Mortgage Rates Move Lower. LOCK LOCK LOCK

by Victor Burek - Nov 24 2009, 10:32am

While day trading occupied the minds of fixed income market participants yesterday, prices of mortgage backed securities managed to tick higher, despite considerable gains in stocks. Rates moved higher in the opening hours of the session, however as losses were recovered later in the day, several lenders reissued rate sheets, passing along better pricing, by day's end.

The economic calendar really picked up today.

First report to be released was revised third quarter Gross Domestic Product data. GDP is the broadest measure of total economic activity, covering every sector of our economy. In other words, it is the report card for our economy. The advanced reading, which we received last month, showed a stronger than expected gain of 3.5%. This was the first positive reading since 2008. Economists’ surveyed for today's release were expecting a 2.9% growth rate. The 8:30 release indicated that the preliminary read of 3Q GDP was slightly below expectations at +2.8%. So, our economy did not grow as fast as originally forecast last month.

The S&P/Case Shiller Home Price index was released this morning. This report tracks the monthly change in values of residential real estate in 20 metropolitan regions across the country. Many economists believe that until home prices firm, it will be extremely difficult for our economy to recover from the current recession.

The data shows home prices improving les than expected with a month over month gain of 0.3%.

The Conference Board released their Consumer Confidence report today. This is a survey of consumer attitudes on current economic conditions and their outlook on the future. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. Since our economy is driven by consumer spending, a more optimistic consumer is better for stocks while the fixed income sector generally moves higher with more pessimism. Recent readings have shown improving consumer attitudes, but high unemployment remained a concern. Economists surveyed were expecting this month’s report to show a slight pullback in consumer confidence to a reading of 47.0 after last month’s 47.7. The report showed that consumers continue to improve as as the data came at a better than expected 49.5.

At 1pm eastern, the Department of Treasury will auction $42billion 5 year notes. Strong demand for our nation’s debt is one of the many factors that have attributed to keeping mortgage rates at or near historic lows.

Finally, at 2pm eastern, the Federal Open Market Committee will release the minutes from its last meeting that occurred three weeks ago. Market participants will scour the minutes for any hint at future monetary policy and the Fed’s outlook for the economy.

Reports from fellow mortgage professionals indicate rate sheets to be marginally improved this morning. The par 30 year conventional rate mortgage has fallen to the to the 4.75% range for well qualified consumers. To secure a par interest rate you must have a FICO credit score of 740, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year fixed rate, you should expect a par interest rate in the 4.375% range with similar costs.

Today’s rate sheets are as good as they have been for quite some time. LOCK, LOCK, LOCK!!!!

Mortgage Rates Inch Lower. Favor Locking Over Floating. Take Your Profits!

by Victor Burek - Nov 13th at 10:29am

It was a busy day in the rates market yesterday. Although several data releases needed to be digested, the main event was the 30 year bond auction. Recently, while demand for shorter maturity Treasury notes has proven stable in the "post-November 4 FOMC statement" environment, the market has forced yields higher in the long end of the yield curve. Specifically the benchmark 10yr note and the 30 year bond have taken a beating over the past two weeks. Yesterday was the first chance we had to really test market's appetite for longer dated debt investments, which have more of an influence over mortgage rates. Unfortunately, while specific buyers supported the bidding, overall demand was weak compared to previous auctions. Following the release of the auction results, MBS prices plummeted and a few lenders with itchy trigger fingers repriced for the worse. However, soonthereafter the rates market recovered all losses and prices went green on the day! By the end of the day, MBS prices were at their highest levels in quite some time. Most lenders repriced for the better as the gains held until close. To remind readers, as the price of MBS move higher, lenders are able to pass along lower mortgage rates. That momentum has carried over into today as MBS prices are once again slightly higher.

The morning started with data on US Import and Export Prices. This data measures the change in the price of items our nation imports and exports which provides market participants a gauge on inflation. Last month’s report showed export prices declining 0.3% while import prices rose 0.1%, mainly due to the increase in the price of oil. Year over year, last month’s report showed export prices down 5.6% and import prices down a whopping 12%.

In today's release, export prices rose 0.3% and import prices rose 0.7%. Year over year, prices for both imports and exports are -3.4% and -5.7%, respectively. This data put our inflation outlooks on alert as next week we get two more reports on inflation with the release of the Producer Price index on Tuesday and Consumer Price index on Wednesday. Higher inflation can lead to higher mortgage rates.

The next report to be released is a measure of the United State's trade balance with other countries: the International Trade report. This data has a two month lag so today’s report shows the difference between what we imported and exported in September. In August, our trade gap narrowed to -$29.5 billion. For September, economists surveyed expected the trade deficit to increase to $32.5 billion. However it widened more than expected. The release indicated our nation’s trade deficit widened by 18.2% to $36.5 billion. Imports rose by 5.8% mainly due to higher oil prices while exports rose 2.9%.

The final report of the week gave us a read on consumer attitudes: Consumer Sentiment . The Reuters/University of Michigan’s Consumer Survey Center questions 500 households each month on their personal financial conditions and attitudes about the economy. Since our economy is driven by consumer spending, market participants want to know how the consumer is feeling. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save money. Last month’s report came in lower than expected and economists surveyed expect this month’s survey to show a small uptick in consumer attitudes. The release indicates that consumers continue to show less optimism with the report coming in much lower than expected. AQ's MBS MORNING post discussed why this data is more important than usual.



I have been receiving questions regarding the Fed ending their MBS buying program next year. Many believe once they exit, mortgage rates will have to substantially rise due to removal of the Fed from the market. Already, the Fed has substantially slowed the amount of mortgages they purchase, yet mortgage rates remain near historic lows. This is due to less loan production. Many people have already refinanced to these record low rates, so there will be less loans done next year which should help offset the Fed exodus. AQ wrote a commentary about this in the MND Newswire section.

Reports from fellow mortgage professionals indicate mortgage rates to be improved. The par 30 year conventional rate mortgage is now in the 4.875% range for well qualified consumers. To secure a par rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee.

Currently, MBS are at the top of the trading range which I have used to give lock/float recommendations. The strategy of lock at the price highs and float the price lows has worked very successfully over the last few months. With MBS holding at the top of the range that they have been unable to break for months, I am recommending that clients and consumers lock in today. If you have been floating since last week, you have picked up about .25% in rate, take advantage of the lower rates, and lock in.
I hope everyone has a great weekend.

House Passes Home Buyer Tax Credit Extension. Obama to Sign as Soon as Friday

by Adam Quinones on Nov 5, 2009 at 2:57pm

The House of Representatives has voted to pass legislation extending the home buyer tax credit until April 30, 2009.

Last night the Senate voted 98-0 to pass the legislation. Next the bill will head to President Obama to be signed into law.

While the bill extends the $8,000 tax credit for first time home buyers, it also makes available a tax credit to homeowners who have lived in their current residence for at least five years. The credit for these buyers will be capped at $6,500.

Income levels will be extended from the current limits of $75,000 for a single purchaser and $150,000 for couples to $125,000 and $225,000 respectively. Above those limits there are diminishing credits available.

Housing interests, especially the National Association of Home Builders and the National Association of Realtors, has pushed strongly for the extension and the Obama administration has also lobbied heavily for its passage. However, not everyone was in favor of it.

Some critics have charged that the tax credit has merely moved sales that would have occurred sooner or later to an earlier date and that, when the credit finally does go away, the market will experience another severe downturn. A diametrically opposed opinion would have it that, while 1.4 million claims have been made, few sales were actually inspired by the credit. Others have argued that the current interest rates and low housing prices are enough of an incentive without spending tax money. The extension is expected to cost an estimated $11 billion on top of the $10 billion that has been spent to date.

There have also been charges of fraud in the operation of the program. To combat this the new law has some expanded safeguards including a minimum age of 18 for obtaining the credit, a requirement that a settlement statement accompany the tax return claiming the credit and a prohibition on non-arms length transactions.

Another criticism of the extension has been that it ends just as the "spring market" is getting underway. Diane Olick writing for CNBC's RealtyCheck said it "is sort of like offering cheap snow boots in July."

Robert E. Story, Jr., CMB, Chairman of the Mortgage Bankers Association (MBA), today issued the following statement in response to the passage in the U.S. Congress of legislation to extend and expand the homebuyer tax credit.

"At a time when we are finally starting to see some signs of life in the housing and mortgage markets, extending and expanding the homebuyer tax credit is a critical step to keeping the momentum. This has been one of MBA's top single family legislative priorities, and we are very glad to see that policymakers on both sides of the aisle see the importance of this measure.

"The existing credit for first-time homebuyers has helped move a segment of potential homebuyers off the sidelines and into their first homes. By expanding it to qualified existing homeowners, we can help stimulate even more home purchases for qualified buyers. I also want to applaud measures in the bill that will help eliminate fraudulent use of the tax credit."

The Homebuyer Tax Credit is Net Positive, But Not the Universal Solution.

Still More Risk than Reward in Floating

by Victor Burek - Oct. 21 2009, 12:21pm

Mortgage rates fell a few basis points yesterday as prices of mortgage backed securities traded near the top of the current range. Helping benchmark yields and MBS prices improve was a weaker than expected read on the housing market and tame inflation data. At the open of trading this morning, MBS have given back all of yesterday’s gains as traders consolidate profits and re-evaluate the market's bias.

I speak often of range bound trading. This concept was explained yesterday on the MBS Commentary blog. Check it out.

