Shopping for low mortgage rates is a game of luck. 

Some days, mortgage rates are favorable.  Other days, they're not.  And while you can sometimes make an educated guess about where rates might be headed, you're not always going to guess right.

Even the experts get it wrong more often than they'd like.

But some parts of the rate shopping process can be predicted and one of them is the future of mortgage guidelines. 

In general, the more often homeowners default on their respective mortgages, the harder it is for future mortgage applicants to be approved.

This is why "now" may be the best time to apply for a FHA mortgage.  Defaults are climbing, suggesting that FHA underwriting guidelines are about to tighten.

Indeed, the FHA has implemented two major changes since last summer:

1. The minimum downpayment requirement was raised by a half-percent to 3.5%
2. Cash out refinances are now limited to 85 percent, down from 95 percent.

These changes create barriers to entry for potential FHA borrowers, improving the overall quality of the FHA loan pool. 

For a taxpayer-funded agency like FHA, loan performance is an important goal.  Therefore, as the number of defaults grows, expect FHA guideline to get tighter.

The problem is, though, we can't predict just where the FHA will tighten.  Maybe the FHA raises its minimum FICO score requirement, or maybe it gets tough on seller-paid closing costs.  A hike in loan fees isn't out of the question, either -- that's the path Fannie Mae took, after all.

Whatever the FHA does, fewer people will qualify for FHA mortgages once it's done.  So, if you're planning to buy a home and your downpayment is limited, or your credit scores are suspect, or there's some other "red flag" in your profile, consider moving up your timeframe to act. 

Mortgage rates may rise or mortgage rates may fall, but neither is going to matter if you can't get qualified for a home loan.  And, for FHA mortgage applicants, tougher mortgage guidelines are only a matter of time.

(Image courtesy: The Wall Street Journal Online)

For the second week in a row, mortgage markets started the week strong and then ended with a fizzle.  In the holiday-shortened week, rates were exactly flat overall.

There wasn't much economic data to move rates last week, incidentally. The market's up-and-down action was largely based on two events:

1. A reputable analyst said banking-sector optimism may be premature
2. Wells Fargo reported a record $3 billion in first quarter earnings

It was the first item that dropped rates Monday and Tuesday; the second item, in part, led them back up.

This week, data returns.

Tuesday, we'll get a look at Retail Sales.  Because consumer spending accounts for two-thirds of the economy, a lower-than-expected figure for Retail Sales would dampen Wall Street's current optimism for the U.S. and that would likely lead mortgage rates lower.

Next, on Wednesday, the government will release a closely-watched "cost of living" measurement called the Consumer Price Index.  At its roots, CPI is an inflation gauge for the economy so -- because inflation is bad for mortgage rates -- a higher-than-expected CPI number is expected to push mortgage rates higher.

Then, on Thursday, Housing Starts is released. 

Housing Starts measures the number of new homes on which the nation's builders broke ground last month.  If starts are up, it may mean that builders are optimistic for housing -- a good sign for the economy.  However, if starts are down, it should help reduce housing inventory over the next few months -- also a good sign for the economy.

Meanwhile, 3 of the country's biggest financial firms -- Goldman Sachs, JPMorgan Chase, and Citigroup-- are due to release first quarter earnings this week.  If the filings show strength like Wells Fargo's did, expect mortgage rates to rise like that did after the Wells Fargo report.  What's good for stocks right now may prove to be bad for mortgage rates.

Goldman Sachs reports on Tuesday, JPMorgan Chase on Thursday and Citigroup on Friday.

(Image Courtesy: Wall Street Journal Online)

Ilyce N. Powell, CMPS®
Certified Mortgage Planner and Financial Strategist
(866) 458-1654
http://www.ilycepowell.com
http://www.ownfreeandclear.info

When conforming mortgages adjust, they're often tied to an interest rate index called LIBOR.

LIBOR is an acronym for London Interbank Offered Rate. But what LIBOR stands for isn't as important as the role it plays.

LIBOR is an interest rate at which banks borrow money from each other.  Therefore, when banks feel the banking system as a whole is unsafe, LIBOR rises to compensate. 

It's why LIBOR spiked last October after Lehman Brothers failed.  Financial institutions wondered what other institutions would fail and that added risk to the system.

Since October, however, and because of massive government interventions worldwide, LIBOR has been on a steady retreat.  Moreover, with close to $30 billion in conforming mortgages scheduled to adjust by Labor Day, the timing couldn't be better for homeowners with conforming ARMs.

