With mortgage rates are hovering near all-time lows, lots of Americans are taking advantage of refinance and home buying opportunities.The downside of today’s unexpectedly-low rates, though, is that mortgage lenders are ill-equipped for the rush of new business.

As a result, the process of underwriting and approving new mortgage applications is taking some conforming lenders as long as 2 months to complete.

This is double the time needed as recently as six months ago.

Because there may be 60 days between the application date and the closing date, it’s important for applicants to remember that mortgage approvals can be revoked at any time prior to funding.

As mortgage applicants, there are many events that are out of our control — job security and health matters, for example.  But there are also events that are within our control.

Knowing that mortgage approvals can be fragile, here are 8 things you should absolutely not do while your home loan is in process.  It may be the difference between being approved by the bank, and being turned down.

1. Don’t buy a new car or trade-up to a bigger lease.
2. Don’t quit your job to change industries
3. Don’t switch from a salaried job to a heavily-commissioned job
4. Don’t transfer large sums of money between bank accounts
5. Don’t forget to pay your bills — even the ones in dispute
6. Don’t open new credit cards — even if you’re getting 20% off
7. Don’t accept a cash gift without filing the proper “gift” paperwork
8. Don’t make random, undocumented deposits into your bank account

Now, avoiding these items may not be practical for everyone.  For example, if your car lease is expiring and you need a larger vehicle, it doesn’t mean you can’t buy the car — just check with us first to be sure the new payments won’t “break” your approval.

The same goes for accepting cash gifts from parents.  There’s a right way and a wrong way to accept gifts and doing it the wrong way may prevent you from using the gift as a source of downpayment.

Mortgage lending is full of “gotchas” and with underwriting times stretching to 60 days, it’s a lot more likely that a mortgage applicant will trip into one.  Following these 8 rules, though, is a good start.

The stock markets made strong gains last week but the mortgage markets barely moved in the wake of the Treasury’s “toxic asset” plan.After carving out wide trading ranges on most days, mortgage pricing ended the week slightly worse overall.

From an economic standpoint, though, last week was an interesting one.

• Existing home sales showed unexpected strength
• New home sales showed unexpected strength
• Data showed home prices rising unexpectedly

In addition, consumer confidence rose unexpectedly, too.

To rate shoppers, these “unexpected” developments are warnings worth heeding because mortgages trade on expectations of the future.  And “the future”, you’ll remember was widely expected to be an economic abyss.

This is one of the many reasons why mortgage rates are so low right now — during uncertain times, investors flock to safe investments.  But when those expectations change, mortgage rates usually do, too.

And quickly.

Our current recession has been thus far called ”housing-led” and was predicted to last several years.  Last week’s data, however, provides at least some evidence that the recession may be ending; that the economy may find its way forward sooner rather than later.

Indeed, even members of the Federal Reserve now call for a turnaround starting in as few as 6 months.

For now, market reaction to the unexpected data has been tepid.  Therefore, watch for developments over the coming weeks and — perhaps more importantly — keep an eye on the investor mindset.  If bond markets start to sell-off en masse, don’t be surprised if mortgage rates race higher by quarter-point leaps at a time.

Meanwhile, this week, the biggest data release is Friday’s jobs report.  It’s expected to show unemployment reaching to 8.5% with another 656,000 Americans losing their jobs in March.  As before, if the data isn’t as bad as expected, watch for stocks to rise and mortgage rates to go with them.

If you’re in want of a cash out refinance, the most liberal cash-out program in town is about to make qualification more difficult.Effective April 1, 2009, the FHA is reducing the maximum loan-to-value on cash-out refinances by 10 percent, dropping the loan size limit from 95% of the home’s value to 85%.

In its official press release, the FHA days it’s making the change to “limit its exposure to undue risk”.

It also lists the following cash-out requirements:

• With less than 12 months since the purchase date, a home’s value cannot exceed its original purchase price — even if home improvements were made.
• A homeowner must be current on his mortgage payments to qualify
• A second, verifying appraisal may be necessary, depending on loan traits
• Co-signers may not be added to the mortgage note in order to qualify

The last day to register a FHA 95% cash out refinance is Tuesday, March 31, 2009.  The loan does not need to be “locked” — only registered.