We received more information on the housing sector this morning with the release of the weekly Mortgage Bankers’ Association Application Index. Today's report shows that the recovery progress in the housing market took another turn for the worse last week. Weekly purchase applications fell 7.6% while refinance activity dropped a whopping 16.7% This is the second week in a row of declining applications, hinting that demand for housing may be deteriorating as the expiration of the First Time Home Buyer tax credit draws nearer. On Friday we get another look at housing data with the release of Existing Home sales.

At 2:00pm the Federal Reserve will release the Beige Book. The Beige Book reports on economic conditions across the country. The information contained within this release is already known so it generally does not have a big effect on the markets. However, since this report is used at the FOMC meetings investors will still review it thoroughly for inconsistencies.

At 3:45pm eastern, Richmond Federal Reserve Bank President Jeffrey Lacker will speak to reporters following a journalism workshop. A little later Boston Federal Reserve Bank President Eric Rosengren opens a conference in Massachusetts with a prepared speech. Anytime Fed officials and voting members of the FOMC speak, market participants listen for their view on the economy which might give them a hint on future monetary policy decisions.

Reports from fellow mortgage professionals indicate lender rate sheets are slightly worse today. The conventional 30 year fixed par mortgage rate remains in the 4.75% to 5.00% range for well qualified consumers. To secure a par interest rate you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs with an estimated one point loan origination/discount/broker fee. If you are seeking a 15 year term, you should expect a par interest rate between 4.25% to 4.50% with similar costs.

The data calendar picks up tomorrow with the release of weekly Jobless Claims, Leading Indicators report and Treasury announcement of the size of the upcoming offering of debt. All of these reports have not been friendly to MBS of late, so floating remains risky. Currently, MBS are in the middle of the recent trading range and the reports tomorrow could easily pressure prices fall which would increase mortgage rates. Because rates are not far from recent five month lows, there is more to lose from floating than to gain, so I am still advising my clients to lock in their rates.

News from Wells & GMAC; Discussing Reverse Mortgages; FTHB Tax Credit Extension; Commercial Sector

by Rob Chrisman
Posted Oct. 20th 2009 9:22am

"A woman in Great Britain has died after being hit in the back of the head by a golf ball, on the first hole. Her husband was so distraught he only played the front nine."

Stories like that are terrible, and it is hard for men to catch a break. It is also hard for reverse mortgages to catch a break. In talking to people who are involved in that field of lending, they say that sometimes they feel that the press is almost hoping that something goes wrong with that business. Really, any time you become involved with a senior citizen, or their money, alarm bells begin to ring and often times with cause. Here is one of the latest articles, here is an article highlighting top wholesale buyers of the product:

There was a story in Reuters yesterday saying that lawmakers have said they are considering extending or expanding the tax credit. Senate Majority Leader Harry Reid backs a bipartisan bill to extend the credit for six months. A Senate Republican plan would expand it to $15,000." As one can imagine, NAR, NAHB, and the MBAA are all lobbying strongly for some type of extension. As we have seen, the Federal government would rather continue to stabilize the economy rather than upset it, and taking away the credit would be a move toward "upsetting the apple cart".

In a move also seen as continuing to help the housing market, the Obama administration is unveiling a new program to provide support to state and local housing agencies. It is designed to support low mortgage rates and expand resources for low and middle income borrowers who want to buy or rent a home by implementing a new bond purchase program to support new lending by housing finance agencies, and a temporary credit & liquidity program to improve access by housing agencies to credit sources for their existing bonds. It will provide temporary support to local housing financing agencies and encourage them to return to relying on market sources for their capital as quickly as possible. At this point it does not appear to directly help small originators, but details have been a little sketchy.


And if you didn't know what a 4506-T was a year ago, you sure do now, unless you're selling stereos at The Good Guys. GMAC Bank Correspondent Funding reminded their correspondents that "all loans submitted to GMAC Bank for purchase, with the exception of FHA non-credit qualifying streamline refinances and VA IRRRLs, must contain a completed and signed IRS Form 4506-T, to obtain the borrower's tax return transcripts for the two years prior to the loan application date." The borrowers must complete and sign IRS Form 4506-T at time of application and at time of closing. An incomplete 4506-T will prevent a loan from moving into underwriting and eventually funding.

GMAC also clarified their Pre-Foreclosure/Short sale transaction policy, which occurs when the borrower sells the mortgaged property for less than the total indebtedness and the lender agrees to accept the net proceeds as satisfaction of the debt. In some cases, the lender may file a claim with the insurer for the difference or take out a deficiency judgment against the borrower.

After 10/26, Wells Fargo Wholesale Lending's verbal verification of employment (VVOE) policy for conventional loans to self-employed borrowers has been extended from 10 to within 30 days of the Note date. The requirement remains 10 days prior to the Note date for salaried borrowers. Wells' wholesale group also tweaked their MI policy for high LTV loans in declining markets, added some additional reviews for high-risk FHA loans, and came out with their policy for high balance loans IF the current loan limits are not passed (Purchase loans using the temporary loan limits must close and fund by Thursday, Dec. 31. Refinance loans using the temporary loan limits - including the Home Affordable Refinance Program - must close and fund by Monday, Dec. 28 to accommodate the right of rescission).

Later this week the FHA update of the current modification policy goes into effect. What does that mean? Basically, modifications will be somewhat harder to make, which has accounted for the big increase lately in FHA modifications, which in turn led to Ginnie Mae pools (especially higher coupon pools) being adjusted. I believe that up until the 23rd servicers can take advantage of the lenient modification policy, and purchase loans at 100 (par) and sell them back out higher after recapitalizing the amount in arrears. This has not had any impact on pools with conventional loans

By the way, trial loan modifications under HAMP (Home Affordable Modification Program) were up 41% in September compared to August according to the Federal Housing Finance Agency (FHFA).

We've had Citi, JP Morgan Chase, and Bank of America release their earnings. Wells Fargo's comes out tomorrow. The stock has done well recently, but watch out for their, and others, losses on commercial real estate holdings. Banks hold about 45% of commercial loans, and these continue to deteriorate. Banks have to put more money into reserves while reducing their loan portfolios which in turn leaves less money for lending - not a good scenario. And analysts say that reducing reserve requirements for our banks won't help, as it will not make them more willing to lend because they will keep their money back with the Fed and earn risk-free returns on their equity. Commercial loans are definitely a cloud on the horizon, with vacancies increasing and rents falling. Values have fallen as well, and Moody's estimates that prices are about 35% below their peak in October 2007.

"Things" actually seem a little quiet out there. Traders in mortgage-backed securities are saying that it is pretty quiet out there, and that origination volumes seem to have slowed. This is not hard to understand, given the traditional autumn slow-down, along with rates creeping up slightly. But with the Fed's continued buying of securities, the laws of supply and demand tell us that mortgage rates should continue to be ok.

It didn't help that there was no economic news yesterday. But today we had Housing Starts and Building Permits. New construction of U.S. homes, however rose by less than expected in September: Housing Starts were +0.5% and August was revised downward. (Friday we have the September Existing Home Sales data, expected to show a small improvement.) We also had the Producer Price Index, expected to be flat but instead dropping .6% in September, mainly because of a 2.4 percent decline in energy prices. For the year the PPI is down 4.8%. What inflation? After the numbers the yield on the 10-year Treasury note (which was 3.37% prior to the numbers) is 3.34% and mortgage prices are better between .125 and .250.




John and Helen met while on vacation and John fell head over heels in love with her.

After a couple of weeks in which John took Helen out to various dance clubs, restaurants, concerts, etc. he was convinced that it was true love. So on the last night of his vacation the two of them went to dinner and had a serious talk about how the relationship would continue.

"It's only fair to warn you, I'm a total golf nut," John said to his new found lady friend. "I eat, sleep and breathe golf, so if that's going to be a problem, you'd better say so now!"

Helen took a deep breath and responded: "Since we're being honest with each other, here goes.... You need to know that I'm a hooker."

"I see," John replied. "That's a problem, for sure."

He spent some time looking down at the table, deep in thought. Then he added, "You know, it's probably because you're not keeping your wrists straight when you tee off."

Mortgage Rates End Week Higher

by Victor Burek - Oct. 16th 2009 10:23am

Mortgage rates moved slightly higher yesterday but managed to weather the storm of better than expected economic data and earnings reports. Today, mortgage-backed security prices are mostly unchanged and mortgage rates are a few basis points lower. However, compared to last week mortgage rates are about 0.25% higher.

Bank of America and GE released earnings this morning. Bank of America had disappointing results last quarter with a larger than expected loss. GE beat estimates on earnings per share but failed to match total revenue expectations. The weaker than expected results moved stock futures much lower which helped the bond market avoid a continuation of recent selling.

The Federal Reserve released Industrial Production data today. This report gives us a look at how much factories, mines and utilities are producing. Last month’s report indicated a large increase, this month economists expected an increase of 0.2%. The report showed that Industrial Production improved more than expected last month, increasing 0.7%. Additionally, last month’s numbers were revised higher from a gain of 0.8% to a gain of 1.2%!

The final economic report of the week is a preliminary read on how the consumer is feeling. The University of Michigan’s Consumer Survey Center questions 500 households each month on their personal financial condition and attitudes about the economy. An optimistic consumer is much more likely to spend money while a pessimistic consumer is more likely to save. Since our economy is driven by consumer spending, the stock market usually benefits with optimism while the bond market benefits with pessimism. Today's preliminary read indicates consumers are losing some of the optimism they gained over the last few months. Expectations called for a 74.0 reading following last month’s 73.5, but the actual report indicated a much worse than expected 69.4

30-year mortgage rates dip below 5 percent

First time in four months, average rate on standard fixed is 4.94 percent
Source Freddie Mac MSNBC Oct 1, 2009

Rates on 30-year home loans dropped below 5 percent for the first time in four months, but still remained above this year's record low, Freddie Mac said Thursday.