Typically, a Fannie Mae- or Freddie Mac-backed mortgage adjusts once annually.  The adjusted interest rate is always equal to some constant -- usually 2.250 percent -- plus the rate of LIBOR on the date of adjustment.

As a math formula, the ARM formula might like this:

New Mortgage Rate = LIBOR + 2.250 percent

In October, when LIBOR was above 4 percent, a homeowner's ARM may have adjusted to 6 1/2 percent.  Today, that same ARM would move to four-and-a-quarter.

As a strategy play, it might make sense to let your ARM adjust because the rate will remain low, but with fixed rate mortgages hovering near 5 percent, locking up a long-term rate may be smart, too.

Talk to your loan officer to review all of your choices.

There are 138 million taxpayers in the United States and, according to the IRS, 20 percent of them file their taxes within 7 days of April 15.  In a holiday-shortened week, that means that 27 million people had better get a move on.

And while a portion of this year's last-minute filers will file with storefront operations like Liberty Tax Service or H&R Block, many others will self-prepare with the help of tax software from TurboTax or TaxCut.

If you're a member of the do-it-yourself crowd, consider taking a review of this year's tax law changes before starting your returns.  The stimulus package signed into law this past February made a profound impact on tax liability and the list of changes may be helpful for you.

A few of the new, allowable income tax deductions for 2008 include:

• Mortgage debt forgiveness in the event of a short sale
• An additional standard deduction on real estate taxes paid
• $8,000 tax credit for homes bought since January 1, 2009

TurboTax offers 4 tax filing choices online, ranging in price from $100 to free.  If you're among the 27 million yet to file, choose whichever program fits best -- just choose it before April 15.

Filing could take several hours.  Plan accordingly.

April 4, 2009, marked the official start of the Making Home Affordable refinance program.

Expected to help 5 million homeowners, the Making Home Affordable program "looks the other way" with respect to falling home values, approving mortgage applications based on borrower payment history and benefit to the homeowner.

Not every homeowner is eligible for a Making Home Affordable refinance, however.  There are 3 basic criteria that must be met.

First, your existing home loan must be backed by either Fannie Mae or Freddie Mac.  Thankfully, both companies provide online lookup services.  Start with the Fannie Mae site because Fannie has a greater market share and because Freddie Mac's site requires your social security number.

Next, you must have a perfect mortgage payment history over the last 12 months.  Even one payment made 30 days late disqualifies you from participating in the Making Home Affordable program.  It is okay, however, if you were 20 days late on your payment and incurred late fees.

And lastly, the balance on your mortgage cannot exceed your home's value by more than 5%.  The math formula is (Mortgage Balance) / (Home Value).  If the quotient is greater than 1.05 then your loan-to-value exceeds 105% and you are not eligible for Making Home Affordable.

Now, assuming you meet the criteria, there are some noteworthy details of the Making Home Affordable program:

1. If you didn't pay mortgage insurance prior to refinancing, you won't have to pay it after refinancing -- even if your loan-to-value exceeds 80%.
2. All refinances require income verification -- even if the original mortgage was a stated income loan.
3. Second mortgages cannot be paid off using loan proceeds -- they must be subordinated

There are other guidelines, too, and both Fannie Mae and Freddie Mac have dedicated portions of their website to the Making Home Affordable program. To the layperson, unfortunately, the information may be a bit technical. 

Even the government's fact sheet can be a little dense at times.

Therefore, if you have specific questions about the Making Home Affordable program and your own eligibility, first check to see if Fannie or Freddie is backing your loan.  If they are, pick up the phone and call your loan officer to plan next steps.

The program ends June 10, 2010.

Mortgage delinquencies are on the rise nationwide, but the news may not be as bad as it appears at first glance.

Using anonymous data from its national credit database, TransUnion reports that 4.58 percent of American homeowners were at least 60 days past due on mortgage payments last quarter.

Comparing the statistic to the data from a year ago, the credit reporting agency goes on to say that mortgage delinquencies are up 53 percent.

Although fair, the comparison carries a distinct, negative connotation because if we flip the data to its positive, the statistics don't seem nearly as menacing.

Consider: In the last quarter of 2008, 4.58 percent of homeowners were delinquent on their respective mortgages.  The positive sign, therefore, is that 95.42 percent of homeowners were not delinquent on their home loans.

Furthermore, in looking at TransUnion's data for the 5 largest states in the Union, it's clear that the national delinquency rate is being skewed by California and Florida.  New York and Texas, for example, exhibit delinquency rates below the national 4.58 percent marker.

