Ilyce's Views You Can Use

A Few Reasons Why Now May Be The Least Expensive And Easiest Time To "Go FHA"

Wed, 15 Apr 2009 01:13:24 -0500

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:

The minimum downpayment requirement was raised by a half-percent to 3.5%
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)

What's Ahead For Mortgage Rates This Week : April 13, 2009

Mon, 13 Apr 2009 15:52:32 -0500

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:

A reputable analyst said banking-sector optimism may be premature
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

How To Know If Your Adjustable Rate Mortgage Will Adjust Lower

Thu, 09 Apr 2009 10:31:16 -0500

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.

April 15 Is 1 Week Away And 27 Million Taxpayers Have Yet To File. If You're One Of Them, Here Are Some Tax Tips

Wed, 08 Apr 2009 09:43:10 -0500

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.

How To Know If You're Eligible For A Making Home Affordable Refinance

Tue, 07 Apr 2009 19:55:49 -0500

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:

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%.
All refinances require income verification -- even if the original mortgage was a stated income loan.
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.

Can You Guess What Percentage Of Mortgages Are Still Paid On-Time?

Tue, 03 Mar 2009 09:28:53 -0600

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)

What's Ahead For Mortgage Rates This Week : March 2, 2009

Mon, 02 Mar 2009 13:50:52 -0600

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)

The Key Fact Missing From Today's Existing Home Sales Headlines

Thu, 26 Feb 2009 10:57:00 -0600

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)

The Relative Cost Of Owning Versus Renting Is Back At Historical Norms

Wed, 25 Feb 2009 10:53:21 -0600

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)

County-By-County: The 2009 "High-Cost" Conforming Loan Limits

Tue, 24 Feb 2009 15:07:49 -0600

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:

Cheaper money can spur new home demand, supporting home values.
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.

What's Ahead For Mortgage Rates This Week : February 23, 2009

Mon, 23 Feb 2009 13:15:37 -0600

Traders brushed off Tuesday and Wednesday's passage of the American Recovery and Reinvestment Act and the President's mortgage relief plan, respectively.

It showed how unsure markets remain about the stimulus package and its probable impact on the economy.

As a result, mortgage markets worsened last week, albeit slightly. It marked the 4th week out of five in which mortgage rates rose.

However, there were a few notable new items for American homeowners and home buyers last week:

The signed-into-law stimulus package includes a first-time home buyer tax credit
Additional banks joined the "no foreclosure" movement
Fannie Mae re-opened guidelines so that real estate investors can own and finance 10 properties, up from 4

Taken separately, these points aren't especially noteworthy. Together, however, they're very important.

In reducing the number of homes for sale while, in turn, spurring demand for them, last week's policy shifts should provide key support against falling home values nationwide. More buyers competing for fewer homes tend to make prices go up, after all.

This week, we'll see if buyers are responding. Two housing-related data points are released.

On Wednesday, it's January's Existing Homes Sales report. After soaring 6-plus percent in December, economists expect another big increase. This makes sense because falling prices make homes more affordable and banks are getting more efficient with selling foreclosed properties.

Then, on Thursday, the New Home Sales report hits the wires. It's expected to show little or no change.

As for mortgage rates, expect the same unpredictability we've seen since the start of the year. As Wall Street comes to terms with the various stimulus plans and the fate of our nation's largest financial companies, money will flow in and out of securities markets with fluidity and speed and that includes mortgage-backed bonds.

Rates should carve out a wide range this week. If you're not currently floating, consider locking in to avoid the risk of higher monthly payments.

(Image courtesy: Wall Street Journal)

What The Homeowner Affordability and Stability Plan Doesn't Mean To Homeowners

Fri, 20 Feb 2009 12:40:38 -0600

In Mesa, Arizona, Wednesday, the President presented the Homeowner Affordability and Stability plan, a multi-pronged effort to support the housing market.

The story made the front page of nearly every newspaper in the country.

The president's plan is sweeping:

Incent mortgage servicers to work with at-risk homeowners before delinquency starts
Let homeowners with good credit but little equity refinance to today's low rates
Fund Fannie Mae and Freddie Mac to support mortgage markets

It's a broad plan with many positive angles, but for now, we can't forget that it's just a plan. Although the White House shapes and influences housing policy, Congress, Loan Servicers, and the Federal Agencies must still implement and execute it. Until that implementation occurs, these reforms exist only on paper.

It's a key aspect of the speech that's not getting coverage.