The average rate on a 30-year fixed mortgage was 4.94 percent, down from 5.04 percent last week, Freddie Mac said. The last time the 30-year home loan averaged less than 5 percent was the week ending May 28, when it was 4.91 percent.

Rates hit a record low of 4.78 percent hit in the spring, and remain appealing for people interested in buying a home or refinancing.

On Thursday, the National Association of Realtors said the number of signed sales contracts rose for the seventh straight month in August, as homebuyers rushed to take advantage of a tax credit for first-time owners that expires in November.

"Low mortgage rates are helping to stabilize home sales," said Frank Nothaft, Freddie Mac's chief economist.

But borrowers may want to consider the Federal Reserve's announcement last week that it is slowing down a program intended to lower mortgage rates and boost the housing market. Analysts say mortgage rates should remain low for now but could eventually move higher, and homeowners who want to refinance mortgages shouldn't delay.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

The average rate on a 15-year fixed mortgage fell to 4.36 percent from 4.46 percent last week, according to Freddie Mac. This week's rate on 15-year mortgages was the lowest since Freddie Mac started tracking it in 1991.

Rates on five-year, adjustable-rate mortgages averaged 4.42 percent, down from 4.51 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.49 percent from 4.52 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for loans in Freddie Mac's survey averaged 0.7 point for 30-year mortgages, and 0.6 point for 15-year and five-year loans. The fee averaged 0.5 point for one-year mortgages.

Weak Jobs Data Helps Keep Mortgage Rates Near Four Month Lows

by Victor Burek - Oct 2 2009

Mortgage rates moved a few basis points lower yesterday after the bond market experienced what AQ and MG refer to as a "forced rally". Stocks were selling the dollar was stronger and the market was generally nervous about a weak Jobs report after Goldman Sachs revised their Non Farm Payrolls forecast for the worse. This equation resulted in a heavy flight to safety rally in the fixed income market which essentially snowballed as market participants looked to keep up with rapidly appreciating prices. As a result, mortgage backed securities prices closed at levels not seen since May. Following the rally in Treasury and MBS markets, lenders republished rate sheets for the better and consumer borrowing costs fell. There were even few lenders offering 4.5% for 30 year mortgages for consumers with exceptionally high FICO scores and low loan to values. This all occurred in anticipation of today...

The U.S. Department of Labor this morning released the monthly Employment Situation report. This data provides four key measures on the strength of the domestic labor market...

The first is a read on the number of jobs lost or created from the prior month. Recent reports have shown that job losses have begun to moderate since peaking in January 2009. Economists surveyed for this month’s report were calling for 175,000 job cuts following last month’s read of 201,000 losses.

The next measure is the official unemployment rate which was expected to post a increase from last month’s read of 9.7% to 9.8% in September.

The final two measures are the average hourly earnings and work week. Average hourly earnings was expected to post a 0.2% increase while the average work week was expected to hold steady at 33.1 hours. These final two measures are important because if wages are going down or if hours worked decreases, consumers will have less money to spend.

The Labor Department reported that our economy lost a worse than expected 263,000 jobs last month. The official unemployment rate came in right on expectations at 9.8%, which is a 26 year high. Average hourly earnings only posted a 0.1% increase while the work week shrank to 33.0 hours, matching a record low.

What the housing 'rebound' means for you

Homes are selling again, but the market today is divided by price point. Your best strategy depends on where your home sits on that spectrum.

By Amanda Gengler, Money magazine writer
September 24, 2009: 10:03 AM ET

(Money Magazine) -- Home sales are rising. Builders are buying lots. And prices are no longer in free fall. After so much pain, there are signs of life in the housing market.

But the "recovery" is far from universal. In many cities cheaper homes are selling fast -- but mid-range properties are still lingering, and high-end homes are gathering dust. "The luxury market still looks ugly," says economist Joshua Shapiro at economics consultancy MFR. If you're selling or buying, your strategies should depend on the value of the home you want or own.

The bottom tier (hot)
The lowdown: A big chunk of the 1.9 million post-boom foreclosures have been among the least expensive 35% of homes. Bargain prices on these foreclosures and a new tax credit of up to $8,000 for first-time buyers have lured investors and would-be homeowners back to the market, even in hard-hit areas, says Pat Lashinsky, CEO of online brokerage ZipRealty.

Sales of homes between $100,000 and $250,000 are up 9% from a year ago. Meanwhile, many banks halted foreclosures earlier this year while waiting for details on the Obama administration's foreclosure-prevention plan. Greater demand combined with less supply is providing a strong spark to the market. "Buyers in most areas are now going up against multiple offers," says Lashinsky.

Buyers: See homes the first day they're listed, and if there's one you want, submit an offer immediately, says Phoenix realtor Susan Ramsey. Don't expect a deep discount; prices for lower-end homes are stabilizing. Put down 20% or more, if you can, to compete with cash-rich investors. Offer not accepted? Check in with the seller's agent a few more times; many deals fall through.

If you aren't under pressure to move, keep in mind that the supply crunch is probably temporary. The foreclosure rate is expected to stay at record highs for the rest of the year, and as prices stabilize, more sellers will jump back into the market.

Sellers: Forget trying to compete with foreclosures on price. Some buyers will pay more for a home in move-in condition, so spruce yours up and sell that fact hard in your marketing materials.

Many of the other listings are likely to be short sales in which the bank agrees to accept a price below what the owners owe on their mortgage. Since short sales can take months, offering a quick, flexible closing date will give you another advantage -- and attract first-time buyers aiming to take advantage of the tax credit before it expires at the end of November.

The middle tier (cool)
The lowdown: Demand is soft. That's because the likely buyers are trying to trade up -- difficult for people who bought in the past five years, because they have so little equity. In fact, about a third of all homeowners with a mortgage owe more than the home is worth, according to First American CoreLogic.

Buyers: Unload your current home first, so you know what you can afford to spend on a new place. When you find a home you like, offer 10% less than the asking price -- a realistic discount for a lukewarm market, says realtor Ramsey.

Sellers: If you have to move soon, it's all about standing out from the pack. If your home is sitting on the market, go for one big price cut instead of slowly ratcheting down. A bold move will attract attention and prevent the listing from going stale. Offer to cover closing costs, and since many buyers will be short on cash after the purchase, throw in some necessary improvements, such as new carpeting, blinds, or painting.

If your home is in the half-million-dollar range, try to set the price at a level that doesn't require a jumbo loan, normally $417,000 or less (up to $729,750 in pricey areas). The difference between a $400,000 conforming loan and a $420,000 jumbo loan is several hundred dollars a month. Finally, if you can hang in there, know that prices will likely start to recover within the next 12 to 18 months, says economist Shapiro.

The top tier (cold)
The lowdown: The recession and the credit crunch have almost shut down the top 10% of the market, says Joel Naroff, president of Naroff Economic Advisors. Fewer people can afford a luxury property, and since banks are hesitant to underwrite supersize loans, it's tough to finance them.

Moreover, foreclosures are rarer at this price level, and homeowners, unlike banks, are reluctant to slash their price. Given all that, the prices on high-end homes will probably fall another 10% until the market hits bottom, says Mark Zandi, chief economist at Moody's Economy.com.

Buyers: Get pre-approval before you shop: Jumbo mortgages are tougher to qualify for, require larger down payments (as much as 30% to 40%), and cost nearly a percentage point more than smaller loans. And ask for freebies: While sellers often balk at low-ball offers, they should be willing to negotiate, including paying closing costs and other extras. "You can set the terms," says ZipRealty's Lashinsky. If the seller refuses, move on.

Sellers: You'll need to seriously undercut the competition. (Your agent can provide comparable sales figures for the past three months.) You may want to finance the deal yourself. And motivate buyer's agents with a larger cut of the deal -- a total of 4%, says Sacramento realtor Larry Henderson. It may be painful, but the price of your home is likely to fall further if you wait -- and recovery for your market is a ways off.

FHA Announces Several Policy Changes. Adopts HVCC Guidelines

by Adam Quinones on Sept 18, 2009 at 4:02pm

The Federal Housing Administration (FHA) today announced several significant policy changes that are intended to improve their exposure to risk. The changes, effective January 1, include:

Modification of Procedures for Streamline Refinance Transactions
Adoption of Home Valuation Code of Conduct Guidelines (some not all)

Updated Appraisal Validity Period
New Appraisal Portability Regs
New Requirement of Lenders to Submit of Audited Financial Statements for Review
Adjustments to the Approval Process for Participation in FHA Loan Origination
Increased Net-Worth Requirements for Lenders
Grabbing the attention of mortgage professionals was FHA's decision to adopt language from HVCC appraisal guidelines. The HVCC, which has been the subject of heated debate within the industry, was implemented by Fannie Mae and Freddie Mac on May 1, 2009. At that time the FHA decided not to adhere to the policy. This undoubtedly increased demand for FHA loan products as originators quickly learned of the multitude of problems associated with HVCC. The new requirements will prohibit any commissioned based lender staff member from ordering an FHA appraisal.

FHA will not require the use of AMCs or other third party organizations for appraisal ordering, if lenders do use AMCs and/or other third party organizations FHA-approved lenders must ensure that:

FHA Appraisers are not prohibited by the lender, AMC or other third party, from recording the fee the appraiser was paid for the performance of the appraisal in the appraisal report.
FHA Roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.
The fee for the actual completion of an FHA appraisal may not include a fee for management of the appraisal process or any activity other than the performance of the appraisal.
Any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing.
AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised.