So, if you know that a 95% cash out FHA refinance is in your future, talk to us before Wednesday morning about registration.

The national housing market got its third piece of good news in 3 days:

• Monday: Existing Home Sales up
• Tuesday: Home values appear higher nationally
• Wednesday: New Home Sales up

And although national real estate statistics are irrelevant to the local markets in which real estate transactions happen, to a country of would-be and wanna-be home buyers, repeated positive news on housing can be a strong signal that it’s time to get off the sidelines.

At least, that’s what the data is showing us.  According to an industry trade group, first-time home buyers accounted for half of all sales of previously-owned homes.

The stimulus package’s $8,000 tax credit likely played a role in this 50 percent figure, as well as sagging home prices in most markets and low mortgage rates nationwide.

But lest we carried away, we can’t forget that February’s New Home Sales is still the second-lowest tally on record and that two months of data doesn’t define “turnaround”.

On the other hand, if the trend continues through the Spring Buying Season, we’ll likely look back at Winter 2009 as the low point in housing.

(Image courtesy: LA Times)

Don’t look now but oil prices are climbing.This should worry today’s home buyers and would-be refinancers because some of the same forces that helped to push crude past $50 for the first time in 4 months also cause mortgage rates to rise.

March 18, the Federal Reserve committed an additional $1.15 trillion to support the economy.

Since the announcement, investors have questioned whether the Fed is purposefully spurring inflation.  The Fed’s total debt purchases now total $1.75 trillion.

And to finance its purchases, the Federal Reserve is printing new money, devaluing the U.S. dollar along the way.  This then leads to inflation which, all things equal, causes oil prices to rise, gas prices to rise, and mortgage rates to go with them.

As we’ve seen the last few summers, oil prices and mortgages seem to touch their yearly high points while the weather is warmest.

Each month, the National Association of REALTORS^® releases a study called the Existing Home Sales report.  It’s a detailed look at “used” home sale data from all four regions of the country.

Among the key findings of each Existing Home Sales report is something called the “median sales price”, the statistical price point at which half of the homes in the U.S. sold for more, and half sold for less.

Last month, the median sales price in the United States fell to $165,400, down 15.5 percent from a year ago.

Nevertheless, just because the median sales price is lower from last year doesn’t mean that the housing market is losing steam. The median sales price is just the middle point of all home sales in all U.S. markets.  By definition, it groups New York City and Danville, Illinois; Los Angeles and Cheyenne — markets that have little do with one another.

When median sales prices are falling, it doesn’t point to housing weakness, per se — just that more homes are selling at the lower end of the pricing spectrum than at the higher end.

Going forward, it’s believed that a reduction in home supplies is the key to a complete, national housing recovery.  It’s encouraging, therefore, in a month known for a high volume of new listings, that the number of homes sold kept pace with the number of new homes available for sale.

The current housing inventory stands at 9.7 months, flat from January.

(Image courtesy: The Wall Street Journal)

Mortgage markets scored big gains last week, sparked by the Federal Reserve’s pledge to buy $750 billion more mortgage-backed bonds in 2009.Conforming mortgage rates fell on the week, overall.

But Federal Reserve intervention wasn’t the only good news for rate shoppers last week.  New evidence showed — for the time being, at least — that the U.S. economy may be reversing direction:

• Homebuilders are breaking ground on new homes again
• First-time jobless claims are falling
• Inflation is present and, therefore, deflation is not

Should the economy continue trend stronger through the summer, it will likely fuel stock market gains, drawing cash away from mortgage bonds.  This would lead mortgage rates higher — perhaps for good.

Today’s levels are artificially low, after all, supported by government intervention more than economic fundamentals. After the Fed’s Wednesday afternoon announcement, rates fell to all-time lows before recovering sharply into the weekend on economic optimism and fears of inflation.

This week, the trend higher may continue.

In addition to the economic data set to be released this week, the U.S. government is expected to unveil its “toxic asset” plan Monday.  If the plan includes issuance of new federal debt, inflation concerns will grow and that should lead mortgage rates up once more.

Some of the week’s key events include Monday’s Existing Home Sales report, Wednesday’s New Home Sales report and Friday’s consumer spending report, as well as President Obama’s Tuesday evening address to the nation.

