DAILY- - -The Mortgage Report -- David Buckman, Mortgage Blogger

Some People Were Thrilled To Watch The Stock Market Fall Below 10,000

Tue, 07 Oct 2008 08:30:00 -0700

Monday, the Dow Jones Industrial Average closed below the psychologically-important 10,000 level for the first time since 2004.

Despite the milestone-marker breach, however, there was a large group of Americans with reason to cheer. As stocks sold off, mortgage markets rallied to the benefit of home buyers and mortgage rates shoppers everywhere.

Conforming mortgages rates improved yesterday.

Most interesting here is that rates improved for the same reason that the stock market fell. Because of lingering concerns about the worlds' economies, investors lost their collective appetite for risk Monday. In response, they sold their stock positions and parked the proceeds in the "safe haven" of U.S. government-backed debt.

The extra demand for safe investments pushed up the prices on mortgage bond which, in turn, pushed down mortgage bond rates.

Now, we can't predict when the market's risk appetite will return, but when it does, expect money to flow into stocks just as quickly as it left.

All year long, with respect to stock markets, it's been either "everybody in" or "everybody out" and, for now, it's everybody out. This is why mortgage rates fell Monday.

But, when the momentum shifts -- and it will shift -- mortgage rate shoppers would do well to be prepared. Be ready to lock that mortgage rate because as soon as the stock market reverses course, mortgage rates will head higher.

And if stocks recover as quickly as they tanked, expect mortgage rates to spike badly.

(Image courtesy: USA Today)

Looking Back And Looking Ahead : October 6, 2008

Mon, 06 Oct 2008 08:30:00 -0700

Congress approved the $700 billion "Bailout Bill" Friday, answering the question that dogged mortgage markets all week long:

Will they or won't they pass it?

The uncertainty prior to the vote created huge market swings that ultimately sent the Dow Jones Industrial Average to its worst week since the 2001 terrorist attacks, while causing similar damage in the mortgage markets.

Mortgage rates worsened for the third straight week last week.

However, if we take the congressional vote out of the picture and look strictly at last week's data, we would have expected mortgage rates to fall instead of rise.

For example, the economy shed another 159,000 jobs, bringing the 2008 total to 760,000 lost jobs. This reduces the likelihood of inflation and is normally good for mortgage rates. In addition, the U.S. dollar had its strongest week ever against the Euro. This usually attracts buyers to the mortgage bond market, driving down rates.

And third, Fannie Mae eliminated one of its mandatory loan fees. This improves mortgage bond pricing for borrowers, ultimately leading to lower rates.

But, mortgage rates rose didn't fall last week and that shows how deep the economic uncertainty really ran. And this week, with the bill now passed into law, we would expect the market to turn its attention back to fundamentals. But it can't.

Unfortunately, there's no new data for release this week so, in the absence of data, markets should take their cues from the following sources:

The 8 scheduled Fed speakers, including Bernanke on Tuesday
Wednesday's Pending Home Sales report
Persistent rumors of a "surprise" Fed Funds Rate cut

Regardless of to what markets react, though, be prepared for them to react swiftly and for mortgage rates to dip and spike -- often in the same day.

In other words, a mortgage rate quote from the morning is likely to be "expired" by the afternoon so if you see a rate and payment that you like, consider locking it. It likely won't last long.

Fannie Mae Halves One Of Its Mandatory Loan Fees

Fri, 03 Oct 2008 09:08:00 -0700

In an effort to provide "the most market support possible", Fannie Mae is cutting one of its mandatory loan fees by 0.250 percent, effective immediately.

Fannie Mae introduced the Adverse Market Delivery Charge in December 2007 to offset foreclosure and delinquency losses. The initial fee was a quarter-percent of the amount borrowed.

Then, as market conditions worsened, Fannie Mae doubled its across-the-board loan fee to 0.500 percent in August of this year.

As of today, the fee is back to its starting point.

Since the start of the 2008, Fannie Mae has made 21 separate changes to its mortgage guidelines. Most have been detrimental to borrowers, increasing the difficulty, or the cost, of qualifying for a conforming home loan.

Today's change is among the few that are beneficial.