Here are a few other notable changes...

Appraisals

In cases where a borrower has switched lenders, FHA did not allow a new appraisal to be ordered. Instead the first lender was required, at the borrower’s request, to transfer the case to the second lender. This guideline generally slowed the loan process as the original lender often times was unwilling to transfer the case in a timely manner.

The new guideline, effective January 1, allows a second appraisal to be ordered by the second lender under the following limited circumstances:

1. The first appraisal contains material deficiencies as determined by the Direct Endorsement underwriter for the second lender.
2. The appraiser performing the first appraisal is on the second lender’s exclusionary list of appraisers.
3. Failure of the first lender to provide a copy of the appraisal to the second lender in a timely manner would cause a delay in closing, posing potential harm to the borrower.

Potential harm includes events outside the control of the borrower such as loss of interest rate lock, purchase contract deadline, foreclosure proceedings, and late fees.

FHA also reduced the length of time that an appraisal could be considered valid for collateral underwriting. Previously, FHA considered an appraisal written within the last six months to be an acceptable property valuation. Today's announcement reduces that period from six months to four.

Advertising

FHA-approved mortgagees must use their HUD registered business names in all advertisements and promotional materials related to FHA programs. HUD registered business names include any alias or “doing business as” (DBA) on file with FHA. FHA-approved mortgagees must keep copies of all advertisements and promotional materials for a period of two years from the date that the materials are circulated or used to advertise.

Who can work with FHA and FHA originated loans

A lender or mortgagee shall not have any officer, partner, director, principal, manager, supervisor, loan processor, loan underwriter, or loan originator of the applicant mortgagee who is:

(1) currently suspended, debarred, under a limited denial of participation (LDP), or otherwise restricted under part 25 of title 24 of the Code of Federal Regulations, 2 Code of Federal Regulations, part 180 as implemented by part 2424, or any successor regulations to such parts, or under similar provisions of any other Federal agency;

(2) under indictment for, or has been convicted of, an offense that reflects adversely upon the applicant’s integrity, competence or fitness to meet the responsibilities of an approved mortgagee;

(3) subject to unresolved findings contained in a Department of Housing and Urban Development or other governmental audit, investigation, or review;

(4) engaged in business practices that do not conform to generally accepted practices of prudent mortgagees or that demonstrate irresponsibility;

(5) convicted of, or who has pled guilty or nolo contendre to, a felony related to participation in the real estate or mortgage loan industry—

(i) during the 7-year period preceding the date of the application for licensing and registration; or
(ii) at any time preceding such date of application, if such felony involved an act of fraud, dishonesty, or a breach of trust, or money laundering;

(6) in violation of provisions of the S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5101 et seq.) or any applicable provision of State law; or

(7) in violation of any other requirement as established by the Secretary.

Streamline Refinance Transactions

At the time of loan application, the borrower must have made at least 6 payments on the FHA-insured mortgage being refinanced.

At the time of loan application, the borrower must exhibit an acceptable payment history as described below.

1) For mortgages with less than a 12 months payment history, the borrower must have made all mortgage payments within the month due.

2) For mortgages with a 12 months payment history or greater, the borrower must have:

a) Experienced no more than one 30 day late payment in the preceding 12 months,

AND

b) Made all mortgage payments within the month due for the three months prior to the date of loan application.

The lender must determine that there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal. Net tangible benefit is defined as:

reduction in the total mortgage payment (principal, interest, taxes and insurances, homeowners’ association fees, ground rents, special assessments and all subordinate liens),
refinancing from an adjustable rate mortgage (ARM) to a fixed rate mortgage,
OR

reducing the term of the mortgage
If a credit score is available, the lender must enter the credit score into FHA Connection. If more than one credit score is available, lenders must enter all available credit scores.

If subordinate financing is remaining in place, the maximum combined loan-to-value ratio is 125 percent.

For streamline refinance transactions WITHOUT an appraisal, the CLTV is based on the original appraised value of the property.
For streamline refinance transactions WITH an appraisal, the CLTV is based on the new appraised value.
Revised Streamline Refinance Transactions WITHOUT an Appraisal

The maximum insurable mortgage cannot exceed:

The outstanding principal balance minus the applicable refund of the UFMIP,
PLUS

The new UFMIP that will be charged on the refinance.
Revised Streamline Transaction WITH an Appraisal

The maximum insurable mortgage is the lower of:

1) Outstanding principal balance minus the applicable refund of UFMIP, plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charge on the refinance;

OR

2) 97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.

Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, the lender must verify the borrower has the assets to pay them along with any other financing costs that are not included in the new mortgage amount.

Further Changes Currently Being Considered:

Modify Mortgagee Approval and Participation in FHA Loan Origination

Lenders seeking approval to originate, underwrite, or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. Mortgagees with this approval status must assume liability for all the loans they originate and/or underwrite. Loan Correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees; however they will no longer receive independent FHA approval for origination eligibility.

These policy changes will require the FHA approved mortgagee to assume responsibility and liability for the FHA insured loan underwritten and closed by the approved mortgagee. These changes align FHA with the GSEs and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to originate FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees.

Increase Net-Worth Requirements for Mortgagees

The FHA plans to propose to increase the net worth requirement for approved mortgagees to meet industry standards. The requirement is currently at $250,000 and has not been increased since 1993. HUD is proposing an initial increase of approximately $1,000,000 that would be in place within one year of the enactment of this rule. To maintain consistency with industry standards, HUD may propose that the net worth requirements be increased further in future years to a level comparable to those required by GSEs and other market institutions. These changes will help to ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting HUD to mitigate losses and decrease risks to the FHA insurance fund.

Housing: "Facing a triple whammy" at end of Year

Monday, September 21, 2009

by CalculatedRisk on 9/21/2009 08:43:00 AM

"We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.”
Thomas Lawler, housing economist

From Bloomberg: Housing Suffering Relapse Confronts Bernanke Credit Conundrum. A few excerpts:
The Fed’s purchases of mortgage-backed debt so far this year have dwarfed net issues of such securities by Fannie Mae, Freddie Mac and government-run mortgage-bond insurer Ginnie Mae, which totaled about $440 billion through the end of August, said Walt Schmidt, a mortgage-bond strategist in Chicago at FTN Financial.

Once the Fed exits the market, the spread between yields on mortgage-backed debt and Treasury securities will have to rise, perhaps by a half percentage point, in order to attract other buyers, he said.
...
The impact of terminating the tax credit will show up first in the new-home market, said David Crowe, chief economist of the home-builders’ association.

“It takes at least four months to build a house, and you need to buy it before Dec. 1 to qualify,” he said. “If you haven’t started building it by now, it’s too late.”
...
Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California.
These excerpts make three key points:

The spread between Mortgage rates and treasuries will increase when the Fed stops buying MBS (my guess is about 35 bps),

the end of the housing tax credit will probably show up in new home sales data first, and

housing is usually one of the key engines of recovery (along with consumer spending). The overall recovery will probably be sluggish because both housing and consumer spending will be under pressure for some time.

Bernanke: Recession likely over but slog ahead

Fed chairman says he's 'confident' Congress will update rules for the financial system.

By Jennifer Liberto, CNNMoney.com senior writer
Last Updated: September 16, 2009: 6:37 AM ET

WASHINGTON (CNNMoney.com) -- In his first speech since he was reappointed, Federal Reserve Chairman Ben Bernanke said the recession is "very likely over" but detailed the tough road ahead for the economy.

Bernanke also said that despite delays, he is confident that Congress will pass changes to financial rules to ward off future collapses.

He hit hard on the "challenges" for the Fed and all policymakers in dealing with a sluggish unemployment rate as the economy recovers from a recession that began in December 2007.

"That's one reason why, even though from a technical perspective, the recession is very likely over at this point, it's still going to feel like a very weak economy for some time," Bernanke said. "As many people will still find their job security and employment status is not what they wish it was."

Bernanke's speech to experts and Washington insiders at the Brooking's Institution in Washington on Tuesday was a repeat of the one he gave to economists in Jackson Hole, Wyo., last month, when he cautioned the economy would start growing again, although slowly.

While answering questions, on Tuesday, Bernanke said the pace of recovery in 2010 would be "moderate" and added that the unemployment rate would come down "quite slowly," due to "headwinds" on ongoing credit problems and the effort by families to reduce household debt.

Stock investors took note of Bernanke's remarks, and the leading measures moved slightly higher.

Bernanke also said he believes Congress will pass changes to the nation's regulatory structure, while acknowledging that the effort had been slow-going.

"While maybe the focus on regulatory reform in the Congress has not yet been as intense as I expect it will be ... I feel quite confident that a comprehensive reform will be forthcoming," he said.

Bernanke played down concerns that turf wars between regulatory were getting in the way of legislation. "There are legitimate interests and there are interests that are more self-interested ... and that's just true with everybody, including all the members of Congress involved in the discussion," he said.

He said one proposal that he advocates "has nothing to do with the Fed's own powers" -- that's the creation of a new type of power, called "resolution authority," to unwind giant financial firms whose failure puts the economy at stake. Current proposals would give that power to the Federal Deposit Insurance Corp., since it already monitors and unwinds bad banks.

The economic downturn and slow recovery were also the subject of remarks Tuesday by President Obama. Obama spoke to employees at an assembly plant in Lordstown, Ohio.

