The $168 billion economic stimulus plan signed Wednesday includes a temporary increase to conforming loan limits in some parts of the country.

Currently, many homeowners whose loans exceed $417,000 are paying higher interest rates because their loans are not securitized the way that smaller loans are.

The loan limit increase is intended to make housing more affordable in certain “high cost” areas around the United States. 

However, the loan limit changes are not immediate.  The stimulus package grants HUD 30 days to determine which metropolitan areas should be designated as “high cost” and it should take another few weeks for Fannie Mae and Freddie Mac to remodel their mortgage pricing engines.

All told, it could be mid-April before the new limits are in place.

Author’s Note: There is a lot of speculation about which areas will be designated as “high cost” and nobody knows for certain until HUD decides.  Rather than misreport the facts, we’ll save our coverage until something is concrete.   However — if you’re in a “high cost” area, you probably already know it.

When the new limits are official, though, expect that many homeowners will take advantage.  That will lead to underwriting delays because mortgage refinance activity will surge.

Therefore, consider being proactive about your financing options if:

1. You suspect you live in a high-cost area
2. You have liens on your home exceeding $417,000

If you don’t live in a high cost area, you can’t take advantage of the new loan limits; and if your outstanding liens total less than $417,000, you won’t want to be helped.

Converting from a jumbo home loan will not be appropriate for everyone, but it will be right for some.  Get personal advice and figure out what’s best for you.

And then hope the HUD fingers your neighborhood as high cost.

Popularity: unranked [?]

President Bush is expected to sign the economic stimulus package today.

The package includes tax rebates and incentives for business and its purpose is to jumpstart a stalling U.S. economy. 

If the package is deemed “effective” by Wall Street investors, we should expect the stock market to rally on the prospects of business growth. 

The flipside of stock market gains is that they will likely come at the expense of the bond market.

If you’re currently shopping for a home or for a home loan, this is bad news because when mortgage bond markets fall, mortgage rates to rise.

A 0.125% increase in mortgage rates, as an example, adds $125 to the annual interest payments on a $100,000 home loan; a $400,000 home loan increases by $500.

One major reason why home financing has been so (relatively) cheap lately is because economists forecasted a major recession for 2008. 

With each attempt to spur the economy, those odds are reduced and mortgage rates trend up.

Popularity: unranked [?]

On the backs of surging purchase activity across the country and low mortgage rates, home loan applications have surged to a near four-year highs. 

For people with mortgage applications in process, some patience may be required.

In 2006 and 2007, mortgage volume slowed nationwide.  Narrowing mortgage guidelines restricted the number of eligible borrowers and rising mortgage rates made refinancing impractical for many homeowners. 

In a push for profitability, lenders eliminated jobs because fewer applications meant fewer people were needed on staff.

So now, with rates edging near their 2004 lows and with strong demand for home purchases nationwide, mortgage lenders are finding themselves short-staffed. 

Lenders are understaffed to handle the volume of mortgage applications coming in each day.

As a comparison:

• October 2007: 24 hours to review and approve a home loan
• February 2008: As long as 20 days to review and approve a home loan

Some lenders have gone so far as to eliminate the benchmark 30-day rate lock option, replacing it with a 60-day option instead. 

60-day mortgage rates are typically 0.125% higher than comparable 30-day ones.

As a home buyer, home seller, or mortgage refinancer, it’s important to recognize that lenders may not have the capacity to move as quickly as you’d like them to.  To help them move more quickly (and possibly save you money), be prepared and be responsive. 

30-day closings are still possible, but, given today’s demand for mortgage money, they are increasingly rare.

Popularity: unranked [?]

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)

Popularity: unranked [?]

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)

Popularity: 1% [?]

 A 2004 study showed that 4 out of 5 credit reports contained at least one error.

The errors were of various types with different implications.  A quarter of the errors, for example, were of the “serious” nature; errors that could lead to a credit denial because of a false-reporting delinquency or collection.

A much larger source of credit scoring errors, though, was related to misreported personal data.

More than half of the mistakes on credit reports were found to be related to erroneous name spellings, incorrect social security numbers, and/or wrong addresses.

These types of demographical errors can damage credit scores in not-so-obvious ways:

1. The strong credit report of a “Jr.” may mix with the weak credit report of a “Sr.”, or vice versa
2. Credit accounts demonstrating strong payment histories may be omitted
3. Derogatory credit of like-named people can “merge”

To limit demographical errors, a person should apply for new credit using a consistent form of their name, and then use that form on every new application.

