixed is barely one-quarter paid.  The bulk of the amortization doesn't happen until the last 5 years of the loan.

People search for mortgage rates on Google.  That's not news.  They type in something like "Cincinnati mortgage rates" and then comb through the results in search of "today's rate".

Except Google doesn't give rates. Google gives links.

Links to random websites or elaborate sieves meant to capture eyeballs and generate applications.  The problem is, most people shopping for rates just want information -- they don't want to be sold something. Not yet, at least.

You can't window shop for mortgages on Google

You can't window shop Google for mortgage rates and it's frustrating.

This is because searching for a mortgage isn't like searching for a book.  You can't eliminate the information asymmetry inherent in mortgages; know the price before you step in the store, so to speak. You really can't know if you're getting the "guaranteed lowest rate".

In the mortgage markets, prices are elusive.

However, in doing the research, people learn a lot about mortgages.

• They learn that mortgage rates are based on mortgage-backed bonds and not the 10-year Treasury Note
• They learn how changes in the Fed Funds Rate change mortgage rates
• They learn that mortgage rates are as ever-changing as stock prices

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

Freddie Mac's weekly survey is instantly out-of-date

When you're looking for mortgage rates, there's no crawler on Bloomberg; no ticker on Google Finance; no section in the newspaper.  Sooner or later, therefore, everyone trips into the Freddie Mac Primary Mortgage Market Survey.  It's one of the most widely-circulated mortgage rate surveys in the country.

Published since 1971, the Freddie Mac survey is the basis for national mortgage rate news, and for Home Affordability studies, and for congressional research, and about anything else mortgage-rate related.  The study is flawed in a big way, however. Huge.

The problem is in the survey's methodology.

According to Freddie Mac, Primary Mortgage Market Survey results are collected Monday through Wednesday, then published to the public Thursday. By design, therefore, the survey lumps mortgage market activity spread across 3 days into 1 single point of data.

Survey results are skewed, therefore, based on the when survey responders get back to Freddie Mac.

Last week, this point was painfully clear. Mortgage rates were down Tuesday morning, but rode the rocket higher Wednesday and Thursday.  It was the worst week for mortgage rates since late-December, actually.  And Freddie Mac missed it -- its survey was compiled before rates went bad.

So, Freddie Mac reported 30-year fixed mortgage rates down by 0.04% from the week prior.  Real mortgage pricing, however, showed rates up three-eighths.

A workaround : How to find actual mortgage rates online

What's a rate shopper to do? Well, for one, stop looking for rates on Google. Consider giving applications to a handful of loan officers and let them track your rates for you. A loan officer can (and will) tell you about your real-time pricing if you ask.

Next, add my Twitter feed to your "online research" library. If you've never been on Twitter, it's ridiculously easy and you can have my near-real-time updates pumped right to your mobile phone, if you'd like.

And, lastly, remember that mortgage rates change all day long. A quote issued in the morning won't be valid in the afternoon.  You have to stay on your toes if you want be ahead of market changes and lock the best possible rate.

In Cincinnati or anywhere else.

(Image adapted from Freddie Mac)

Science experiments can be excellent metaphors at times.

Thursday, shortly after the markets closed, the Federal Reserve announced a 25 basis point increase to the Discount Rate.  The Discount Rate is now 0.750%. Mortgage markets are selling off on the news.

The Era of Low Mortgage Rates may be officially over.

The Psychological Impact Of The Discount Rate

For some context, it's important to understand what the Fed's Discount Rate is and, more specifically, what it isn't.

The Discount Rate is the interest rate that the Federal Reserve charges to banks when banks borrow money from it. Banks typically borrow money from the Fed to beef up their cash reserves because all banks are required to keep as minimum level of cash-on-hand.

The Discount Rate is not the rate at which banks borrow money from each other -- that's the Fed Funds Rate.  Nor is the Discount Rate the benchmark rate at which banks lend money to consumers and businesses -- that's Prime Rate.