"There's little debate that the decisions we have made and the steps we have taken have helped stop our economic free fall. In some places, they've helped us turn the corner," Obama said. "It's going to take some time to achieve a complete recovery."

Fed’s Evans: Rate Hikes ‘Some Time Down the Road’

By Michael S. Derby
While interest rate hikes lie some time off, it’s likely a future tightening cycle will have to be more aggressive than what was seen over the last cycle of raising rates.

“We are going to want to be more aggressive” compared with the tightening cycle that occurred between 2004 and 2006, Federal Reserve Bank of Chicago President Charles Evans said Wednesday.

That tightening cycle was referred to as gradual and occurred in modest, steady increments. Evans said the pace of action then was not a major driver of the housing and financial market problems that ended up causing the recession. Instead, the official said that the Fed could have likely reached the end point of its rate hike cycle more quickly and that bigger rate hikes would not have been particularly harmful to the economy.

Evans also said that when it comes to rate hikes and major unwinding of other emergency support programs now, a shift lies “some time down the road.” In reaching a determination of whether rate hikes are needed, Evans said that “we are going to be looking very carefully at how the economic recovery is preceding,” and will be watching inflation and unemployment measures.

“As the economy continues to improve, and when we see rising inflation pressures, Fed policy will respond aggressively,” Evans said. When the time does come to raise rates, “we could have a pretty reasonable withdrawal of accommodation.”

Most Fed officials who have spoken recently have offered similar sentiments, and indicated the current zero percent interest rate policy stance will be maintained for some time, likely into 2010.

Evans added that he would prefer to see inflation at 2% and noted “at the moment we are under-running that,” amid price pressures that are “relatively muted.”

Evans sees inflation ranging around 1.5% and said expectations for future price gains are “pretty anchored.” He also said “neither a harmful deflationary episode nor a repetition of the Great Inflation [from 1965 to 1982] is very likely.”

The official said more broadly, the recovery “is beginning to start” and growth is likely to range around 2.5% to 3% into next year.

Evans was speaking before a gathering held by the Council on Foreign Relations in New York. The policy maker is a voting member of the interest rate setting Federal Open Market Committee. He spoke as the economy appears to be emerging from the worst recession since the Great Depression, amid continued trouble in labor markets.

He foresees continued trouble in the employment sector, and reckons the unemployment rate, now at 9.7%, will breach 10% before moving downward.

Evans expects the central bank to buy all the mortgage-backed securities it said it would buy, even as the economy shows signs of recovering.

“It’s a fair question” to ask if the Fed needs to buy all the securities it had originally planned to buy. “I would expect we continue with the entire amount” given the beneficial impact the program has had so far, Evans said.

He was referring to the Fed’s plans to buy up to $1.25 trillion in agency mortgage-backed securities and $200 billion in agency securities. The Fed will wind up a program to buy $300 billion in Treasury debt in October, having extended the buying period but not the size of the effort.

Money Supply: The Myth of Hyperinflation

Article by Mark Sunshine Sept. 3, 2009

Conventional wisdom is that the Fed’s printing presses are running overtime and the economy is awash with liquidity. Earlier this week the National Association for Business Economics reported that almost half the economists they surveyed believed that Federal Reserve Policy is inflationary. Too bad the NABE-surveyed economists and conventional wisdom are wrong.

Economists, pundits and journalists who climb the soap box to lecture Bernanke & Company about the evils of printing too much money need to take a second look at Federal Reserve policy.

If the Fed critics were correct, then overly aggressive monetary policy would be increasing the amount of money supply and hyper-inflation would be right around the corner. But, inflation is in check and if the Fed keeps on its current monetary trajectory high inflation isn’t in the cards for the U.S.

As it turns out, every week the Federal Reserve publishes statistics on money supply and since December 15, 2008, money supply has increased only marginally. M1 and M2 are up by about 4% and 2.5%, respectively. Such small increases hardly signal an out of control Federal Reserve led by “helicopter Ben” dropping money on the economy.

Fed watchers are correct, however, since the Lehman collapse the size of the Federal Reserve’s balance sheet has more than doubled. However, this growth of Fed size isn’t a warning of impending monetary or economic Armageddon.

While in the last year the size of the Federal Reserve’s balance sheet has grown from a little less than $1 trillion to around $2 trillion, what the Fed detractors neglect to mention is that the Federal Reserve didn’t print money to pay for the purchase of its new assets but rather sucked money out of the banking system that was being hoarded by banks, corporations and individuals. As a result, there was only a tiny net increase in money supply from Federal Reserve intervention. And, with only a small increase in money supply, inflation fears are being blown out of proportion.

Instead of printing “new money” and increasing money supply, Bernanke got banks to deposit their “old money” with the Federal Reserve, which meant that money supply didn’t increase. The Federal Reserve used that old money on deposit to purchase its new assets and grow its balance sheet.

Bernanke encouraged banks to deposit their excess funds at the Federal Reserve by persuading Congress to pass a law that allows the Federal Reserve to pay interest on cash deposits at the Federal Reserve. Prior to the change in law, the Federal Reserve couldn’t pay interest on money deposited, and as a result banks didn’t leave their excess funds at the Federal Reserve Bank. This very technical change in Federal Reserve authority provided Bernanke the magic wand to pull the banking system out of its death spiral without sparking hyper-inflation or running the printing presses overtime. Excess reserves on deposit at the Fed (which are essentially deposits of excess cash by banks at the various Federal Reserve banks around the country) total approximately $800 million and by sucking up excess reserves the Federal Reserve financed about 80% of its policy initiatives.

By recycling existing excess cash, the Federal Reserve stopped the negative effects of cash hoarding and pulled the U.S. out of a full scale depression. Bank cash hoarding at the end of 2008 depressed the velocity of money (i.e., the number of times it turns over each year) which almost caused an economic calamity for the U.S.

In a simple closed economy, annual GDP must equal (a) the amount of money multiplied by (b) the number of times money turns over in a year. If the velocity of money slows down, i.e., the number of times it turns over goes down, then GDP must fall. When the economy was in big trouble, in late 2008, banks, consumers and businesses were hoarding cash, which meant money wasn’t turning over. As a result, velocity dropped like a stone and GDP began to crash.

Bernanke and his staff were brilliant when they figured out how to stabilize GDP by forcing the velocity of money to stabilize and start to rise. Since Bernanke & Co. couldn’t rely upon the banks to recycle excess cash, they used their new authority to vacuum up the hoarded money and had the Federal Reserve Bank assume the role of private banks as an intermediary for money.

Prior to the beginning of 2009, the only successful policy that stabilized velocity of money and stopped panic hoarding was large-scale deficit spending by the central government which ultimately results in wealth redistribution and other social problems. Bernanke didn’t accept the standard prescription of aggressive fiscal intervention and instead invented as new paradigm of monetary policy.

As Bernanke’s policies started to work and panic hoarding lessened, the Federal Reserve began quietly reversing course and pulled back from some of its most aggressive measures. Pundits who question whether or not the Fed has the courage to reverse course and pull out monetary stimulus as the economy recovers need to look at actual data. They will see that there is no shortage of courage at the Fed.

Quietly and without fanfare, the Fed has gotten out of the business of being the lender of last resort for most of the securities market and broker dealers. As of the date of the last Fed report, the Fed had essentially $0 outstanding in its primary dealer, securities repurchase and commercial paper purchase facilities. And, the overall size of the Fed’s balance sheet was down between $100 million and $200 million from its peak level. Even the amount of credit that the Fed is providing to AIG is lower than it was at the height of the crisis. Plus, last week Fed governors started discussing whether or not all of the open market purchases of mortgage that have been authorized will in fact take place.

Every two weeks the Federal Reserve publishes a report that details the composition of its assets and liabilities. It should be required reading for pundits, economists and journalists before they talk or write anything about the Federal Reserve, Bernanke or his staff.

While I don’t agree with everything that Bernanke has done (particularly in the area of regulation), Bernanke and his staff are perhaps the most skilled monetary economists ever.

Should you convert your IRA to a Roth in 2010?

2010 Provides a unique opportunity for IRA owners.
In 2010, you have the opportunity to convert your traditional IRA to a Roth IRA. The usual income limitations that stand in the way for converting will not apply. So, should you convert? Let’s look at why this may or may not be a good idea.

Here’s why a Roth IRA conversion may make sense for you
Consider this: a Roth IRA allows tax-free growth and tax-free income distributions at age 59½ or older and as long as you have held your Roth account for 5 years or longer. While your contributions to a Roth IRA do not allow a tax-deduction, the younger you are, the longer time frame you have for tax-free growth.

Now realize converting to a Roth IRA comes with a price tag. You will have to pay ordinary income taxes on the amount you convert. Whatever amount is converted is added to your income for the year. However, there may be a silver lining: With the market being down, most likely your account value may be the lowest it has been in years. This means by converting now you may pay lower taxes.

It is also worth noting that with all of the reckless government spending, there is a great chance that tax rates could increase in the years ahead. This is another reason why now may be as good time as ever to convert. If converting may send you into a higher tax bracket, you could consider doing a partial conversion (only converting a portion of your Traditional IRA to avoid going into the next bracket).

Even if you are older, a Roth still may make sense. Normally with an IRA, at age 70 ½ you are required to withdraw from your IRA through mandatory required distributions. However, with a Roth, there is no mandatory withdrawal rule allowing you more time to accumulate tax-free. Also, under the present tax laws, converting a traditional IRA to a Roth can lower the size of your taxable estate. This type of prudent estate planning could allow for decades of tax-free growth for those converted assets.

