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In 2009’s first full week of trading, mortgage bond markets traded back-and-forth, eventually closing the week improved overall.Weekly mortgage rates fell for the first time since mid-December.

The most anticipated news of last week was Friday’s jobs report.  According to government’s press release, the economy shed another 524,000 jobs in December, raising 2008’s total job losses to 2.065 million.

This is the largest annual job loss since 1945, the press reminds us.  However, as one more reason to look beyond the headlines, today’s workforce is three times as large.

Other important notes included the release of the Fed’s minutes from its 2-day meeting in December.  In it, the Federal Reserve said that inflation should remain low through early-2010 — a good development for home buyers and homeowners because inflation is linked to rising mortgage rates.

This week, the market-moving data doesn’t start until Wednesday, but with a fair number of Fed members making public appearances, a case of “loose lips” can lead to mortgage rate volatility.  The most notable appearance is Fed Chairman Ben Bernanke’s speech in London today.  There are 10 speeches in all.

Despite the barrage of negative economic news, however, mortgage rates remain low.  If you have yet to join the Refinance Boom, make a call to us to see if your home loan is eligible.

(Image courtesy: USA Today)

For homeowners with soon-to-adjust adjustable rate mortgages, the recent banking turmoil worldwide may lead to budgetary pain.This is because most conforming ARMs made since 2003 are based on a borrowing cost called LIBOR and LIBOR is up an uncharacteristic 2 percent since September.

LIBOR stands for London Interbank Offered Rate and is the rate at which banks lend money to each other.

Historically, LIBOR has tracked the U.S. treasury market, plus a half-percent increase.  This suggests that banks are only slightly less likely to default versus the U.S. government.

Today, that spread is close to 4.5 percent.

Since Lehman Brothers failed in September 2008, banks are fearful that their peers will meet a similar fate.  Looking at the chart, we can see how LIBOR has responded.

The LIBOR spike is harming homeowners with adjustable-rate mortgages because adjusted rates on conforming mortgages are often calculated by adding 2.250 percent to the current 12-month LIBOR rate.

On sub-prime mortgages, the adjustments are even more steep.

In general, though, as LIBOR rises, household payments rise, too, so if your home loan is adjustable and is due to reset soon, call or email your loan officer to talk about how LIBOR may impact your adjusted mortgage rate and payment.

For many homeowners, it’s less expensive to refinance into a new home loan that to just let the adjustment happen.

However, for those homeowners who have ARM mortgages using other indicies, they will find that in most cases, their rates are adjusting lower.

(Image courtesy: Wall Street Journal Online)

Most homeowners make four housing-related payments each month:

1. Principal on a mortgage
2. Interest on a mortgage
3. Taxes on the real estate owned
4. Insurance for the real estate owned

Collectively, these payments are known by the acronym PITI but don’t let it fool you — a homeowner’s monthly expenses are still called PITI even if one or more of the elements doesn’t apply.

For example, a homeowner with an interest only mortgage does not pay principal each month.

Additionally, condo owners typically don’t pay homeowners insurance — they pay a monthly assessment and/or maintenance fees to an association instead.

But regardless for what it stands, determining a comfortable PITI should be every homeowner’s starting point when looking for a new home.  PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it’s a lot easier to compare homes and their related expenses.

It’s certainly better than asking the bank “how much home can I afford” — all that’s going to tell you is the P and the I.  As a homeowner, you need to know all four.

PITI is most commonly pronounced pee-eye-tee-eye.

(Image courtesy: Contractor-Books.com)

When a home buyer is gifted cash for a downpayment, there is a right way and a wrong way to receive the funds.The right way includes:

• Completing an acceptable gift letter
• Documenting the withdrawal of funds with receipts
• Documenting the deposit of funds with receipts

The wrong way is to ignore the rules that mortgage lenders clearly spell out for you.

Mortgage lenders watch gifts closely because they want to make sure that the “gift” is not really a loan-in-disguise.  If it’s a loan, the total dollar amount must be counted against the home’s total loan-to-value and higher loan-to-values typically increase lender risk.

If it’s a gift, a signed and dated gift letter should accompany the home loan application.  An example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift — not a loan — and there is no expectation of repayment.

Signed,
[Signature of donor]

For additional evidence that the gift is legitimate, the recipient should make sure that deposited funds are not commingled at the bank.  If the gift is for $12,000, for example, then the recipient’s bank deposit receipt should indicate that a $12,000 deposit was made.

There may be legal and tax liabilities when gifting funds between family members so if you’re unsure about how donating or receiving a gift may impact you, call or email us.  If we can’t answer your question, we can certainly refer you to somebody that can.

Mortgage markets are conflicted about the U.S. economy and the confusion is impacting home buyers.

If you’ve recently tried to lock a mortgage rate, you’ve probably experienced it personally.

On one hand, reports of plunging sales suggest that the economy is slowing more quickly than expected.

This is recessionary and tends to be good for mortgage rates.  So, some days, rates have been down.

On the other hand, some pundits (including a Federal Reserve official) are saying that recent Fed cuts may stoke inflation in the second half of 2008.

This is inflationary and tends to be bad for mortgage rates.  So, some days, rates have been up.

Neither side is wrong — 2008 will likely show signs of both recession and inflation at some point.  Markets are waking up to this fact.

And this is why mortgage rates have changed so much from day-to-day — investors can’t agree upon exactly when the Fed rate cuts will work their way through the economy.  With each “target date” change, mortgage rates change.

This week, expect more of the same volatility with January’s Retail Sales data being released and five Fed speakers (including Fed Chairman Ben Bernanke) stumping.

The spoken word of the Fed Chief can be a very powerful influence on markets.

If you’ve recently gone under contract for a home, you may find peace of mind by concentrating on a mortgage payment as opposed to a mortgage rate; rates could change multiple times each day and timing a market-bottom can be futile.

(Image courtesy: CNN)