This morning, mortgage pricing is edging higher because of the looming Congressional vote and Wall Street's reaction to the weak jobs report. The good news is that price changes could have been worse.

Fannie Mae's Adverse Market Delivery Charge flip-flip is keeping rates from rising as high as they might have otherwise risen today.

The Pros and Cons Of Making A 401(k) Hardship Withdrawal

Thu, 02 Oct 2008 07:30:00 -0700

As household budgets get pinched and credit markets tighten, a growing number of Americans are making "hardship withdrawals" from their 401(k) plans.

One major fund group cites a 15 percent increase in activity from this time last year for various reasons including staving off foreclosure and medical emergency.

However, 401(k) loans should only be made with careful consideration.

On the positive side, 401(k) loans don't require a credit check. This is helpful feature for people deep in debt, and who may have missed a payment or two to their creditors. With no credit score requirement, a poor payment history won't disqualify a plan participant.

In addition, most 401(k) loans can be arranged with just a phone call and a small stack of paperwork. There's no "qualification process" like applying for a credit card or a mortgage. Money can be available, therefore, in as little as a day.

But there are negatives to 401(k) loans and the biggest one relates to taxation.

If you take a 401(k) loan and can't repay according to its terms, the IRS taxes the loan as ordinary income and slaps on a 10 percent penalty if you're under 59 1/2. That can be very costly for a lot of people.

But, even if you do repay the loan on time, it's still gets expensive. This is because 401(k) loan repayments are subject to double-taxation.

The first taxation occurs when the loan is repaid because the payback is made with post-tax paycheck dollars. A person in the 25% tax bracket, for example, would need a $1,333 paycheck to repay a $1,000 loan -- the missing $333 goes to taxes.

And the second taxation occurs at retirement when the funds are finally withdrawn. The IRS taxes that money as ordinary income.

Now, this isn't to say that taking a loan against your 401(k) is bad, it just may not be the best possible route for a person in trouble. Especially because of the costs. If you're planning to withdraw from your 401(k) for hardship, be sure to talk with a qualified financial professional first.

If you'd like a referral to a trusted professional, call or email me anytime.

Mortgage Rates Are Headed Higher AND Lower -- Quickly

Wed, 01 Oct 2008 09:11:00 -0700

Monday, after the House of Representatives defeated the Emergency Economic Stabilization Bill of 2008, the stock market fell in historic fashion.

The Dow Jones Industrial Average closed down 777.68 points, its largest one-day point loss ever.

By Tuesday, however, optimism had returned to Wall Street.

Assuming that the bill would pass in some form, investors poured back into the stock market, driving prices up. Again, in historic fashion -- Tuesday's gains were the third-largest on record.

The stock market activity is highly relevant to mortgage rates right now because when investors flee the stock market, they're often parking their money in bonds.

In general, that causes mortgage rates to fall.

But, by contrast, when investors regain their appetite for stocks, as they did Tuesday, they move back into the market, "unparking" their bond money. This causes mortgage rates to rise.

Both Monday's and Tuesday's dramatic action points to the speed at which market conditions can change, taking mortgage rates with them. Wall Street's back-and-forth mentality has been one of the reasons why mortgage rates have bounced so wildly since July.

We can't predict if rates will fall or rise going forward, but if the stock market is any sort of a clue, in whichever direction rates go, they're going to go there quickly.

How Mortgage Rates Responded To The "No" Vote On The Bailout Bill

Tue, 30 Sep 2008 08:33:46 -0700

Monday afternoon, the U.S. House of Representatives defeated the $700 billion "Bailout Bill", surprising Wall Street and the world.

The Dow Jones Industrial Average responded by falling 777.68 points -- its largest one-day loss in history and, this morning, every newspaper in America is covering the story as front page news.

Lost in the coverage, however, is how the "No" vote created a terrific opportunity for mortgage rate shoppers.

Yesterday, as money fled the tanking stock market, most of it ended up getting parked in the relative safety of government-backed bonds which includes, of course, the mortgage bonds. This rising demand for mortgage bonds caused rates to fall.

To investors, stock markets represent risk and bond markets represent safety. So, when market sentiment changes, as it did yesterday, Wall Street players often shift their dollars from one forum to the other. This is why yesterday's stock sell-off was good news for mortgage rate shoppers -- the added demand for "safe" securities drove down rates.