One thing we learned during the stimulus package debate was that just because the President wants something to happen doesn't mean that it will. There are always details to be worked out and that's one reason why the Homeowner Affordability and Stability Plan couldn't go into effect immediately. There are still loose ends to tie and details to define.

According to its website, the White House lists March 4, 2009 as the plan's effective date. Until March 4, therefore, nothing in Wednesday's speech is guaranteed.

(Image courtesy: Birmingham News)

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Mandatory FHA Loan Fees Increase for Some, Fall for Others

Mon, 21 Jul 2008 10:03:30 -0500

The FHA risk-based pricing matrix For the first time in its history, the FHA changed its funding fees and mortgage insurance structure this week. FHA-insured home loans are now subject to a risk-based pricing adjustment, as shown by the table above.

Because of risk-based pricing, FHA home loans are now more expensive for borrowers with less-than-ideal credit profiles, and less expensive borrowers with perfect ones.

Prior to the changes, most FHA borrowers paid an up-front fee of 1.500 percent, plus on-going annual mortgage insurance payments equal to one-half-percent on the amount borrowed.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA program guidelines have remained loose. FHA allows 3 percent downpayments on purchases, for example, and allows "cash out" refinances to 95 percent. Fannie Mae and Freddie Mac do not.

(Image courtesy: FHA.gov)

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Tue, 26 Feb 2008 09:21:04 -0600

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You've Been Pre-Approved -- Now Get RE-Approved

Wed, 19 Dec 2007 10:21:40 -0600

Even if you've been recently pre-qualified (or pre-approved) for a mortgage, it may be prudent to get "re-approved".

The mortgage industry is changing quickly; being prepared beats the alternative.

Recently, mortgage lenders have made adjustments in what they will lend, and to whom. This shrinks the pool of eligible mortgage borrowers.

Some of these guideline changes include:

Low or no downpayment loans may require more income and/or assets
No income verification (i.e. stated) loans may not be available
Higher credit scores may be necessary to qualify

In addition to tighter guidelines, many mortgage lenders are now required to pass higher fees and/or mortgage rates along to their clients as well.

The burden of these mandatory extra costs will be the difference-maker in a mortgage approval for some mortgage applicants.

Getting re-approved can give home buyers a realistic sense of how mortgage financing may shape up in the changed mortgage environment. It's important to make sure that the mortgage plan still fits into your short- and long-term financial goals.

But, if nothing else, getting re-approved gives you the opportunity to speak with your real estate and loan officer about changes to the industry, and how it impacts you on a personal level.

Ilyce N. Powell is a Certified Mortgage Planning Specialist (CMPS) with the Carteret Mortgage Corporation. A member of the National Association of Responsible Loan Officers (NARLO) and the Financial Planning Association (FPA), she is also affiliated with the National Association of Mortgage Brokers (NAMB) and the National Association of College Funding Advisors (NACFA). Her goal is to educate as many consumers as possible in the hopes of stamping out financial illiteracy across the nation.

How to Squeeze Extra Tax Deductions from Your Mortgage In 2007

Tue, 18 Dec 2007 16:55:51 -0600

For most Americans (but not all), mortgage interest is tax-deductible in the year in which it was paid.

With some advance planning, therefore, a homeowner can increase his 2007 tax deductions by paying additional mortgage interest while the calendar still reads 2007.

The key is to make the mortgage payment due January 2008 a few days early.

Because mortgage interest is paid in arrears, a mortgage payment due January 1, 2008 accounts for interest that accumulated throughout December 2007.

Rather than make January's mortgage payment on January 1, 2008, a homeowner can send payment this week or next -- while it's still 2007 -- and increase the amount of mortgage interest paid in 2007. This can increase 2007's tax deductions.

Tax planning can be a complicated issue and not all homeowners qualify for mortgage interest tax deductions. Be sure to consult your tax professional before making any tax planning decisions. If you are without a tax professional, call or email me; I would be happy to make a trusted recommendation to you.

Mortgage Rates are Going Up -- But Not for the Reason You'd Expect

Thu, 13 Dec 2007 12:16:02 -0600

Conforming mortgages are getting more expensive -- but not because of mortgage rates.

To protect against further weakness in the housing sector, Fannie Mae and Freddie Mac are instituting "delivery fees" on all conforming mortgages, effective March 2008.