Rates can make huge changes from day-to-day and even from hour-to-hour.  If you’re shopping for a new home loan and find a mortgage offer that “fits”, consider locking it right away.  With so much news hitting the wires this week, the rate quote is likely to expire quickly.

For the fifth time in a year, rate shoppers learned an important lesson this week: When mortgage rates plummet unexpectedly, they often recover just as fast.Wednesday, the Federal Reserve’s newest $750 billion mortgage market pledge helped to push conforming mortgage rates near their lowest levels since WWII.

24 hours later, however, those rates were expired.

After considering the long-term implications of the Federal Reserve — literally — printing new money to service the recession, markets grew fearful that the Fed’s interventions will eventually lead to inflation.  Inflation, of course, is the enemy of mortgage rates.

So, if you’re looking for the explanation of why rates rose as suddenly Thursday as they fell the day prior, this is it.  And, in hindsight, rate shoppers might have seen it coming, if only because we’ve seen the exact pattern 4 other times:

1. After the Fed’s “surprise” rate cut in January 2008
2. After the Fannie Mae and Freddie Mac takeovers in September 2008
3. After the Fed announced its first $500 in support in November 2008
4. After the Fed zeroed out the Fed Funds Rate in December 2008

Sharp drops in mortgage rate, it seems, are followed by immediate bounce-backs.

Unfortunately, not every would-be refinancing homeowner saw the increase coming.  People that locked Wednesday and early Thursday captured the lowest rates in 6 decades.  Everyone else wishes they had.

From day-to-day, we don’t know if mortgage rates will rise or fall. Nobody knows that.  But, we do know that mortgage rates tend to follow patterns and we’ve seen the above pattern 5 times now.

When mortgage rates plunge like they did Wednesday, they rarely low for long. When you find a rate you like, get in and get locked as soon as possible. By tomorrow, it’s likely to be gone.

The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today, within the target range of 0.000-0.250 percent.  This doesn’t mean the Fed stood pat, however.

On plan to resurrect the economy using “all available tools”, today, the Fed announced a new, $1.5 trillion round of fiscal support for the treasury and mortgage markets.

The stimulus will likely be Thursday morning’s headline story.

In its press release, the FOMC touched upon a few of the prevailing economic issues, using these points as a legitimizing backdrop for its newest debt load:

• Job losses and wealth loss are dragging down consumer spending
• Some U.S. trading partners are falling into recession
• Businesses are cutting back on investment and inventory

Of interest is that the FOMC said today’s inflation levels may be too low to support economic growth at all.  This condition is more commonly called deflation.  The Fed’s latest actions, therefore, may be a deliberate attempt to induce inflation through unprecedented borrowing.

For home buyers and potential refinancers, this is terrific news — at least in the short-term.  By introducing new demand for mortgage bonds, the Fed will help pressure mortgage rates lower.  Already this afternoon, mortgage rates fell and they will continue to fall until the market reaches a new equlibrium.

After the Fed’s last intervention, markets reached their balance point in about a day-and-a-half.

Source
Parsing the Fed Statement
The Wall Street Journal Online
March 18, 2009

http://online.wsj.com/public/resources/documents/info-fedparse0903.html

There’s a mixed message in February’s Housing Starts data and it may be a good sign for home sellers in the near-term.As reported by the government, new home construction rose by 22 percent last month.  The press is running with the headline number, calling it evidence of a market bottom.

A more thorough inspection, however, reveals a different story.

The 22 percent figure applies to all homes built — including apartment building units.  Isolating residential units, February’s housing starts rose by just 1 percent.  Furthermore, the data’s margin of error is 11 percent.

Statistically, we can’t know if residential housing starts really rose last month, or if it fell instead.  What we do know, though, is that the number of building permit requests rose.

Permits to build single-family homes were up 11 percent in February nationwide.

To home sellers, the rise in building permits may confirm that a housing market turnaround is already underway.  Builders wouldn’t be putting new inventory on the market, after all, without being sure of their ability to sell it 9 months hence.

The headline figure of 22 percent is attractive, but it’s not completely honest.  It’s not the number of housing starts that matter so much right now as the number of housing permits.   A rise in permits signals that homebuilders — a group that’s lost a lot of money in the last 2 years — think the worst of housing is already over.

(Image courtesy: The Wall Street Journal Online)