Conforming mortgage rates were lower by about an eighth-percent Monday.

Now, today, mortgage rates are opening flat, suggesting that markets are in a Wait-and-See Mode. Wall Streets knows that the defeated bill will re-emerge later this week and, when it does, expect traders to respond accordingly.

If the new-look bill is viewed as favorable to U.S. businesses without harming taxpayers, expect stock markets to improve and mortgage rates to rise. If the bill fails to accomplish that goal, however, expect mortgage rates to improve.

Looking Back And Looking Ahead : September 29, 2008

Mon, 29 Sep 2008 08:45:00 -0700

Mortgage rates bounced around last week, ending up worse overall. It was the second straight week in which rates deteriorated. Sentiment was driven largely by the proposed Emergency Economic Stabilization Act of 2008 -- a.k.a. The $700 Billion Bailout.

The good news is that Congress drafted its bill Sunday evening and within the 110 pages, there is an important clause that should be good for mortgage rates.

On Page 40, it says, summarized:

The U.S. Treasury gets $250 billion up-front
It must ask the President to approve its next $100 billion
And Congress must approve the remaining $350 billion

In other words, the U.S. Treasury checkbook is not "open". By limiting the Treasury's spending to $250 billion up-front, with the next $450 billion subject to third-party approval, some of the market's inflation concerns from last week should ease, providing downward pressure on mortgage rates in general.

But, that said, there's a few important data releases this week that could counter-effect these improvements.

First, on Monday, it's September's Personal Consumption Expenditures data. The report sounds fancy with a name like Personal Consumption Expenditures, but it's really just a Cost of Living measurement, adjusted for human behavior.

For example, if whole grain cereal gets too expensive, PCE assumes that Americans will substitute for another breakfast food. This is one reason why PCE is the Fed's preferred measure of inflation.

If PCE is higher-than-expected, it's considered to be a signal of inflation and mortgage rates should rise.

In addition, on Friday, the jobs report is released. It's widely expected that the September's job growth was negative (for the 9th straight month) and that unemployment remained in the 6.000 percent range.

Rates up or down, it's too hard to predict. Therefore, if you see a mortgage rate with a comfortable accompanying payment, consider locking it in.

With as fast as markets have moved this year, you can be pretty sure the rate -- whatever it is -- won't last for long.

(Image courtesy: The Wall Street Journal Online)

If My Mortgage Lender Fails, Are My Payments Still Due?

Fri, 26 Sep 2008 09:10:00 -0700

Thursday, federal regulators seized mortgage lender Washington Mutual. The Seattle-based thrift became the third "big name" lender to close its doors since July, joining IndyMac and Lehman Brothers.

In 2007, these 3 lenders represented about 10 percent of the mortgage market and their subsequent failures are confusing American homeowners.

The most prevalent question:

If my mortgage lender fails, are my payments still due?

And the answer is an unequivocal "yes". If a mortgage lender is seized, goes bankrupt, or is otherwise closed, it doesn't change the terms of the bank's mortgages whatsoever -- just maybe the mailing address.

This is because a mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It is binding and cannot be altered by either party. The only way to "end" the contract is to pay the loan in full.

This can happen in one of 3 ways:

The home is sold and the mortgage is repaid
The home is refinanced and the mortgage is repaid
The home loan is paid down to $0 balance by the homeowners

So, if a mortgage company fails, its doesn't cause the loan to be paid-off and, therefore, the mortgage contracts is still valid. Payments are still due.

However, because its mortgages are an asset, the failed lender will usually transfer them to a new lender's servicing department. This means that homeowners will write the same check for the same mortgage but to a different company.

To reduce confusion around transactions like this, the government puts two safeguards in place. First, it requires the former lender to send a 15-day advance notice of the change to the homeowner. And second, it requires the new lender to do the same.

In situations like this, the onus is ultimately on the homeowner to open and read his mail, and make changes accordingly. It's especially important for people who pay their bills online as opposed by paying them manually; you likely won't get notified if you're sending payments to the wrong place.