A few additional estate planning points: If you name your spouse as the beneficiary of your Roth IRA, your spouse can treat the inherited IRA as his or her own after you die and forego withdrawals. This allows those Roth IRA assets to keep compounding untaxed across the rest of your spouse’s lifetime.

Your spouse could then name a son or daughter as a beneficiary. This would allow your children the choice to make minimum withdrawals according to his or her life expectancy. All the while these assets continue growing completely tax-free.

Here’s why you may want to think twice about converting to a Roth
For starters, you will pay taxes now! The IRS treats a conversion from a traditional IRA to a Roth IRA as a taxable event. You will have to pay taxes on the amount you convert. Do you have enough in savings to cover these taxes? If not, you do not, I repeat do not want to pay for the taxes out of your current IRA.

You may be tempted to use your current IRA assets to pay for the tax on the conversion. Here’s why that is not a good choice. First off, if you’re under 59½, you’re facing a 10% penalty on the amount you withdraw, and secondly they amount you take out to cover the taxes will lose the chance for tax-free compounding going forward.

Why wait until 2010?
For some who are under the $100,000 adjusted gross income level, you may consider converting in 2009. Here are a few reasons this may make some sense:

In 2009, any withdrawals from a traditional IRA can be used to fund a Roth IRA. In years past, mandatory withdrawals from a traditional IRA typically couldn’t be deposited into a Roth IRA. But the federal government has suspended mandatory IRA withdrawals for 2009. Any IRA withdrawals made in 2009 are thereby elective withdrawals. So, if your adjusted gross income (AGI) is $100,000 or less, you have an option to fund a Roth IRA with a withdrawal from a traditional IRA – at least through the end of 2009.
In 2009, you can fund a Roth IRA with after-tax contributions to a 401(k), 403(b) or 457 retirement savings plan. This year, you can take those contributions and convert them to a Roth IRA tax-free, provided your AGI is $100,000 or less. More good news: there is no limit to the conversion amount.
But don’t ignore the potential tax break for those who convert in 2010
If you do a Roth conversion during 2010, you can choose to divide the taxes on the conversion between your 2011 and 2012 federal returns. This does not apply if you convert in 2009.

Before converting from a traditional IRA to a Roth, be sure to consult your tax advisor. This is a very good idea before you arrange any rollover, trustee-to-trustee transfer, or same-trustee transfer of your IRA assets. In any year, you should fully understand the potential tax impact of a Roth conversion on your finances and your estate. Also, remember that while the income limit on Roth IRA conversions will go away in 2010, the income limits on Roth IRA contributions still apply next year and for the foreseeable future.

This article was written by Jay Peroni, CFP®, who is a public speaker, registered christian financial advisor, and author of The Faith-Based Millionaire.

Mortgage Rates Benefit From Stock Selloff

by Victor Burek - September 1, 2009 10:36am

Many mortgage lenders began yeserday with a conservative rates strategy after ealy weakness in the mortgage backed securities market. But as the day progressed, and it became apparent that stocks were languishing, both treasuries and MBS improved to the best levels in nearly two months. This allowed many of the lenders, who were priced conservatively at the outset, to issue price improvements by day's end.

Though Friday brings us the extremely important Employment Situation report, today's data is certainly causing some commotion. First up was the ISM data, which came in at the highest level since 2006. That would normally be a huge benefits to stocks, but that was not the case. Stocks moved much lower and treasury prices rose after this "better than expected" data was released. Perhaps the stock market has run out of gas?

We also received two housing related reports this morning. First was Construction Spending which measures the monthly change in the dollar value of new construction activity. With a glut of existing homes on the market, the less new construction would help to liquidate the existing inventory. Last month’s reading on construction spending unexpectedly improved over the prior month and economists surveyed are expecting a flat reading for this report. The report indicates that construction spending for July declined more than expected posting a month over month decrease in construction spending of 0.2%.

The final report today was the Pending Home Sales Index from the National Association of Realtors. This tracks purchase transactions that are in process, but not yet closed. With tougher underwriting standards and the Home Valuation Code of Conduct creating roadblocks to qualification, many more purchase contracts are falling out. Despite that, today's number were improved and in fact marked the sixth consecutive increase. The current index level is the highest since June of 2007. It appears that the government stimulus for first time home buyers is having a positive effect on the housing sector along with low prices and attractive mortgage rates. I suppose the catastrophically lower prices might have something to do with it as well.

While on the subject of pending home sales, I would like to hear from you. Have any of you started to buy a home but the loan did not close? Or if you are in the industry, what percentage of new home purchases are falling out in your pipeline and what is the major cause of the fallout?

Reports from fellow mortgage professionals are indicating that the par 30 year conventional rate mortgage remains in the 5.125% range for well qualified consumers. If you are looking to secure a 15 year fixed rate mortgage, you should expect a par rate to average at 4.625%. As always, to secure a par interest rate you must have a loan to value of 80% or less and pay all closing costs including one point loan origination/discount/broker fee. If you are securing a 30 year fixed rate, you must have a FICO credit score of 740 to get a par rate. If your credit score is lower you will either have to pay additional fees or take a higher interest rate. For consumers looking to secure a 15 year fixed rate, you only need a FICO score of 620 to qualify for the par rate.

Mortgage backed securities remain at the top of the current trading range. With the Employment Situation report looming I will continue to advise that locking is the best strategy. Rates today are as low as they have been for the last couple months. Though positive economic data is generally expected to bring about weakness in MBS, recently, the market has been fond of throwing curveballs. Keep in mind that rates move higher faster than they move lower. If you have been floating over the last few weeks, you have already picked up some gains and now is time to cash in.

Do you qualify for an FHA Streamline Refinance???

FHA Streamline Loan Requirements
FHA Streamline loans can help homeowners lower monthly mortgage payments and interest rates. But what do you need to qualify for an FHA Streamline loan? To begin, you need an existing FHA mortgage—if you don’t have an FHA loan but want to refinance, your options include conventional refinancing or applying for an FHA refinancing loan.

If you have a conventional loan you wish to refinance with an FHA refinancing loan, you’ll need to apply with the usual credit check, employment verification, debt-to-income ratio requirements and other considerations. An FHA Refinancing loan can get you many of the same results—if you refinance from a conventional loan to an FHA-insured refinancing loan you may get better rates and lower payments.

For those who do have an FHA home loan, the other requirements for FHA Streamline include:

Being current on the existing loan with all mortgage payments made on time for the last year.

You must own the original property for at least six months before you can qualify for refinancing.

To refinance you’ll need an FHA-approved lender. If you don’t want to use your current lender, any bank you choose must be FHA approved.

FHA Streamline loans do not require an appraisal, but a no-appraisal loan cannot exceed your current loan.

Closing costs must be paid up front or arranged for through a “no-cost” FHA Streamline loan. You may also choose to include the closing costs into your loan a “with appraisal” FHA Streamline loan. In these cases you must have enough equity in the home to cover the extra amount.

There is another Streamline product made for those who want a refinancing plan to help them modify or improve the home. This is known as an FHA Streamline 203(k) Loan. The 203(k) is similar to ordinary Streamline loans with a few exceptions.

The 203(k) has a minimum of $5,000. The maximum loan amount is $35,000. This amount is added to your mortgage for weatherizing your home, removing lead paint and many other home improvements that don’t involve major alterations of the home.

You are required to use at least one contractor to do the repair work. Self-help renovations are not allowed unless the borrower can prove they have proper expertise.

When choosing a contractor, FHA guidelines state you must get an estimate which is broken down into specifics regarding the costs of each project. Contractors must sign an agreement to do all the work included in the estimate for the amount and within the time specified.

You must obtain all permits required by law.
There are restrictions on 203(k) Streamline refinancing loans. You cannot use the 203(k) loan to do major structural repairs such as altering a load-bearing wall or work that needs architectural plans. If your home improvement work exceeds $15,000 the FHA requires you to have a third-party inspection after the job is done.
You are permitted to make two payments to each contractor. If you do the work yourself as a qualified builder, the same rule applies.

When borrowing under the FHA Streamline 203(k) program you must “close out” the loan when the work is complete. According to FHA.gov, you may be required to furnish “mortgagor’s acknowledgement of satisfactory completion…mortgagee’s inspection report(s), change orders, mortgagee accounting of the escrow funds, and record of disbursements.” It’s important to keep records of these items and more to prove the work was completed according to the agreement and in a timely manner.

end.

If you currently have an FHA loan with a rate higher than 6% now is a great time to consider refinancing down to 5.5%. Remember - NO APPRAISAL OR INCOME CHECK NEEDED! The process is so easy and costs very little. I am fully approved to process these transactions and can close a streamline refinance in as little as 2 weeks! Call me if you need help determining if you qualify!

Treasury Pushing Servicers To Take Preventive Actions

by Jann Swanson on 8/27/2009 at 10:01am

According to the Center for Public Integrity, a private non-partisan firm with the slogan “Investigative Journalism in the Public Interest,” when pressure from Congress and the White House proved ineffective in motivating some reluctant lenders to modify mortgages, the Treasury Department started the Home Affordable Modification Program (HAMP) in hopes of spurring those lenders to action. The program has as much as $50 billion at its disposal to help up to 4 million homeowners stay current on their mortgages. To modify a loan companies participating in the program have to agree to drop mortgage payments to an amount equal to 38 percent of the borrower’s monthly income. The Treasury Department then does a dollar match if the company reduces the payment further to as little as 31 percent. The borrower must successfully complete a three-month trial before the modification becomes permanent.

In return for arranging these modifications, HAMP will pay an incentive to the lenders that can be as much as $4,000 for each successful modification of a delinquent mortgage. A reward of $1,500 is available for modifying mortgages that are still current.