Discount Rate is just one of the Fed's many tools to slow or speed the economy and, as of yesterday, it's taking steps to slow growth down.  Or, at least, push some responsibility back to banks.  There's no direct impact on consumers for a move like this, but it's the indirect impact we need to worry about.

In raising the Discount Rate, the Fed implies that the U.S. is strong enough to withstand a shock.  It's the signal for which Wall Street has been waiting.

Mortgage Rates Are Breaking Higher

See, since late-2008, 30-year fixed mortgage rates have moved within a very tight range. With few exceptions, never more than 5.375% and never less than 4.875%.   This was because the bond markets harbored doubt about whether the "green shoots" of the economy were for real. Yesterday, the Fed answered that "Are We?" and "Aren't We?" question.

Clearly, we are.  And that brings us to the science experiment.

Much like a super-saturated solution, the mortgage-backed bond market has been in precarious balance, one crystal away from complete transformation.  Well, Thursday, February 18, 2010, the Fed introduced that crystal.  Loan officers everywhere will forever remember yesterday as the Last Day of Low Mortgage Rates.

What To Expect From Your Loan Officer

The Federal Reserve won't make policy changes over the next few weeks, months, or maybe even quarters, but the damage is done. Bond markets are played 12-18 months into the future and the Fed's move to raise the Discount Rate has traders to change their expectations what's coming down the pipe.

Mortgage rates will rise in response.

If you're in the process of shopping for a mortgage or buying a home, the longer you wait to commit, the higher your mortgage rate will likely be.  Call or and I will send you a rate quote based on what the market is doing today.

Rates are changing very quickly and every day counts.

Need a mortgage rate prediction? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may help you.

By way of disclosure, the Bankrate.com survey is for conventional, conforming mortgages only. It does not apply to FHA mortgages or jumbo mortgages. Nor is the survey specific to Cincinnati or Chicago mortgage rates.  Furthermore, unique property types including non-warrantable condos and condotels may be excluded.

for a real-time rate quote.

Here's the group's mortgage rates predictions:

• 27% predict mortgage rates will increase
• 0% predict mortgage rates will decrease
• 73% predict mortgage rates will remain unchanged

I expect mortgage rates to remain unchanged.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent watching The Greatest Network Television Weather Forecast of All-Time than reading my analysis.

Either way, here's what I told Bankrate.com:

"Markets are in a Tug-O-War -- it's Geopolitics versus The Fed."

There's lot of reasons why mortgage rates change -- revised expectations for the economy, new Fed monetary policy, and psychological factors on Wall Street are among them.

In total, there are hundreds of influences on the day-to-day mortgage rates you and I see from the banks.  It's part of why predicting mortgage rates so challenging.  We can never know which of the hundreds are influences are about to come into play.

We can break influences down into two parts -- obvious, and non-obvious.

Obvious influences are inflation data, housing stats, and job markets.  These we can prepare for; can be proactive about. And, indeed, Wall Street does.  The preparation is why mortgage rates tend trend higher or lower heading into a "major" news release.  The movement is the market squaring its bets.

It's the non-obvious factors, though, that really screw things up.

• An "emergency" change to monetary or fiscal policy, at home or abroad
• A sudden change in the political climate, at home or abroad
• An outbreak of -- or an end to -- war, terror, disease or the like, at home or abroad

In other words, anything that "shocks" the global financial system.

There was a terrific example of such a shock two weeks ago. One day, everyone woke up and suddenly thought Greece couldn't meet it country's debt obligation. The thought drove fear through the Eurozone, then through the broader market, and eventually, it led to safe-haven buying that propped up U.S. mortgage markets.

There's other recent examples, too. Like when the Fed initially announced its support for the mortgage-backed bond market in November 2008; or, when inflation numbers ran much hotter-than-expecter near the end of May 2009.

It happened yesterday, too.

The Fed released the minutes from its January 2010 meeting Wednesday afternoon and there was an underlying message that "change is coming".  Markets didn't expect to hear that just yet and it sent mortgage markets reeling.  Rates spiked by an eighth-percent within minutes of The Minutes' release.

