As financial markets fell under stress, most people missed the strong points that emerged about the U.S. economy last week:

1. Fewer Americans filed for unemployment benefits
2. Wal-Mart reported stronger-than-expected sales
3. Consumer confidence rose for the first time in 7 months

And, also worth noting: homes under contract slipped but remained above the lowest levels of the year, suggesting a potential housing floor.

But, the biggest story of last week was the stock-price collapse and subsequent pressure on Fannie Mae and Freddie Mac.  It should be the biggest story of this week, too.

So far, Fannie and Freddie’s issues appear to be more psychological in nature than fundamental, but to an already roiled market, negative perception can quickly become reality.  This is one of the biggest reasons why both the Federal Reserve and the U.S. Treasury made public statements Sunday in support of Fannie and Freddie, and in advance of the Asian markets’ opening.

Other events that may move markets this week include Retail Sales data on Tuesday, consumer inflation data on Wednesday and Ben Bernanke’s two-day testimony to Congress which takes place over both Tuesday and Wednesday.

It’s unclear in which direction mortgage rates will go, but because the markets are on-edge, expect rate movements to be sharp and quick.  In other words, if you’re in the market for a mortgage this week and you see a rate and payment you like, don’t mess around with it — just get it locked.

(Image courtesy: Wall Street Journal Online)

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Mortgage insiders may have found last week to be boring, but for active home buyers, the semi-lull was a welcome break from the up-and-downs that have gripped the markets since January.

It’s been three consecutive weeks without a substantial increase to mortgage rates.

This week, rates aren’t expected to be as calm because Fed Chairman Ben Bernanke is taking two heavy topics and making public speeches about them.

The first speech is to the FDIC on Tuesday.  The speech will focus on mortgage lending.  The second is to House Financial Services Committee on Thursday and it will cover financial market regulation.  In both speeches, expect Bernanke is expected to address inflation and the health of the U.S. banking system.

These two subjects are closely linked to mortgage rates so watch for rate movement during, and after, the speeches.

• If Bernanke says inflation is moderating, mortgage rates should fall
• If Bernanke says the financial system is stabilizing, mortgage rates should rise

From a data perspective, there’s not much doing other than Friday’s Consumer Confidence survey.  Confidence surveys don’t have a direct impact on the economy, but markets are watching them more closely.  A strong reading could benefit the stock market which should, in turn, cause mortgage rates to rise.

(Image courtesy: Wall Street Journal Online)

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But yesterday, in a surprise report, the Agriculture Department said that many farmers had over-planted corn earlier in the season in order to cash in on corn’s rising market value.

The abundance of planting is offsetting a portion of the flood damage and this year’s harvest is now predicted to be the second highest on record.

For Americans in need of a home loan, this is terrific news because more corn supply means lower food prices and that puts a hold on at least one source of inflation.

Inflation is the enemy of mortgage rates.

The revised outlook for this year’s corn supply is now so much better than it was yesterday that the price of a corn bushel fell by 30 cents at the Chicago Board of Trade — the maximum allowable amount by rule.

Now, rapid movements in the price of corn may not seem relevant to everyday life, but even the smallest of details about the economy can trickle down and impact you as a homeowner.

The strength of the housing market may be correlated to consumer confidence and consumer confidence is definitely tied to the Cost of Living. And the same goes for the mortgage market — it’s all related to inflation.

With a surprise crop of extra corn, things may look just a little bit better.

Source
Corn Crop Largely Intact, Despite Floods
Scott Kilman
The Wall Street Journal, July 1, 2008

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• The rate is adjustable, tied to Prime Rate
• There is a minimum monthly payment
• There is a pre-set spending/credit limit

But different from credit cards is that a HELOC is “guaranteed” by real estate and with real estate values in question nationwide, many banks are exercising a little-known clause in the HELOC contract.

With alarming frequently, banks are reducing the pre-set spending limits on their active equity lines. Via USPS, lenders are notifying homeowner with $100,000 HELOCs that their new HELOC limit is $25,000, for example.

And the banks aren’t being discriminate based on payment history or local real estate conditions, either — it’s happening everywhere with equal force.

The good news is that banks will accept appeals on HELOC reductions on a case-by-case basis.

One way to appeal a HELOC reduction is:

1. Call your lender’s Customer Service line. Do not send an email.
2. Politely ask why the HELOC limit was reduced. Listen carefully to explanation.
3. Explain why you would like your HELOC reinstated. Acceptable reasons may include home improvement projects or improper home valuation by the lender.
4. Be prepared to write a formal letter, if asked. Address the issues explained in #2.