Well guess who is getting all soft, squishy, and eager to help the poor homeowner now?

According to the Center for Public Integrity, of the 25 top companies participating in the program, (44 companies have signed on) at least 21 were “heavily involved in the subprime lending industry.” Most were servicing subprime loans, but several were also subprime lenders.

These firms stand to collect more than $21 billion in taxpayer funds from the program although no incentives will be paid until a borrower completes the trial period.

The Center’s information came from a search of public records and was featured on its website in an article written by John Dunbar entitled You Broke it, You Fix it?

According to Mr. Dunbar, the five companies slated to reap the most cash from the program are:

Countrywide Home Loans Servicing - $5.2 billion. Countrywide’s former parent company was ranked as the top subprime lender in the country on an earlier list compiled by the Center. It is now owned by Bank of America which will collect a total of nearly $7 billion from its ownership of Countrywide and two other subsidiaries.

J.P. Morgan Chase Bank – 2.7 billion. No. 12 on the Center’s subprime list, J.P. Morgan also owns EMC, a former Bear Stearns subsidiary, slated to get $707 million.

Wells Fargo Bank NA, Des Moines, Iowa — $2.4 billion. Wells Fargo was another major player in the subprime debacle. It stands to get over $3 billion from modifications in its own portfolio and that of Wachovia Bank which it purchased after that bank failed.

American Home Mortgage Servicing Inc., Coppell, Texas — $1.3 billion. This is a former subsidiary of American Home Mortgage Investment Corporation which was ranked by the Center as the 22nd largest subprime lender before it declared bankruptcy in 2007.

CitiMortgage Inc., O’Fallon, Missouri — $1.1 billion. A major subprime lender and recipient of billions in federal bailout money.

Others at the top of the Center’s list include GMAC Mortgage, $1 billion; Litton Loan Servicing, 774.9 million; and HomEq Servicing, $674.

And, of course, what list of this nature would be complete without a subsidiary of AIG getting some piece of the dough.

Mr. Dunbar does not identify them by name but says that two firms that have settled charges of illegal collection practices brought by federal regulators and another that voluntarily surrendered its bank charter after it was placed under federal supervision are also on the list.

end.

Very Interesting! If you have a loan that you are looking to modify reference this information to your lender. Many people that I speak to tell me the lenders are not willing/able to modify their loan. It doesn't make sense. If HAMP is paying lenders up to $4000 for each successful modification and it is putting homeowners in a better position then why not do it???? What is holding these lenders back? Stay in constant contact with your lender until they give a solid explanation why your loan does not qualify for a modification. Call me if you want my advice or your particular situation!!!

Bill Seeks Expansion of Home Buyer Tax Credit

by Jann Swanson on 8/25/2009 at 9:42am

If Congress enacts legislation currently in front of the House Ways and Means Committee, the current popular First Time Home Buyer Tax Credit will be extended beyond its current expiration date and greatly expanded.

HR 2801, Home Ownership Moves the Economy (HOME) Act of 2009, introduced by Howard Coble (R-NC) would continue the availability of the credit into 2010 and allow all home buyers to take advantage of the program. The credit is due to expire on December 1, 2009.

The current legislation grants a one-time credit of 10 percent of the home’s purchase price up to a maximum of $8000 to first time homebuyers or those buyers who have not owned a house in the last three years. Homebuyers can chose to claim the credit either retroactively on their 2008 return or on their 2009 obligation. If the buyer does not owe enough taxes to cover the credit the balance will be refunded to them in cash.

The full tax credit is available to U.S. citizens with incomes under $75,000 or $150,000 for couples filing jointly and a reduced credit applies to buyers with incomes up to $95,000 and $170,000.

Unlike an earlier housing stimulus program, the credit does not have to be repaid unless the homeowner sells the house in less than three years.

Congressman Coble’s legislation would remove both the income restriction and the requirement that the home be a first-time purchase.

There have been calls from a number of quarters, to extend the program to buyers who close on a house beyond the current December 1 deadline. The National Association of Realtors and the National Association of Homebuilders among other credit the program at least in part with the recent rebound in housing sales.

The homebuilders group has been urging its members to lobby for just such a program as that proposed by the Home Act claiming that were the tax credit to be extended one year and made available to all home buyers it would increase home sales by 383,000 units and create nearly 350,000 jobs.

end

WOW! Sounds like a great idea to spike home sales. As a mortgage lender I'm seeing a large increase in purchase loans in the past 45 days and many are 1st time homebuyers purchasing partly because of the tax credit. This is good information to know... thanks for reading MortgageAlli's blog!

How to win the credit score game.

To get the best deal on a loan, you need some new strategies to bump up your score - and keep it there.
By Carla Fried, Money Magazine contributing writer
August 24, 2009: 5:06 AM ET

Money Magazine) -- Borrowing money today requires impressing an increasingly hard-to-please crowd. With creditors of all kinds more cautious than ever, you need an A+ application to land the best terms -- and that means an A+ credit score, the number lenders use to judge your risk of default.

The most commonly used credit scoring system, called FICO, rates people from a very risky 300 to a pristine 850. And right now we're in the middle of a credit score crunch: "You need a 750 or better today to have the same treatment you got with a 700 two years ago," says John Ulzheimer, president of consumer education at Credit.com.

John D'Onofrio, CEO of Autoloandaily.com, seconds that: "Two years ago a 680 was enough to get a great car loan rate. Today it's often the minimum to qualify at all."

Think you're still in the clear? Don't be so sure. Lenders have been making changes that could cause your score to slip from excellent to average. Improve and protect your number with these strategies:

Learn your score. You have three FICO scores, based on your credit reports at the three credit bureaus: Experian, Equifax, and TransUnion. The numbers tend to be in the same ballpark, so pony up $16 to get one representative score at myfico.com. You can get an estimate free at Creditkarma.com. But the FICO score gives you a better sense of what lenders see.

Scout for mistakes. Your scores are only as good as the information they're based on. And a third of people who've pulled their reports have found errors, according to a Zogby poll. That's good reason to read your report.

When you buy your FICO score, you'll get a copy of the report it was based on. Get gratis histories from the other bureaus via annualcreditreport.com (you're entitled to one free from each bureau every 12 months).

Spot an error? Request a correction, following the instructions on the bureau's website. Let's say the size of a credit line was misstated or an account was mistakenly marked delinquent. Getting the error fixed could raise your score as much as 200 points, says Ulzheimer, who has also worked for Equifax and FICO.

Never, ever be late. As you'll see in the pie chart on the right, the biggest chunk of your credit score comes from your payment history. Just one late payment can shave 100 points off a 750-plus credit score, says Ulzheimer. Lenders can't tattle on you to the bureaus until you're 30 days past due, adds credit expert Gerri Detweiler. But don't risk it. For all your bills, enter recurring due-date reminders on your computer calendar.

Missed a payment? Get back on track within the next 30 days, and you should "get back the lion's share" of points lost, Ulzheimer says. More than 90 days late? The damage can stick for years. If it was a one-off lapse, call your issuer and plea for a good-will adjustment to your credit report. (It's a long shot.)

Remember the magic 20%. The second-biggest factor in your score is how much you owe vs. how much credit has been extended to you. The part of this that's easiest to finesse is your credit card utilization rate, or your total card balances compared with your total credit limits, as well as each card's balance relative to its limit.

Example: If you've charged $5,000 on cards and have $50,000 in credit, your rate is 10%. For the best score today, 10% is ideal, but you can probably creep up to 20% and keep a high rating.

Unfortunately, with banks lowering credit limits and canceling unused cards, it's harder to maintain such a low percentage. In the previous example, if your available credit is cut to $20,000, your rate shoots to 25%. That could sink your score by as much as 50 points, says Ulzheimer. The lesson: Know your limits, watch for changes, and stay under 20% on each card and in total (0% if you'll be applying for a loan soon).

Already above 20%? Paying down debt is the obvious way to lower your utilization rate, but another strategy is to apply for an additional credit card to increase your overall credit limit. That may cause you to lose a few points in the short term -- so don't do it if you're about to apply for a mortgage -- but it should pay off in the long run.

Keep oldest cards in play. As noted, credit issuers these days are eagerly canceling cards that are not in use. Besides reducing your limit and increasing your utilization ratio, having an account closed can hurt you in another way, especially if it's among your older ones.

See, 15% of your score rides on the length of your credit history. The longer you ably manage revolving debt, the better you look. So don't cancel your oldest cards. And don't let them get canceled on you: Move a recurring charge to each so they stay active.

Already ditched or been ditched? A new card (see previous) can help with your utilization rate, but there's little you can do to help the "history" component of your score, except to keep other old accounts in use.

Accept fate on the rest. There are other factors involved in your score, but they're not so easy to manipulate. For example, 10% is based on how well you manage a mix of credit types, such as mortgages, car loans, and credit cards. But you don't want to go out and, say, finance a car just for a score boost; besides, you can easily get 750-plus with just a few well-tended credit cards.

Along the same lines, 10% is based on "new credit," but the effects of a new application can be positive or negative, depending on your history.

In other words, if you want to be among the crème de la credit crème, accept what you can't change, and focus on what you can.

Bernanke: Economy could grow soon

Fed chief thinks there is a good chance for the economy to return to growth in near-term -- but the recovery could be slow due to continued high unemployment.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: August 21, 2009: 11:54 AM ET

NEW YORK (CNNMoney.com) -- Federal Reserve Chairman Ben Bernanke said that the U.S. economy is about to start growing again, although he cautioned it will be a slow recovery with continued high unemployment in the near term.

