The New Year is not yet one week old but that’s not stopping market “experts” from predicting what’s in store for 2009.

The calls on housing and mortgage rates run the gamut:

• Home prices have farther to fall
• Home prices have touched bottom
• Mortgage rates will dip
• Mortgage rates will rise

Put it all together and it’s clear that the experts have no better idea about the future than you or I.  Their guesses are educated ones, but they’re guesses nonetheless.

A terrific example of how poorly experts can predict the future comes from a Wall Street Journal performance analysis of 1,700 mutual funds. 

In 2008, only one earned a positive return.  That one fund represents zero-point-zero-six percent of all tracked mutual funds.  Surely, the fund managers of the other 99.94% didn’t expect to post negative returns on the year.

So, before you use predictions about the demise (or recovery) of the broader economy to make “personal economy” decisions, consider that the oft-quoted experts have a hugely better track record in analyzing the past than the future.

All we know for sure right now is that home prices are, in general, lower than at the time point last year, and mortgage rates are, too.  By 2010, both could be lower still.

Or they may not.

As part of the Economic Stimulus Act of 2008, Congress authorized a conforming loan limit increase in “high-cost” areas around the country. Versus the national conforming loan limit of $417,000, for example, a Manhattan home buyer could secure a 2008 mortgage for $725,000 and still be within “conforming” guidelines.

Effective January 1, however, those limits rolled back.  Conforming mortgages in the 59 designated high-cost regions are now capped at $625,500. 

In non-high-cost areas, the 2009 conforming loan limits remain unchanged from 2008.

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

Loans in excess of these dollar amounts are often called “jumbo”, or “super jumbo” home loans, depending on their size.  Jumbo home loans tend to be more costly than their conforming-sized cousins.

For its last move in an action-filled year, the Federal Reserve announced it will begin buying its pledged $500 billion in mortgage-backed securities next month.

For home buyers and mortgage rate shoppers, the timing couldn’t be better.

Because December 31 is one of Wall Street’s most thinly-traded days of the year, low volume is exaggerating the announcement’s impact on mortgage markets.

Mortgage rates are lower this morning.

However, you may not have much time to act.  Few mortgage lenders permit after-hours rate locking and bond markets close at 2:00 PM ET for the holiday.  If you miss today’s Fed-fueled low rates, markets re-open Friday for your second chance.

In a week defined by low volume and lack of conviction, mortgage markets idled ahead of the holiday last week.  Friday’s post-holiday action was even slower.

After falling for two consecutive weeks, mortgage rates held flat last week.

It’s somewhat surprising that mortgage rates didn’t rise considering the flow of negative economic news last week:

• Joblessness appears to be worsening
• Consumer spending sputtered
• The U.S. dollar is showing weakness

Lately, each of these elements has played a role in mortgage rate movement but it’s the last bullet point that could throw home buyers and refinancing Americans for fits. 

It’s because of the relationship between mortgage rates and the strength of the U.S. Dollar. 

All things equal, a strong dollar pressures mortgage rates lower whereas a weak dollar pressures mortgage rates up.  And, because the dollar’s recent beat-down has been swift, it wouldn’t be unexpected to see similar mortgage market movement at any time.

This week, like last, is interrupted for the holiday.  Regardless, there’s much going on.  Aside from two economic reports, there is nothing else for markets to digest and no planned speeches by members of the Fed.

Expect just a small number of traders to show up for work this week.  This means volume will be especially light.  But don’t be lulled into taking your eyes off the market — low volume on Wall Street is sometimes accompanied by high levels of volatility.

For now, mortgage rates are hovering near their 2008-lows.  Given the path of the dollar and low-volume trading, that could all change in a flash.

(Image courtesy: The Wall Street Journal)

With home prices falling across most parts of the country, investors in real estate are finding good value in certain rental properties.  Unfortunately, they’re also finding it harder to get approved for a home loan.

After getting stung by defaults, conforming mortgage standards for non-owner occupied home loans tightened dramatically last quarter.

One major change was the reduction in the total number of homes Fannie Mae or Freddie Mac will finance for any one borrower. 

Prior to the chance, the number of financed properties could be as high as 10.  Today, that number is 4, stinging investors with large real estate portfolios.  Going forward, buying properties isn’t the problem; financing them with conforming mortgage money is. 

Another guideline change mandates larger downpayments.

Versus early-2008, when a real estate investor could buy a home with 10 percent down, today’s investor is required to pay 15.  But, as an added wrinkle, few private mortgage insurers write policies against rental homes anymore, rendering the 15 percent downpayment insufficient.  The de facto requirement, therefore, is now 20 percent down.

And then came the fees.

As part of its “pay-for-risk” pricing model, Fannie Mae added mandatory fees to all of its investor property mortgages this year.  Based on loan-to-value, the fees are:

• 75% LTV or less: 1.750 percent of the borrowed amount
• 75.01 - 80.00% LTV : 3.000 percent of the borrowed amount
• Greater than 80% LTV : 3.750 percent of the borrowed amount

So, if your personal plan includes the purchase of investment properties in 2009, consider the impact that tighter conforming guidelines, larger downpayments and higher fees will have on your bottom line.

All things considered, now may be a good time to make that rental property bid.  Sure, prices may fall going forward, but increased acquisition costs may wipe out the long-term gains.

During the holiday season, retailers bombard shoppers with at-the-register offers to “open a charge card and save 15%“. 

It’s an immediate money-saver, but for Americans in the market for a new home loan, taking advantage of the in-store savings could be a long-term loser.