North Dakota's delinquency rate hovers near 1 percent.

Headlines are designed to attract eyeballs and nothing else. To get the complete story, therefore -- the real story -- it never hurts to dig a little deeper into the facts.

(Image courtesy: TransUnion)

Mortgage markets worsened last week, taking interest rates with them. 

A steady drip of sour economic news plus concerns about the banking system outmuscled Fed Chairman Ben Bernanke's congressional testimony in which he said the recession would likely end later this year.

Overall, mortgage rates have risen in 9 of the last 12 trading days.

This week, it's unclear in what direction mortgage rates will go. However, it won't be because of a lack of action.

The week starts with the 8:30 A.M. ET release of the Personal Spending report, a closely-monitored report that should make a broad market impact.  Economists expect that spending increased in February, providing key support for economy. 

If economists are wrong, though, and spending fell, it will cast doubt on the speed at which an economic recovery will occur. Consumer spending, after all, makes up two-thirds of the economy. No spending means no recovery.

Next, on Wednesday, the White House is expected to release the details of the Homeowner Affordability and Stability Plan.  Again, markets are watching for the broader impact of the news.  If analysts and traders deem the plan effective, watch for stock markets to improve and bond markets to weaken. 

This would cause mortgage rates to rise.

Then, Friday, we'll get to see February's official jobs number. Job loss is expected to exceed 600,000 for the month and unemployment may reach 8 percent.  On many levels, if the jobs data meets the expectations, it would be okay with respect to mortgage rates. 

As always, it's recommended that you float your mortgage rate cautiously.  Wall Street is nervous for its turf and hyper-sensitive to Beltway influence.  Markets can change in an instant and when they do, they usually change for the worse.

This week, have a game plan. It'll be easier to take advantage of daily mortgage rate movement.

(Image courtesy: USA Today)

In reading the headlines this morning, you'd think that last month's Existing Home Sales figure signaled more trouble ahead for the housing market. 

Quite the contrary.

Beyond the attention-grabbing headlines is the real story;  the one that shows -- once again -- that housing market fundaments are coming back into balance.

As home values tick lower, it appears, value buyers are stepping in and snapping up supply.  It's true that the number of homes sold fell to its lowest levels in 12 years, but we can't ignore the fact that the number of homes available to buy fell, too.

• Banks have put the brakes on foreclosures
• Economic uncertainty is reducing job-related relocations
• Builders have all but stopped building new homes

The national housing supply is as low as it's been in more than a year.

Based on the current rate of sales activity, the national housing supply would be 100% sold in 9.6 months -- a two-month improvement from the high point set in June 2008. 

Demand for homes is expected to rise, too:

• The Federal Reserve is trying to hold mortgage rates low
• Fannie Mae is opening its checkbook to real estate investors
• The stimulus package is granting tax credits to first-timers

So, it's not that the headlines are wrong; it's just that they're incomplete. 

In looking at all of the data and not just one sliver of it, we can find hope. Falling supply plus rising demand leads home values higher and that's the basis for a recovery.

(Image courtesy: Wall Street Journal Online)

One popular housing theory is that --  before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.

If that belief is a truth, a national return to rising home prices may be in store for 2009. 

Falling home prices coupled with falling mortgage rates, too, have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.

This is the exact 18-year historical average and not since 2001 has the gap been this small.

As reported by the Wall Street Journal, though, the study has some flaws.  For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies. 

But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.

This, too, is thought to be a key element of the housing recovery.

In many markets (but not all), home prices are expected to edge lower through 2009.  Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

(Image courtesy: Wall Street Journal)

As part of the stimulus package passed last week, Congress authorized a temporary increase to conforming loan limits in certain high-cost parts of the country.

"High cost" is defined by a regions' median sales price.

With the temporary increase, a greater share of Americans can now qualify for Fannie Mae- and Freddie Mac-backed loans, usually the least expensive source for mortgage money.

Higher loan limits can be good for the housing market and the broader economy for two reasons:

1. Cheaper money can spur new home demand, supporting home values.
2. Higher loan limits render more homeowners refinance-eligible, freeing up cash for spending, saving, or investing.

The complete county-by-county loan limit list is available on the OFHEO website. 

Of the 3,232 U.S. counties, 10 percent are considered "high-cost".  Residents of these areas can expect the same low rates offered to the rest of the country, but with a slight premium.  Be sure to ask your loan officer about how it works.