Speaking at an annual symposium in Jackson Hole, Wy., Bernanke echoed a statement made by the Fed earlier this month, saying that "economic activity appears to be leveling out, both in the United States and abroad."

Bernanke went a step further though, indicating that "prospects for a return to growth in the near term appear good."

But the central bank chief warned that problems remain in financial markets around the globe, and that with banks facing "substantial" additional losses ahead, businesses and consumers will continue to have trouble accessing credit.

"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels," he cautioned.

Fed watchers said they were not surprised by Bernanke's somewhat cautious outlook. They said the Fed chairman doesn't want to be pushed into raising interest rates or pulling back on other stimulus the Fed has pumped into the economy over the past year.

"The challenge he has now is that if he times the exit strategy too early, you risk a new recession a year or more from now." said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

But Sung Won Sohn, economics professor at Cal State University Channel Islands, said he doesn't believe that Bernanke is playing an expectation game.

Sohn thinks Bernanke is truly worried about a weak recovery, despite some forecasts of strong gains ahead. He said the Fed chairman is right to be concerned since consumers have yet to really resume spending.

"You need consumers to go on a spending spree. Even if they wanted to, they can't because they can't get the credit,"

But Sohn said there is a risk in Bernanke being too cautious in talking about a recovery because it can become a self-fulfilling prophecy.

"Clearly business people would think twice about hiring people based on his view the recovery will be sluggish," he said.

Still, investors chose to focus on the positive part of his outlook. Stocks moved higher as Bernanke's remarks, along with a stronger than expected home sales report, fueled even more hopes that the economy has hit bottom. The Dow Jones industrial average was up more than 140 points in late-morning trading.

Defending the bailouts
Bernanke spent much of the speech reviewing the economic crisis that unfolded last September in the wake of the bankruptcy of Lehman Brothers and near collapse of insurer AIG (AIG, Fortune 500).

He defended the actions of the Fed, Treasury Department and Congress, as well as major governments around the world, in their response to the crisis. He said those actions likely prevented the financial panic from plunging the world into a far more serious economic downturn, possibly even a depression.

Mortgage Rates are at 6 week LOW

There was nothing but good news in the Weekly Mortgage Applications Survey this morning. Average rates for a 30-year mortgage fell 23 basis points to a 6-week low at 5.15%, helping demand for purchases, refinancing, and new mortgages to all advance.
Demand for refinance-related loans climbed 6.9% in the week ending August 14, nearly erasing the 7.2% decline it had seen in the previous week. The fresh activity helped the Market Composite Index ― which tracks the volume of mortgage applications ― to advance 5.6% in the week, an encouraging contrast when compared to the 4-week average of -0.1%.

In addition, the Purchase Index continued to rise for the third consecutive week, jumping 3.9% to put the 4-week average at +1.5%. Since late February purchases have risen more than 10%.
“The large swings in mortgage rates over the past month have resulted in see-saw like activity in the Refinance Index,” the report said. “By contrast, the purchase activity has not been deterred by interest rate volatility, and has continued to trend gradually upward.”

“The market is finally turning the corner after a severe three-year slump,” said BMO analyst Sal Guatieri before the release. He and others are expecting the Existing Home Sales Index to report its fourth consecutive monthly increase on Friday, which would be the longest string of advanced in five years.
Mortgage rates vary across the country but the state average is below 5.5% ― an historically low rate ― in all 50 states. According to a report from Zillow.com published yesterday, lenders in Washington and California offer the lowest rates with an average of 5.25%, while rates in Illinois are currently the highest at 5.44%.

Brad Geisen, president of Foreclosure.com, said it is prices rather than mortgage rates that are causing the increase in activity. "Probably the biggest driving factor for home purchasing right now is price," he said. "During the housing boom, a lot of first-time home buyers were squeezed out of the market, but now property values have come down enough where they can afford it."

David Adamo, CEO of Connecticut-based Luxury Mortgage, also said recently that confidence was the driver of new sales, not interest rates. He added: "Once the general psychology of the market place returns to normal we will see the purchase activity substantially improve which will restore our housing market and overall economy."

Will the Government extend the $8000 tax credit past Nov. 30th 2008??

Why would the government extend the program?

While there has been no official word on extending the home buyer tax credit, many believe it will be continued past the current December 1, 2009 deadline. The reason behind this thinking is that the tax credit was originally issued to encourage buying activity. Bringing more buyers into the market should have a positive effect on demand helping to level home prices. Think of it this way, if the goverment's tax credit program brought buyers into the market that would not have otherwise purchased a home, they would be benefiting the demand side of a supply/demand relationship. One of the main reasons home values have declined (excluding the initial price correction itself) is because there is now more supply than demand on the market. This causes buyers to have an upper hand ("buyers market" = more sellers than buyers), and encourages sellers to lower their prices to attract the few buyers in the market. When one seller reduces their price it starts a chain reaction against other sellers in the same market with similar homes. The fastest way to stabilize home prices is by bringing more buyers to the market, which will then, in theory equalize supply and demand. This would cause home prices to flatten and potentially begin appreciating. The general thought is that the government may extend the program because we have not fully seen this happen. Extending the program would allow more time for buyers to take advantage of the program and hopefully fuel a stabilization of home prices.

Why would the government not extend the program?

Ultimately this is just the other side of the coin. If the government feels that it has accomplished its goal (to help stabilize the market), than there is no reason to extend the program. Whether or not this has happened is an opinion and is difficult to determine. What cannot be disputed is that home value declines have slowed dramatically over 2009, and in some markets values have begun to appreciate. Either way, we are unlikely to have any information as to whether they will extend or not until we are very close to the existing deadline. The government has a history of waiting until the last moment before deciding to extend or cancel programs (eg. 'cash for clunkers').

What does this mean to me?P

Plainly put, if you are on the fence about buying, get off and go buy. If you are simply holding out because you believe you may be able to get a better deal, and are risking a free $8,000 to do it, the risk is probably not worth the reward. If the government chooses not to extend we will likely not know that until the last week or so of November. The current program says you must be signed, closed, and transferred by December 1st. If you found out near the end of November that the program was not to be renewed it would be too late to find a home, negotiate an offer and close a loan. In the end you would not be able to capitalize on the program should they decide not to renew.

Additionally interest rates continue to be at or near historic lows, and the unseen factor in this is that a rise in rates of only .25% or .50% (which would still leave rates near historic lows) can wipe out all of your purchase price savings. In the end it is very likely that no one will know the fate of the home buyer credit until we are much closer to the deadline.

The answer is simple, now is a great time to purchase! Rates are at historic lows, the $8000 tax credit will pay YOU back come tax time and the market is still near or at the bottom in many areas of the country.

Possible Reprice Alert (for the worse) FYI...

Following a global sell in equities yesterday, prices of mortgage backed securities rose into a range not visited since late July. The rally in secondary markets helped mortgage rates fall to monthly lows. When this happens rates tend to drop as they did yesterday.

But will it last?

Although mortgage rates fell to previous August lows yesterday, it may not last long if stocks decide pessimism was unwarranted. There has however been a change in market sentiment. Fundamental economic releases, mainly consumer related data, should soon start to have more of an effect on mortgage rates.

Data Releases of the Day...

First out this morning from the U.S Department of Commerce was the monthly Housing Starts report. This data provides investors the monthly change in the number of new homes that have started construction. The number is reported on an annualized pace and recent reports have shown housing starts to be improving. This month economists’ expected this trend to continue.

The data shows that housing starts in July declined by 1% to an annualized pace of 581,000 following last month’s 6.5% increase. This is the first monthly decline in 3 months. On a yearly basis, housing starts are still down a whopping 37.7%! To give you a perspective on how far the new housing sector has fallen, during the peak of the housing boom housing starts was on an annualized pace of over 2 million units! This report does provide evidence of the housing sector to be bottoming but does not indicate an improving sector.

The final piece of economic data was the Producer Price Index which tracks the monthly change in the average price of a fixed basket of goods received by producers. If the costs of products purchased by producers are increasing, they tend to pass along that higher cost to the end consumer resulting in inflation. The report shows that inflation on the producer level declined sharply from last month further providing evidence that inflation is not a concern. Headline PPI declined by 0.9% while the core rate declined 0.1% both beating economists’ expectations.

After the data was released Treasury futures prices shot higher and MBS price followed suit. However, once again, it appears there is not much motivation in the market to drive MBS prices higher as trader's quickly took profits following the rapid price appreciation. It appears that we will continue yesterday’s trend of moving sideways in a range as the markets wait for confirmation of a new trend or correction back to previous price levels. ..we refer to this as "wait and see mode".

I mention often to my customers that each time rates have approached the current levels they don't remain there very long. If you can lock today under 5.25%, you should consider doing so as any indication of positive economic news can result in a quick and sudden move higher in mortgage rates.

Reports from fellow mortgage professionals indicate mortgage rates are mostly unchanged from yesterday (slightly higher). This places the par 30 year conventional rate mortgage in the 4.875% to 5.125% range for the most qualified consumer. In order to qualify you must have a FICO credit score of 740 or higher, a loan to value of 80% or less and pay all closing costs including one point loan origination/discount/broker fee. As always, you can elect to pay less in fees and secure a higher mortgage rate or you can pay additional fees to buy the rate lower.

As I've mentioned before good economic news is not good for Mortgage Rates. If you have a loan application that is unlocked now would be a great time to lock in!

Sorry I have been off the blog for a few days. Please contact me if you are ready to lock in your rate!!!
- MortgageAlli