Falling Home Supplies Are Bad News For Home Buyers (But Good News For Home Sellers)

Thu, 25 Sep 2008 09:35:00 -0700

The August Existing Home Sales report was released Wednesday, showing a decline in the number of homes sold nationwide, and a reduction in the median sales price.

Not surprisingly, the media singled these two statistics out, playing them as a big negative.

They're not.

The decline in sales wasn't good, but it wasn't terrible, either -- sales were actually up in half of the regions around the country.

And, citing "median sales price" is somewhat pointless because median sales price only measures the price point at which half the homes sold for more, and half sold for less.

No, it's the third statistic in the report that deserves as much -- if not more -- attention that the previous two. According to yesterday's press release, the national home supply is decreasing.

This is terrific news for home sellers.

In its report, the National Association of REALTORS said that the nation's existing supply of homes for sale fell by 7 percent in August.

At the current pace of sales, that represents a 10.4-month supply, down from 10.9 months in July. With a reduced supply of homes for sale, all things equal, home prices would increase.

This is Supply and Demand in its most basic form.

Economists and experts have long noted that reducing the housing supply is one of the key elements to a sustainable housing recovery and we've seen several indications that this is happening, including builders not building as much.

Longer-term, this is good news for home sellers because a reduction in housing supply tends to lead to higher prices.

(Images courtesy: The Wall Street Journal Online)

FHA Makes Homeownership More Affordable -- But Not Until October 1, 2008

Wed, 24 Sep 2008 09:35:32 -0700

Earlier this year -- and for the first time in its history -- the FHA changed its funding fees and mortgage insurance structure.

Effective October 1, 2008, it's repealing those changes.

Partly to keep FHA home loans affordable, and partly to comply with new laws, the FHA is rolling back its up-front fees and ongoing mortgage insurance requirements and replacing them with new ones.

The new up-front FHA fees are as follows:

1.750% : All purchase and "standard" refinances
1.500% : All "streamline" refinances
3.000% : All FHASecure programs for delinquent mortgagors

These fees are paid as a one-time cost at closing, and are calculated by multiplying the loan size by the fee. A $200,000 FHA purchase, for example, now carries a $3,500 one-time charge.

Ongoing mortgage insurance requirements have changed, too. These changes are based on the loan type and the amount of equity in the home.

15-year fixed with 90% borrowed or less: 0.000% annually
15-year fixed with more than 90% borrowed: 0.250% annually
30-year fixed with 95% borrowed or less: 0.500% annually
30-year fixed with more than 95% borrowed: 0.550% annually

Mortgage insurance premiums are calculated by multiplying the initial loan size by the annual premium. The same $200,000 FHA purchase outlined above, using a 95% 30-year fixed mortgage, would require a monthly mortgage payment add-on of $83.33 until the loan is paid in full.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA guidelines have remained relatively loose. FHA allows 3.500 percent downpayments on purchases, for example, and allows "cash out" refinances to 95 percent.

Fannie Mae and Freddie Mac do not.

What Happens To Mortgage Rates When Crude Oil Adds $25 In One Day

Tue, 23 Sep 2008 07:41:04 -0700

Crude oil prices jumped $25 at one point Monday, ending the day up by 16 percent.

This is an unwelcome development for home buyers because the same market forces that pushed up oil prices had a similar impact on mortgage rates.

It all comes down to the U.S. dollar.

Because both crude oil and mortgage-backed bonds are denominated in dollars, the fate of both instruments has been closely tied to the greenback lately.

With respect to the mortgage market, when the dollar has been strengthening, rates have tended to fall. And, when the dollar has been weakening, mortgage rates have tended to rise.

Yesterday, the U.S. dollar had its worst one-day performance against the Euro in history so it only follows that conforming mortgage rates spiked. Across the board, they added about a quarter-percent.

Add this quarter percent to the run-up from last week and conforming mortgage rates are now close to 0.750% higher than where they were last Monday, further evidence that how quickly the market can move.

(Image courtesy: GasBuddy.com)

Looking Back And Looking Ahead : September 22, 2008

Mon, 22 Sep 2008 08:30:00 -0700

In a historic week for American Finance, mortgage rates rose considerably, reversing a 3-week trend through which rates had fallen.