As a rate shopper, unexpected news is frightening. It makes markets do things you wouldn't expect.  And that's why we're calling for a draw over the next week. The likelihood of Eurozone debt concerns leading mortgage rates lower will be offset by the tendency of rates to rise when the Fed starts talking strength.

That said, if you need a rate locked in the next week or so, consider doing it sooner rather than later.  The Fed's exit from the mortgage market is going to push rates up and that exit's in less than 5 weeks.  It's time to get a move on.

Locking mortgages is a timing game and you'll want some help to get it right. Call your loan officer or, if it's easier for you, with your situation. I handle all of my own email and I am happy to get you a good rate lock. It's what I do best.

Plus, my bank has good, low mortgage rates. Just ask me about it.

ARM-holding homeowners tend to panic when their mortgage gets set to adjust; the feeling of "I better do something fast!".

If that's you right now -- if you have a conventional ARM getting set to adjust -- just hang loose, blood. Math is on your side. The smart move may be to let it adjust.

ARMs Are Adjusting Lower Right Now

Your mortgage rate could fall to as low as 3.125 percent.

It's all because of how ARMs work.

1. For some fixed period of time, the mortgage rate stays constant
2. When the fixed time period ends, the mortgage rate adjusts to a new rate based on a preset formula
3. Every 12 months thereafter, the mortgage rate re-adjusts against the same formula

The formula by which ARMs adjust is as follows:

And what are the "variable" and the "constant"? It depends on your mortgage, really, but if your home loan is making its first adjustment in 2010, the chances are very good that your ARM is structured as follows:

• The variable is the 12-month LIBOR -- currently near 0.850 percent
• The constant is 2.250 percent

This has been the default conventional ARM setup since mid-2005 and so long as the 12-month LIBOR remains low, so should your mortgage rate.

But therein lies the rub. LIBOR won't be low forever.

LIBOR Is Bound To Rise In 2010

Historically, LIBOR rates track very closely with the Fed Funds Rate and when the Fed starts to raise the Fed Funds Rate, LIBOR is going to rise, too. It's unclear when that will happen exactly, but LIBOR tends to rise ahead of actual Fed action.

Therefore, we can expect the 12-month LIBOR to rise well before the Fed raises the Fed Funds Rate. Maybe by a little and maybe by a lot. Either way, ARMs won't be adjusting lower much beyond Q1 2010.

Oh, and by the way, Fed Chairman Ben Bernanke has started laying the groundwork for such a move just last week. The writing is on the wall.

If you pass on the refinance this year, know that ARMs adjust annually so you'll face the same "Should I Refinance My ARM" question in 2011. Should LIBOR return to its historical 5 percent avergage by then, you can be sure your next adjustment will be up.

In other words, it may be wise to let your mortgage adjust in 2010, but foolish for 2011 and beyond.

Think Of The Present, Plan For The Future

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

LIBOR can change suddenly so what makes sense for you today might not make sense on the date of actual adjustment. Having a plan, therefore -- with contingencies in place -- is the best way to manage your ARM.

Call or email anytime. I'm looking forward to it.

A non-warrantable condo, by definition, is a condominium that does not meet the minimum eligibility standards as set by Fannie Mae and/or Freddie Mac.

Condo buildings that fail Fannie and Freddie's minimum standards are often described by one or more of the following traits:

1. The project is more than 10% owned by one entity
2. 50% or more of the project units are rentals
3. More than 20% of the building square footage may be used for commercial purposes
4. The project is filed with the SEC and is sold as an investment opportunity
5. The project is "new" and grants concessions and/or abatements not listed on the settlement statement

There are other non-warrantable traits, too, including failure to meet certain pre-sale requirements and length of time that the condo board has been in control of the building.

The presence of any of these characteristics instantly renders the building "non-warrantable" and precludes building owners from securing conventional mortgage financing. This fact can surprise homeowners who may otherwise be well-qualified.

Good credit, good income, good downpayment -- it doesn't matter one bit.  The government's not going to insure your loan if your unit is non-warrantable, hammering home one of the most important New Lending Truths of the last 2 years.