John A. Smith, Jr., for example, should always apply for credit using the name “John A. Smith, Jr.”.

Short-cutting an application with “John Smith” can lead to a “mixed” credit report that combines the tradelines of multiple John Smiths.  Especially because there is a John Smith, Sr., who likely lived at the same address at one time, and who may have a similar social security number.

Credit agencies do not discern between two similar sets of demographic data very well.

In the four years since the original study, it’s not likely that the 80% error rate has improved, but by limiting demographical errors in our own histories, we can reduce the frequency and severity of the problem.

Popularity: unranked [?]

In an election year, voting for a presidential candidate can be a lot like buying a home.

Both require a fair amount of analysis but — in the end — the decision is still highly emotional.

Using Bankrate.com’s side-by-side candidate comparisons, some of that emotion could be replaced by fact.

In a gridded format, candidates are pitted head-to-head the following topics:

• Education
• Jobs
• Health Care
• Social Security
• Taxes

The charts can help Americans get a better feel for where the candidates stand with respect to “pocketbook issues” that impact them personally in their businesses, their lives, and in their homes.

Opinions on the issues are current as of January 29, 2008. As with everything in politics, though, the candidate positions are subject to change.

Popularity: unranked [?]

Many homeowners are entitled to two major tax deductions — one for annual interest paid on a home loan, and another for real estate tax bills paid to government.

Calculating your approximate tax credit is basic:

1. Add mortgage interest paid and real estate taxes paid together
2. Find your marginal tax rate
3. Multiple your tax bracket by the sum of Step 1

So, for a homeowner that paid a combined $13,000 in mortgage interest and real estate taxes last year, and who is in the 28% marginal tax bracket, a tax credit of $3,640 may be due from the IRS.

This credit is one reason why some people sometimes refer to “after-tax mortgage rates”.  An after-tax mortgage rate is the adjusted interest rate after the IRS doles out credits and is calculated as follows:

(After-Tax Mortgage Rate) = (Mortgage Rate) * (1 – Marginal Tax Rate)

The same homeowner with a 6.000% mortgage rate, therefore, has an after-tax mortgage rate of 4.32%.

Because not every homeowner is eligible for mortgage interest and/or real estate tax deductions, and because not every homeowner should claim them, you should consult with your accountant to see how tax credits fit into your tax liability schedules.

Federal income taxes are highly personal and require the attention of an experienced professional.

Popularity: unranked [?]

The end of the Super Bowl kicks off the Real Estate Spring Buying Season.As home sellers should prepare for the season’s upcoming homebuyers, they could do worse than to watch this four-minute home staging video from Barbara Corcoran.

Barbara offer simple steps that “won’t cost you a lot of money but could make a 10-20 percent difference in the selling price of your home”.

Then, to watch home staging in action, tune in to well-known Home Staging professional Barb Schwarz as she takes the 20/20 news crew into Bothell, WA for a before-and-after.

With so much housing supply relative to recent years, home staging could be the difference-maker to home sellers. And it’s usually less expensive than a price reduction.

Popularity: unranked [?]

We entered the New Year uncertain of the country’s economic future. With January over, it’s a little more clear.

Last week’s data and events helped firm expectations.

In the near-term, we can expect weakness:

• The economy is shedding jobs
• Consumer sentiment is low
• Home sales continue to slump nationally

In the intermediate-term, however, the picture gets fuzzy.

The Federal Reserve has lopped 1.250% from the Fed Funds Rate in the last two weeks and those changes will work their way through the economy between now and the summer.

If the economy reverses course and begins expanding at a steady pace, the Federal Reserve will be applauded for its moves this past month.

If the economy expands too quickly, however, inflation will set in and that will erode the value of the U.S. dollar.  The Fed will be derided for doing too much, too soon.

Inflation also causes mortgage rates to increase so it’s possible that the short-term weakness put homebuyers and homeowners wanting new home loans in terrific positions.

There is no new data hitting the wires this week.  Therefore, expect mortgage markets to take their cues from external forces such as politics, oil, and the public speeches of six members of the Federal Reserve.

(Image courtesy: Wall Street Journal Online)

Popularity: unranked [?]