Fannie Mae's Adverse Market Delivery Charge and Freddie Mac's Market Condition Delivery Fee will add a one-time, quarter-percent fee to every home loan purchased from mortgage originators.

This means that on a $100,000 conforming mortgage, the borrower could:

Pay a $250 fee out-of-pocket
Accept a slightly higher interest rate that "finances in" the higher fee

Because the fee is in percentage terms, as the loan size increases, so does the fee. A $300,000 mortgage will carry a $750 fee, for example.

Unfortunately, mortgage borrowers may not get to choose on how they pay the extra cost. Many mortgage lenders are just adding it to their rate sheets.

Be aware, the 0.25% fee does not apply to all loans -- only to loans sold to Fannie Mae and Freddie Mac. This specifically excludes portfolio loans and sub-prime loans.

If you're not sure for what type of loan you are applying, be sure to ask.

Why Credit Card Holders May Benefit from The Fed's Actions Today

Tue, 11 Dec 2007 12:28:40 -0600

The Federal Open Market Committee meets today and will release a public statement at 2:15 P.M. ET.

It is widely expected that the FOMC will lower the Fed Funds Rate by at least 0.250%.

When the FOMC lowers the Fed Funds Rate, it is trying to "loosen" credit for American businesses and consumers. When credit is "looser", it is cheaper, and easier to procure.

Looser credit promotes spending and propels the U.S. economy forward.

By contrast, when the FOMC raises the Fed Funds Rate, it is trying to "tighten" credit which, in turn, slows down the U.S. economy.

The FOMC does not control mortgage rates, but it does have a direct impact on Prime Rate because (Prime Rate) = (Fed Funds Rate) + (3.000%).

Credit cards, construction loans and home equity lines of credit are all tied to Prime Rate and so interest rates are expected to fall on these loan types this afternoon.

The Week in Review (December 10, 2007): What to Watch For

Mon, 10 Dec 2007 14:13:09 -0600

Among lingering doubts about housing and credit markets, and a general uncertainty about the U.S. economy, the mortgage bond market tanked towards the latter part of last week.

As investors moved away from mortgage bonds, mortgage rates forcefully bounced off their two-year lows.

A major factor behind last week's run-up in rates is the market expectation for Tuesday's Federal Open Market Committee meeting.

Those expectations sharply shifted after Friday's strong employment report from the Census Bureau and dragged rates along with them.

Prior to the jobs report, markets were expecting that the FOMC would lower the Fed Funds Rate by a half-percent. After the report's data showed inflationary hints, though, that expectation changed to a quarter-percent.

This is important to mortgage rate shoppers because inflation is the enemy of mortgage bonds. Typically, as inflation rises, so do mortgage rates.

The FOMC adjourns from its one-day meeting Tuesday and will make an announcement to the markets at 2:15 P.M. ET. Expect volatility before and after the press release.

Currently, the Fed Funds Rate sits at 4.500%.

Also hitting the wires this week is the Consumer Price Index (Wednesday) and the Producer Price Index (Thursday). These two reports are closely tied to inflation, too, so if the readings come in hotter than expected, mortgage rates will move higher in response.

CPI is also known as "The Cost of Living" index. PPI is its "business" counterpart.

Appraisals are As Much Art as Science

Thu, 25 Oct 2007 06:26:38 -0500

The number of home valuation websites continues to grow.

A simple Google search for "How much is my home worth?" shows 118,000 results and seems to get larger month after month.

For home sellers, these programs can give a false sense of security (or insecurity!) about at what price a home should be listed for sale.

Computer programs can never replace the role of licensed home appraisers and that's because valuing a home is not as simple as providing some inputs (traits) in order to get some output (value). There is a "fuzzy logic" that computer programs just can't produce in the same way that appraisers and real estate agents can.

Even with tax records, recent sales data, and a full description of a property, valuing a home is as much "art" as "science".

There are "human" considerations that include neighborhood quality and curb appeal that a computer can't measure. Nor can a program take into account how a kitchen may require $20,000 worth of work to bring it "up-to-date" or inline with neighbors' homes.

Besides, the real value of a home is what somebody is willing to pay for it. Therefore, you can never truly know what a home is worth until it has sold.

So, while automated valuation tools are a good start to finding a home's value, they're not equipped to finish the job.

How the Stock Market is Directing Traffic for Mortgage Rates

Wed, 24 Oct 2007 02:22:31 -0500

As we talked about Monday, the stock market appears to be directing traffic for the bond market.