This is because new credit card applications are damaging to credit scores.  According to myFICO.com, “new credit” accounts for 10 percent of a credit score; recent applications may signal weakness in a borrower’s profile.

Meanwhile, conforming mortgage lenders make rate adjustments for low credit scoring applicants.  As an example, a home buyer with a 20 downpayment and a 715 credit score would face an interest rate adjustment of 0.125%. 

Below 700, the adjustments are even worse.

It’s okay to take advantage of in-store savings during the holiday season, but be aware of how it may impact your credit score.  If you’re not applying for a new home loan in the next six months, chances are you’ll be alright. 

But, if you will need a new home loan, consider whether saving 15 percent on a $200 purchase is worth it if the long-term cost is paying an extra 0.125 percent on your new mortgage.

(Image courtesy: myFICO.com)

When it comes to mortgage rates, sometimes it’s better to “act now”.

On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would “employ all available tools” to resuscitate the economy.

On Wednesday, however, the markets had second thoughts.

After considering the long-term implications of a near-zero percent Fed Funds Rate and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation — the enemy of low mortgage rates.

As a result, mortgage markets unwound.

At first, the exit was slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday’s big gains were erased.

In hindsight, the reversal Wednesday wasn’t all that surprising — it’s the same trading pattern we’ve seen twice already this year. The first time was after the Fed’s “surprise” rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.

Sharp rate drops tend to be followed by immediate bounce-backs, it seems.

But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that “waited for rates to go lower” are likely kicking themselves about it.

Going forward, mortgage rates may fall, or they may not. We can’t possibly know. But we’ve now seen the pattern 3 times — when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.

Sleeping on it for even one night may end up costing you dearly.

(Image courtesy: The New York Times)

Mortgage markets improved last week, riding a steady stream of negative news into its best levels of the year. 

Day-to-day, mortgage rates priced across a very wide range, but managed to close out the week lower overall.

Mortgage rates improving on “bad news” is a break from the trading patterns of September and October.  Back then, even the slight evidence of a recession caused mortgage rates to soar. 

Now, however, markets have accepted economic weakness and have started to look to the future.  Not even sagging retail sales and the rising ranks of the unemployed could quell market optimism. 

Indeed, the incoming administration may be leading the sudden sentiment shift; its stimulus package is expected to top $1 trillion over the next 24 months and put thousands of unemployed Americans back to work.  The widespread press coverage of this story may be one reason why Consumer Sentiment rose off its all-time low, despite the economic evidence that tougher times may still be ahead.

So, as markets shift their attention away from fundamentals and towards the government, mortgage rates are benefiting and refinance activity is gaining steam.

This week, the government should be the top story again.  On Tuesday, the Federal Open Market Committee will adjourn from its 2-day meeting and is widely expected to lower the Fed Funds Rate by a half-percent to an all-time low of 0.500 percent.  This move, too, is meant to stimulate the economy.

But it won’t be what the Fed does that matters; it will be what the Fed says. 

In the 2:15 P.M. press release, Fed Chairman Ben Bernanke is expected to outline measures by which the Federal Reserve will stabilize the economy.  If markets consider the moves to be “enough”, stock markets should soar and mortgage rates should suffer.  However, there may be specific verbiage for providing mortgage relief, in which case, mortgage rates would fall.

Other noteworthy data scheduled for this week include the Cost of Living Index and Housing Starts, but neither should matter much to mortgage rates.  For now, it’s all eyes on the government.

(Image courtesy: The Wall Street Journal Online)

A mortgage is a contract between a bank and borrower, defining the terms by which a home loan must be repaid. 

The paperwork, signed by both parties, includes provisions for things like:

• The interest rate
• The length of the loan
• The amount of money to be borrowed

But, like all loans, a mortgage loan can be paid off at any time.  So, when market interest rates fall, homeowners will often exercise their right to an “early payoff” by securing a new loan that pays off the old one.

This process is most commonly known as a refinance.

A refinance is the changing of the loan terms against a property, often for a better interest rate or a lower monthly payment.  When the refinance process is complete, the original lender’s loan is paid in full using the money from the new lender’s loan and the former’s relationship is officially terminated.

There’s no rule against how many times a person can refinance, nor is there an easy way to determine whether or not a refinance makes sense.  In general, if you can reduce your monthly payment while limiting your closing costs, to refinance is a smart decision. 

However, there are other reasons to refinance, too, including:

1. To convert from an ARM into a fixed rate mortgage (or vice versa)
2. To extract equity for paying off third-party debts or for cash
3. To extend a loan from 15 years to 30 year for payment relief

Because there are fewer third-parties involved with a refinance, it’s often simpler and less expensive than a comparable purchase transaction.  The paperwork stack is often smaller, too.

It’s the age-old question for home buyers in need of a mortgage:

Which is better: Fixed or ARM?

Historically, the answer has hinged on a homebuyer’s desire to meet one of two mutually-exclusive mortgage financing goals:

1. Get low mortgage payments for better cash flow
2. Get long-term payment stability for better budget planning

But because of government intervention and lingering questions about the economy, fixed-rate mortgages are now pricing cheaper than their adjustable-rate counterparts.

Based on today’s mortgage market, therefore, home buyers can get both.

Versus a comparable 5-year ARM, conforming fixed-mortgage rates are priced roughly 0.250 percent lower and have been over the past 19 days.  The quarter-percent difference equates to $33 saved per month on a $200,000 home loan.

Mortgage markets are ever-changing so rates we can’t know if this pricing anomaly will last.  But, while it does, the decision to choose fixed over ARM is a lot simpler.