Banks will typically not reinstate a HELOC if a borrower has been delinquent on payments, or lives in a severely depressed neighborhood. However, because lenders rely on computer models to assess risk, it’s always a good idea to ask.

Sometimes the Human Element of an appeal can work in your favor.

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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)

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That means it is time to get off the fence and put a plan in action. Before all the kings horses and all the kings men put the sellers market back together again!

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Given the recent headlines, that shouldn’t be surprising:

• Unemployment is spiking
• Gas prices are at an all-time high
• Housing markets keep getting bad press

But despite all of that,  the American Consumer appears to be taking the economy’s hiccups in stride.

For example, last month, retailers around the country reported rising sales levels that doubled what economists expected.  This isn’t supposed to happen when consumer confidence is falling as fast as it is, right?

But, a closer look at the retail sales data shows that discount retailers such as Target and Wal-Mart led the charge higher.  So, although consumers are feeling worse about the economy, they’re still spending money.

And when they do, they look for value.

For home buyers, this should sound familiar because it’s every real estate agent’s mantra right now — “there’s a lot of good values to be had.”  It’s why some homes are getting multiple offers within days while other languish on the market for months.

The difference lies in the perceived value of the home.

Home buyers are actively looking for “good buys” and when they find them, they’re quick to make an offer.  It’s why the housing market is showing pockets of strength despite low consumer confidence levels overall — everyone’s snapping up the bargains.

(Image Courtesy: Wall Street Journal Online)

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PMI provides a cash payment to lenders in the event of a homeowner defaults.

But because PMI policies are designed for high LTV loans only, they usually contain cancellation options for when home equity percentages reach 20 percent or more.

In other words, PMI can be temporary.

There is a caveat, however: Lenders will not automatically remove mortgage insurance when LTV falls below 80 percent — the onus is on the homeowner to initiate a formal request.

Earlier this decade — when home values were soaring — many PMI-paying homeowners recognized their equity growth and successfully petitioned out from PMI.

Many other homeowners, however, forgot.

So today, as home values stagnate or depress in different U.S. markets, homeowners eligible for cancellation may find that both their home equity and their right to cancel have vanished.

PMI helps makes high LTV loans possible, but there’s no reason to pay it longer than necessary. If your current mortgage requires PMI payments and your loan-to-value lurks below 80 percent, contact your mortgage lender to start the PMI cancellation process.

Or, if you’re unsure about your home’s value and the 80 percent threshold, call or email me anytime and I can help you connect with somebody to give you the answers you need.

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Headline news continues to expound on all the corporate credit write-downs and recent reports released by the National Association of Realtors estimate last month an whopping ten and a half month housing inventory surplus! However, with massive crisis comes opportunity for the brave of heart to gobble up some of this overstock in preparation for future retirement or long-term sale; all at a price that is in many cases now more affordable and more attractive to a certain select group of investors.

The biggest misconception about these second home properties is that from both a loan qualification and loan program standpoint, a second home is not an investment property. Therefore the interest rates, required down payment percentage, and income documentation requirements are significantly less stringent. Think of your second home as being more akin to your principle owner occupied residence and not so much a cash-flowing rental property.

So let’s look at the math: Condo units right now are especially cheaper as a result of this housing surplus, and depending on the area and other amenities, figure the average price of a unit is right around $150,000. A typical qualified borrower needs only 10% down, which in this example is $15,000. Assuming that at some point within ten years of purchase, the value at a conservative 2.5% yearly growth compounded annually, your initial investment of $15,000 with see a 130% return in a little as five years! Most CDs aren’t even paying out that well right now.

With the right combination of Mortgage Planner and Realtor consultants in place, and a little bit of brains, heart and courage–a second home purchase in today’s market might just be that proverbial yellow brick road after all.

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However, those who do keep their credit flawless will enjoy a more pleasant financial journey. Whether you are refinancing your home or getting a family plan at a cell phone store, credit equals power. It gives you the advantage and rewards those who abide by the rules. You can truly save enormous amounts of money on your mortgage payments, credit cards, car loans, and even get that 5th phone on the family plan for your grandma.

Financial discipline is a skill that needs to be learned and mastered. Try keeping at least 2-4 active trade lines open (credit cards, mortgage, car loan), and try not to overspend by keeping the balances lower than 50% of you credit card limits. In addition, you can track your spending more efficiently on your credit card statements allowing you to save more every month. Credit will ultimately make life easier no matter what the economic status is. It’s definitely not too late to arm yourself with good credit, and it really doesn’t seem like anyone knows when this battle will end.

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