Monday was a flat day for stocks, and it was a flat day for bonds, too. Mortgage rates idled.

Tuesday, with no economic data hitting the wires, market participants looked for direction elsewhere.

Some likely candidates include:

The price of oil. If oil prices continue to rise, it will place inflationary pressure on businesses and consumers. That is bad for mortgage rates.
The value of the dollar. A recent rally in the dollar should attract foreign investors to the U.S. markets. That is good for mortgage rates.
Corporate earnings statements. Apple and American Express both showed well in Q3. A rally in the broader stock market will pull money from the bond markets. This is bad for mortgage rates.

Mostly, markets are taking very few risks in advance of the Federal Open Market Committee meeting next week. Momentum rules.

The Week in Review (October 22, 2007) : What to Watch For

Tue, 23 Oct 2007 06:23:19 -0500

Rising oil prices, weak housing data, and ongoing credit concerns pushed mortgage rates lower last week as investors sought safety for their dollars. Stock markets took losses and bond markets -- including mortgage bonds -- booked gains. Remember, when mortgage bonds go up in price, mortgage rates come down.

To understand why mortgage rates tend to drop when stock markets have a sell-off, we should look at the situation from an investor's perspective.

When lots of investors are selling stock positions, stock markets fall. The investors get cash in return for their sold securities. But cash doesn't offer much of a return on investment. So, investors look for "better" places to invest their cash.

The bond market usually fits the bill.

As more dollars enter the bond market, the relative demand for each type of bonds increases. With the higher demand, bond prices move higher, thereby pushing yields down. And mortgage bonds are just one type of bond that benefits like this -- there are municipal bonds, corporate bonds, and treasury bonds/notes, too.

This week, the biggest news will be Wednesday's release of the Existing Home Sales report, and Thursday's New Home Sales. Both are expected to show relative weakness from August's figures but because the weakness is expected, the news shouldn't move mortgage rates.

The biggest threat to mortgage markets this week will be changing expectations about the Federal Open Market Committee's meeting next Tuesday and Wednesday. If markets believe that the Fed will try to spur economic growth, expect money to flow back into stocks (at the expense of bonds) which will pull mortgage rates higher.

Just Because You Can Borrow From a 401(k) Plan Doesn't Mean You Should

Fri, 19 Oct 2007 09:15:37 -0500

According to the Wall Street Journal, the number of Americans taking loans against their 401(k) plans is increasing because most plans allow participants to borrow funds to purchase a home or to avoid foreclosure.

But just because the avenue is there, though, doesn't mean that borrowing from a 401(k) is a good idea.

Here's why: When you put money into a 401(k) plan, you use pre-tax dollars but when you repay a 401(k) loan, you use post-tax dollars.

Therefore, if your tax rate is 28%, it takes $1,388 of income to repay each $1,000 increment of your loan. Then, when you withdraw the funds at retirement, the money is taxed again.

Double-taxation is costly, but the other less-well-known impact of a 401(k) loan is that you can lose the long-term power of compounded interest on your entire portfolio.

This isn't to say that a 401(k) loan is bad, it just may not be right for you. So, if you're planning to withdraw from your 401(k), be sure to talk with a qualified financial professional first.

How Terrible Housing Data Can Actually Help Push Home Values Higher

Thu, 18 Oct 2007 18:45:59 -0500

Once again, the headlines may be misleading you. It's a good thing that Housing Starts dropped last month -- despite what the papers say.

A "housing start" is a new residence on which construction has started. Yesterday, the government released September 2007's Housing Starts data for the country.

There was a 10.2% drop in Housing Starts versus August 2007
There was a 30.8% drop in Housing Starts versus September 2006

The headlines are trying to tell us that this is bad news for the U.S. economy. On the contrary -- this is excellent news!

Determining a home's value is mostly based on Supply and Demand for that particular home. In its own neighborhood, an over-supply of like homes can be a significant drag on the value of all homes in the neighborhood This is a concept many people understand.

So, when builders stop adding new supply to the housing market -- on a neighborhood-by-neighborhood basis -- the existing demand for homes can "catch up" with the existing supply of homes. This can rebalance the Supply and Demand equation and place upward pressure on home values.

Many homeowners (and future homeowners) can agree that rising home values is a good thing. Rising home values creates wealth and opportunity.

So, just because the headlines read that the news is bad, that doesn't mean that it really is bad. Housing Starts are down and that is a good thing.

(Image courtesy: The Wall Street Journal Online)