The U.S. Treasury is the biggest reason why most conforming mortgage rates increased by a half-percent.

Hank Paulson's government group helped to restore investor confidence that had steadily eroded from concern to fear since July 2007, before succumbing to outright panic last week.

Wall Street nerves were so frayed that at one point Wednesday, yields on government bonds were actually in the negative; investors were paying the U.S. government to hold and protect their money in exchange for a guaranteed loss of investment.

After the Treasury's interventions, however, a sense of normalcy returned to Wall Street. Money poured back into stocks, siphoned from the bond market and that pushed rates higher.

This week, it's anybody's guess what will happen.

From a data perspective, it's light -- there's Existing Home Sales, New Home Sales, and not much else. From a policy perspective, however, the week is heavy:

Congress is expected to authorize "hundreds of billions" for market support
Ben Bernanke and Hank Paulson will testify before the Senate Banking Committee
7 members of the Fed are making public appearances

With so much rhetoric, it's difficult to predict how mortgage rates will perform this week. The stock market may be the best predictor of rates.

If stocks are up, risk-taking is back in vogue and the bond market should suffer, pushing mortgage rates higher. By contrast, if traders stay clear of stocks in search of safer investments, mortgage rates should fall.

(Image courtesy: Wall Street Journal)

How To Lower Your Mortgage Rate Every Time The Market Dips

Fri, 19 Sep 2008 02:34:00 -0700

Getting a great, low mortgage rate is often a combination of luck and preparation.

Consider what happened in conforming mortgages this week:

Monday, mortgage rates plunged to their lowest levels of the year
Tuesday, they bounced back in full
Wednesday, they clicked higher by a eighth-percent
Thursday, they clicked higher by another eighth-percent

And so, here we on are Friday, four days after the best rates of the year, and the mortgage market barely resembles itself. Despite what the papers tell you, mortgage rates are not low anymore.

That's the luck element -- you can't plan for rates moving up and down.

But, if you missed Monday's plunge, and don't want to miss the next one, all you have to do is get prepared. Then, you're waiting for luck when it happens.

There are 4 basic steps to prepare for low rates and the key is to follow them before rates plunge, not during. That way, you're ready to pounce on low rates at the moment they present themselves.

The first step is to contact your loan officer.

If you don't have a loan officer, or your loan officer is no longer in the business, ask a friend for a referral. Do not call the 800-number on your mortgage statement -- you'll almost always get a better "offer" from a live person than from a call center representative.

Next, give your loan officer a complete mortgage application, including a "credit pull". Be honest and accurate and don't worry about the credit check harming your score -- the bureaus protect it for a period of 30 days.

Then, ask your loan officer what supporting documentation will be required to approve your eventual home loan. Whatever it is, gather it and send it in -- either by fax or email.

And lastly, be ready to act when your loan officer calls with the good news. If rates have dipped to lower-than-normal levels, it likely won't last long.

This preparation process is very similar to what home buyers do before making an offer on a home. Getting ready for a refinance is like getting pre-approved, but instead of waiting to pick out a home, it's waiting to pick out a rate.

So, to summarize:

Contact your loan officer
Give a complete application
Gather and submit supporting documentation
Be ready to act

Mortgage rates don't plunge often, but when they do, it's usually short-lived. If you're prepared for when it happens, you can lock in the best mortgage rate available at the best possible time.

It will be your lucky day and you will have been ready for it.

What's Good For Home Sellers Is Bad For Home Buyers : Builders Are Dialing It Back

Thu, 18 Sep 2008 08:30:00 -0700

In August, home builders broke ground on the fewest number of homes since January 1991.

It was the 16th straight month in which Housing Starts declined.

But, although the press labels these statistics indicative of a recession, home sellers nationwide quietly applaud them.

With fewer new homes coming on the market, home sellers are finding that there's less competition for buyers, helping them to command higher prices for their homes.

It's Supply and Demand in its most basic form.

But that's not all that home buyers have to worry about. The most recent Existing Home Sales report showed an increase in sales nationwide, plus a reduction in the number of single-family homes for sale.

Again, Supply and Demand. Good for sellers, bad for buyers.