It's not just about the buyer anymore; it's about the building, too.

The same set of rule applies to another type of condo classification; one that's normally associated with luxury and vacationing.  The condotel.

Condotel is a portmanteau of the words "condominium" and "hotel".  It describes buildings used as both a condo and a hotel, with owners keeping the rights to rent their units while they're not actually using them.  Most often, condotel rentals are managed by an on-site rental company.

A typical condotel arrangement would be in say, Aspen, where a family owns a unit in a condotel building on the mountain but only visits Aspen 6 weeks per year.  During the other 46 weeks, the on-site rental company rents the unit as a "hotel room" to other Aspen vacationers.

The Trump International Hotel & Tower in Chicago has a similar setup.

Like non-warrantable condos, condotels cannot be financed through Fannie Mae or Freddie Mac and, more often than not, condotel buyers have found themselves up a creek; ready to close but unable to find financing.

Thankfully, mortgage money is emerging for condotels and non-warrantables.

Over the last few weeks, a choice group of small banks and investment vehicles have toed the water a bit and re-opened the market for non-warrantable and condotel mortgages. Rates run about a half-percent higher than a comparable conventional mortgages and the minimum downpayment starts at 25 percent.

Beyond that, however, getting an approval is simple.

1. Prove your income
2. Prove your assets
3. Prove your credit score

That's it.  Now, there are some building considerations, too, but they're not nearly as tough as what Fannie or Freddie will throw at you.  And they're more geared toward making sure the building is well-constructed and properly insured.

Any reputable condo or condotel is going to pass those two tests.

And even better -- because approvals are being handled by small lenders and not Big Banks, loan approval times are decidedly quick.  It's common to close on a condotel or non-warrantable condo in less than 30 days.

If you're under contract for a condotel in Chicago, Colorado, or anywhere else, or just found out your condominium is non-warrantable, with notes on how I can help you get a mortgage. The more you tell me -- building name, address, purchase price, closing date, etc -- the more I can do to point you in the right direction.

I answer all my own emails so you'll get the best information you can get. And, hopefully, my rates will be to your liking, too.

Foreclosure-related filings topped 300,000 last month, bringing the 12-month total to somewhere near 1.4 million nationwide.  Some states, of course, are more foreclosure-heavy than others.

According to RealtyTrac, the state of Nevada keeps its title as Foreclosure Central with a foreclosure rate 4 times the national average.  Arizona, California and Florida aren't far behind.

In fact, the country's foreclosure activity is so heavily concentrated that a full 40 states fall below the national foreclosure average.  That's a fascinating statistic and puts some perspective on the "foreclosure crisis" we keep hearing about. Clearly, foreclosures are a local phenomenon.

Oh, and they're selling like hotcakes, too. Distressed homes now account for 1/3 of all home resales.

The good news is that buying a foreclosure in Cincinnati, Chicago, or anywhere else has never been simpler.  Because foreclosures are big business now, a cottage industry has spawned and reliable foreclosure data is available 24/7.

These 3 websites are a good place to start.  Each offers a free, 7-day pass and that's usually enough to help you scout the market.

1. RealtyTrac offers free access to foreclosure listings
2. Foreclosure.com offers free access to foreclosure listings
3. HUDForeclosed.com offers free access to foreclosure listings

Then, when you see something you like, talk to your real estate agent about it. Negotiating for a bank-owned home is different from negotiating for a "regular" home. You're going to want somebody experienced on your side.

High foreclosure levels have led to interesting buying opportunities. Do your search and see what comes up for you locally. Then, when you're ready for your pre-approval letter, call or .

I'm experienced with short sales and REOs and will arrange for your mortgage.

My rates are very good and my bank can close loans quickly.

Need a mortgage rate prediction? I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week's survey may help you.

The Bankrate.com survey is for conventional, conforming mortgages only. It does not apply to FHA mortgages or jumbo mortgages. Nor is the survey specific for Cincinnati or Chicago mortgage rates.

for a real-time rate quote.

Here's the group's mortgage rates predictions:

• 40% predict mortgage rates will increase
• 7% predict mortgage rates will decrease
• 53% predict mortgage rates will remain unchanged

I expect mortgage rates to increase.

My advice not be appropriate for your individual situation and I'm not always right. Ultimately, you may find your time better spent looking over the 10 Simpsons words that should probably be in the dictionary than reading my analysis.

Either way, here's what I told Bankrate.com:

"Profit-taking takes hold in the MBS markets."

Bond markets are very similar to stock markets.  There is "a thing" that investors can buy or sell, and that "thing" has a price.  When buyers outnumbers sellers, prices rise.  When sellers outnumber buyers, prices fall.

It's supply-and-demand. Economics 101.

With respect to residential mortgage markets, the "thing" is a mortgage-backed bond.

A mortgage-backed bond is exactly what its name describes -- a bond backed by mortgages.  Specifically, a large grouping of mortgages called a "pool".  Pools generate cash flow from the monthly mortgage payments made by homeowners and mortgage bond investors own a claim on said cash flow.

Again, comparing to stocks, bond investors buy ownership in a "thing" and get a claim on its future cash flow.  This is a relationship that escapes most laypersons.  Mostly because business television doesn't talk about bond markets with the same fervor as it does for stock.

But, bond markets are similar to stock markets ands, therefore, we should expect for bond markets to behave like stock markets at times.

This week will be one of those times. Mortgage bond markets are ripe for profit-taking and that will be bad for mortgage rates.

After a major sell-off in December, mortgage bonds rallied in January.  The December loss topped 300 basis points overall, adding 3% in discount points to any given mortgage rate.  In January, then, the markets unwound two-thirds of those losses, reducing the discount points number to 1.

The sustained rise and subsequent sustained fall was an abnormal trading pattern for a market accustomed to short rides up and down.  Today, short rides are back.

If you're going to need a rate locked in the next week or so, consider doing it sooner rather than later.  After January's big improvement, bond investors are getting itchy and will want to lock up some profits.  To do that, they'll want to sell their mortgage bond holdings and that will create extra supply on Wall Street. And, just like stocks, when there's a sell-off in bonds, prices fall.

Mortgage rates move opposite from prices.

That said, locking mortgages is a timing game and you'll want some help to get it right.  Call your loan officer or, if it's easier for you, with your situation. I handle all of my own email and I am happy to get you a good rate lock.  It's what I do best.

Plus, my bank has good, low mortgage rates. Just ask me about it.

It's a good time to look at the 15-year fixed rate mortgages.

As compared to 30-year fixed rates, the relative discount for "going 15" is big. Interest rate spreads between the benchmark borrowing products haven't been this high since 2004.

But there's more to it than just the rates.  The 15-year and 30-year fixed rate mortgages each have their benefits and, because of that, interest rates can be sometimes irrelevant.

For example, assuming a $250,000 mortgage at today's rates, the lifetime interest costs on a 15-year mortgage are $142,000 less than a comparable 30-year fixed rate mortgage.

That's pretty excellent.

However, the associated 15-year fixed mortgage's monthly payment registers 41 percent higher than the same 30-year's.  Big payments like that can break a family's budget -- no matter how low the rate.

Furthermore, low rates don't matter much with respect to mortgage planning. There's a few sounds reasons you may want to pass over the 15-year in favor of a 30:

1. The 15-year mortgage's tax benefits are relatively tiny
2. There's opportunity cost in rapidly converting liquid cash into illiquid home equity
3. In the event of an emergency, you still have to make the larger, 15-year payment

Low rates are tempting, though, and when the spread between the 15-year fixed and 30-year fixed is as big as it is today, the arguments made above lose some gravity.

One thing to remember is that mortgage rates change everyday and the delta from product-to-product is far from linear.  The chart at top proves it.  So, if you're not buying a home for another few months, don't settle in on a strategy just yet.

Know your options, but wait until Game Time to make a choice.

For help with your mortgage planning strategy, feel free to call or . I am licensed in a lot of states and would be happy to help you figure which mortgage product is best for your household financing goals.