However, we should keep in mind that real estate is local. What we see in national and regional trends are not as important as what's happening in your town, your neighborhood, and your street. But, if we learn one thing from the chart above, it's this: builders are rational.

If homes won't sell, builders will stop building them. And, sooner or later, the market -- and home prices -- will catch up.

(Image courtesy: The Wall Street Journal)

Making English Out Of Fed-Speak (September 2008 Edition)

Tue, 16 Sep 2008 15:29:00 -0700

For the third consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent.

Of interest to mortgage rate shoppers, the FOMC led its press release with comments about the health of the financial and labor markets, calling them "strained" and "weakened", respectively. The relative weakness in both of these areas has contributed to low mortgage rates of late.

The FOMC also noted in its release that, although economic growth has slowed this year, the historically-low 2.000% Fed Funds Rate should foster "moderate economic growth" in the future.

In the wake of the announcement, Wall Street is rallying. Investors like what the Fed had to say and this is attracting money to the stock market at the expense of bonds.

Mortgage rates have given up all of Monday's gains, and then some.

Source
Parsing the Fed Statement
The Wall Street Journal Online
September 16, 2008
http://online.wsj.com/internal/mdc/info-fedparse0809.html

The 2 Groups Of People That Benefited From Wall Street's 6th Largest Point Loss Ever

Tue, 16 Sep 2008 07:22:19 -0700

Yesterday, the stock market suffered its largest one-day point loss since September 17, 2001, and its sixth-largest point loss in history.

Not everyone got punished, however. Two groups of people, in particular, welcomed yesterday's losses:

Home buyers out shopping for a mortgage
Homeowners that snoozed through last week's mortgage rate drop

See, as the stock market dropped yesterday, investors anxiously moved their money away from risky investments like stocks and into the safe haven of government-backed debt.

This includes mortgage-backed debt, of course.

As traders poured into bonds, bond prices rose. They did so beginning at Market Open, all the way into Market Close. And, because mortgage rates move in the opposite direction of mortgage bonds prices, mortgage rates fell Monday. A lot.

Today, the Federal Open Market Committee meets, adjourning from its scheduled conference at 2:15 P.M. ET. In the Fed's press release, among other things, markets expect Ben Bernanke & Co. to address the financial system's stability -- or lack thereof -- that helped to fuel Monday's selling action.

If markets find the Fed sympathetic, expect stock markets to rally, and mortgage rates to rise.

Looking Back And Looking Ahead : September 15, 2008

Mon, 15 Sep 2008 08:30:00 -0700

In a week overdone with market-altering news, conforming mortgage rates shed a quarter-percent overall last week. It was the third straight week in which rates improved.

The biggest story, by far, was the government's takeover of Fannie Mae and Freddie Mac.

The two quasi-government agencies were nationalized into bona fide government agencies, converted mortgage-backed debt into risk-free, government debt.

Instantly, conforming mortgage rates fell.

But, once the news settled in, mortgage markets returned to normal and, like in weeks prior, rates mirrored the path of the U.S. dollar.

Early in the week, the dollar was helped by economic trouble in Europe and optimism about the U.S. economy. Currency traders flocked to the dollar, helping to push mortgage rates down for Americans.

But, as the week continued, dollar enthusiasm waned and mortgage rates increased. Then, Friday afternoon, the dollar -- and mortgage rates -- got shellshocked by a combination of news contributed to the dollar's worst one-day decline in six months:

Hurricane Ike threatened oil supplies from Texas
Back-to-school sales were weak nationwide
Lehman Brothers teetered on collapse

This week, without much economic data to digest. Wall Street's attention will be focused on Tuesday's Federal Open Market Committee meeting. Ben Bernanke & Co. are widely expected to hold the Fed Funds Rate at 2.000 percent.

But, it won't be what the Fed does to the Fed Funds Rate that will be so important Tuesday. It will be what the Fed says.

If the Fed shows worry over medium- or long-term inflation in the economy, mortgage rates should rise because inflation is the enemy of the mortgage market. Sometimes, even an off-hand reference to inflation can make that happen. By contrast, if the Fed shows little concern for inflation, it may cause mortgage rates to fall.

The FOMC adjourns and issues its press release at 2:15 P.M. ET Tuesday.

(Image courtesy: The Wall Street Journal)

Comparing Payback Periods On 15-Year, 20-Year and 30-Year Mortgages

Fri, 12 Sep 2008 09:10:00 -0700

On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal.

This is because mortgage repayment schedules are front-loaded with interest, meaning large-volume principal reduction won't occur until late in the mortgage's lifecycle.

Comparing products at a 6% mortgage rate, did you know that after 15 years:

A 15-year mortgage will be paid in full
A 20-year mortgage will have 41.21% of its loan balance remaining
A 30-year mortgage will have 73.19% of its loan balance remaining

Of course, this doesn't mean that 15-year mortgages are better than their 20-year or 30-year brethren. It just means that 15-year mortgages pay off faster.

Yet, there are reasons for homeowners to avoid 15-year mortgages.

For example, versus 20-year or 30-year products, 15-year mortgages require the highest monthly payment because the payback period is compressed to a shorter time frame. In addition, mortgage interest tax deductions to which most homeowners are entitled are reduced on a 15-year product.

So, just because the 15-year pays off quickly doesn't mean that it's best for everyone.

Conforming Loan Limits Set To Decrease In Certain High-Cost Areas

Thu, 11 Sep 2008 08:26:00 -0700

Conforming mortgages are limited by loan size, based on "typical" housing costs around the country. Since 1980, as home prices have increased, so have conforming loan limits.

The current conforming limit on a single-unit property is $417,000.

Earlier this year, as part of the Economic Stimulus Act of 2008, Congress authorized conforming loan limits increase in "high-cost" areas around the country. In Los Angeles County, for example, a mortgage can be as large as $729,750 and still be considered "conforming".

But beginning in 2009, those increases roll-back. Effective January 1, conforming mortgage in high-cost areas will be limited to $625,500.

Changes to conforming loan limits impact everyone with a stake in real estate, even if their neighborhoods are not considered "high-cost". This is because conforming mortgages offer the widest selection of home loan products, and often at the lowest rates. The widespread availability of conforming mortgages helps to support home sales nationwide ands provide ample refinancing options for homeowners that need it.

Starting with the New Year, fewer people will be eligible.

To lookup the conforming loan limits in your neighborhood, visit the HUD Web site. If you have specific questions related to your home or an upcoming purchase, contact me directly anytime.

New Mortgage Rules Put Limits On Residential Real Estate Investors

Wed, 10 Sep 2008 08:28:00 -0700

In its last act as a semi-independent company, Fannie Mae altered mortgage guidelines for real estate investors last Friday. It was Fannie's 22nd update this year.

The first part of the guideline change limits the number of properties owned by any one person.

Fannie Mae will now decline any mortgage application for a second home or investment property if the mortgage applicant already finances, or will finance, more than 4 properties in total.

The former guidelines allowed for 10.

There is a loophole, however. Fannie Mae will not count properties against the 4-property limit if they are held in the name of a corporation. This holds even if the real estate investor is the sole owner of said corporation.

Investors, therefore, should consider moving their properties into a corporate structure to avoid triggering Fannie Mae's 4-property limit. Investors often take this step for liability and taxation reasons, but it's now a good idea for mortgage approval reasons, too.

The second part of the guideline change cannot be so easily avoided. Fannie Mae is assessing new, loan-to-value based loan fees on all investment property mortgages.

Loan-to-value less than 75 percent : 1.75% loan fee
Loan-to-value 75.01-80.00 percent : 3.00% loan fee
Loan-to-value 80.01-90.00 percent : 3.75% loan fee

These fees are mandatory and are in addition to any whatever other risk-based loan fees Fannie Mae may assess. Currently, those fees amount to a half-percent at minimum for real estate investors.

Since its Fannie/Freddie takeover, government officials have not addressed whether mortgage guidelines will be rolled back to "a looser time". If they are, it would be a big deal for real estate investors because, as many are finding out, low rates don't matter much if you can't qualify for them.

If you're currently in the market for an investment property (or two), consider that it may be cheaper and simpler to purchase over the near-term versus the long-term. And consider moving your existing properties into a corporate structure first.