For the first time in nearly six months, Fannie Mae is imposing strict, new guidelines on American homeowners.This time, the hardest hit demographic is owners of 2-unit homes.

In its official announcement, Fannie Mae listed the following changes to its 2-unit financing programs, separated by occupancy type.

Primary Residence

• Purchase: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
• Rate-and-Term Refinance: Maximum loan-to-value drops to 80%; FICO minimums reset to 640.
• Cash Out Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 680.

Investment Property

• Purchase: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
• Rate-and-Term Refinance: Maximum loan-to-value drops to 75%; FICO minimums reset to 660.
• Cash Out Refinance: Maximum loan-to-value drops to 70%; FICO minimums reset to 680.

With Fannie Mae’s new loan-to-value limits falling by as much as 15 percent, it’s a certainty that fewer 2-unit homeowners will be approved in the mortgage process.  This could slow both purchase and refinance activity in the coming months.

The good news, though, is that while Fannie Mae recommends that lenders institute the new policy immediately, September 1, 2009, is the “effective date”.

Therefore, if you plan to buy a 2-unit home, or if you own one and know you’ll need to refinance it soon, it may be a good idea to move up your timeframe.

Lenders could implement the new guidelines at any time and usually do so without warning.

Last week’s jobs report is the latest data point to drag down rates for today’s home buyers and would-be refinancers.As reported by the government, the national Unemployment Rate rose to 9.5 percent in June — a 25-year high.

As the percentage of out-of-work Americans grows, households have less disposable income to pump back into the economy.

And so, because consumer spending accounts for two-third of the economy, the growing ranks of the unemployed are forcing markets to change expectations about when the U.S. economy will reach its full recovery.

Inflation is the enemy of mortgage rates.  The perceived absence of inflation, therefore, can be its friend.

With fewer working Americans, we can expect slower economic growth plus a smaller probability for inflation over the medium-term. This is why mortgage rates are lower of late, off by as much as a half-percent from the peak.

Mortgage markets were relatively calm throughout last week’s holiday-shortened trading sessions.After trading within a tight range between Monday and Wednesday, a weak jobs report helped edge rates lower into the weekend.

For the second week in a row, mortgage rates ended the week lower than where they started – if only slightly.

Meanwhile, if it’s the expectation of runaway economic growth that fueled the early-June, mortgage rate run-up past 6 percent, it’s the tempering of those expectations that helped rates retreat by a 1/2 percent or more since.

While the housing sector continues to post strong numbers, employment is showing that it may not rebound as quickly as previously thought and U.S. consumer confidence remains shaken.

The Unemployment Rate rose to its highest levels in 25 years last month and key confidence levels fell.

With negative job growth and falling consumer optimism, it only makes sense that mortgage rates would fall — fewer people are working and the public feels uneasy about spending its money.

This week — without much new data due — market momentum could push rates even lower.  In general, perceived weakness in the economy will be good for mortgage rates and strength will be bad.

However, there’s a wildcard.

This week, some of the world’s largest nations are expected to call on a replacement for the U.S. dollar as a global currency reserve.  Depending on how serious the discussion grows, the value of the U.S. dollar could be negatively impacted and that would spell bad news for rate shoppers.

A weakening U.S. dollar is linked to higher mortgage rates.

Mortgage rates remain favorable and unpredictable.  If today’s rates make sense for your household budget, consider locking in.  Rates won’t likely end the week at the same levels at which they started.

At the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009.

• Some said housing would rise
• Some said housing would fall
• Some said mortgage rates would rise
• Some said mortgage rates would fall

And nobody predicted just how big the government’s stimulus package would be.

Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future.  Economists can make educated guesses about the future, but they’re guesses nonetheless.

It’s like watching the Weather Channel.  A meteorologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.

So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood.  These are not the types of predictions we get from the pundits.

There’s another 6 months until 2010 and there’s no reason to expect the current trends to change.

The world is unpredictable and so is the U.S. economy.  Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.

After all, the weatherman’s been wrong before.

Mortgage markets improved last week on the heels of benign economic data and a non-inspired press release from the Federal Reserve.Aside from trader momentum, 3 market-moving events helped set the pace last week:

1. Housing data hinted at strength
2. Jobless data showed softness
3. The Fed said growth appears on-track

The combination of the three created volatility that — for just the second time in the last 8 weeks — worked in favor of rate shoppers.

Mortgage rates changed a lot last week, but they trended lower overall.

Already, however, markets are looking ahead to this week’s holiday-shortened trading sessions.  There is a ton of data to be released and as the week progresses, the ever-falling market volume could create some wide swings in mortgage rates.

The mystery is whether rates will be getting better or worse.

On Tuesday, markets will get Consumer Confidence and Case-Shiller Index data at 9:00 AM ET.  The Case-Shiller Index is a home price measurement and it always gets a lot of press.  Strength in either number should lead mortgage rates higher.  Weakness should help rates ease.

Then, on Wednesday, Crude Inventories should take the spotlight. Normally, we don’t watch this data point too closely but with gas prices easing last week, rising oil supplies could mean even lower gas prices ahead.  This is anti-inflation and a good sign for mortgage rates.

And lastly, on Thursday, the government releases June’s jobs report.  This report is always a market-mover — good or bad.  And with trading volume low by Thursday, mortgage rates should move more than “normal”.

Be ready to lock at a moment’s notice this week.  Mortgage rates continue to be volatile and the holiday-shortened week won’t do anything to counter that.  If you’re the nervous type, when you see a rate that fits your budget, consider locking it in.

The Federal Reserve begins its scheduled two-day meeting this morning.
It’s one of 8 scheduled meetings for the Federal Open Market Committee this year.

When the FOMC meets, it discusses the financial and economic conditions around the country and, when appropriate, the group makes new policy meant to speed up or slow down the economy.

The main tool for reaching this goal is the Fed Funds Rate and, earlier this year, the FOMC lowered it to “near-zero” percent in an attempt to stimulate growth.

But the Fed has other tools at its disposal, too, not the least of which is its $1.25 trillion pledge to the mortgage markets.

Now, if you’ll remember, the Fed made that pledge in two parts:

• Part 1 came in November 2008 for $500 billion
• Part 2 came in March 2008 for $750 billion

After each announcement, mortgage rates reflexively dropped and stayed low for a period of a day or two.  Then, fears of inflation set in on Wall Street, causing mortgage rates to pop back up because inflation is a mortgage-rate killer.

The Fed isn’t expected to increase its mortgage market commitment this week, but because mortgage rates are above the government’s “target zone”, it’s possible that the FOMC uses its post-meeting press release to give markets some guidance and its plan for the next several months.

A statement like this could alternately raise mortgage rates or lower them, depending on what the Fed says.

It’s for this reason that floating a mortgage rate through tomorrow afternoon is extremely risky.  The Fed could say nothing about mortgages, or it could say a lot.  Either way, a small, quarter-percent change in mortgage rates can add tens of thousands of dollars to the lifetime cost of a person’s pending home loan.

The Fed’s press release hits the wires at 2:15 PM ET Wednesday.  If you’re the cautious type, consider locking your mortgage rate prior to its release.

Mortgage markets finished out the week unchanged last week but that’s not to say that mortgage rates stayed flat.
From day-to-day, mortgage rate shoppers were on a veritable roller coaster.

• Monday and Tuesday, rates dipped
• Wednesday and Thursday, rates surged
• Friday, rates retreated

Overall, conforming mortgage rates carved out a half-percent range this week.  This caused fit for home buyers in need of a rate lock, and homeowners interested in refinancing.

Rates changed quite a bit from day-to-day, and even from hour-to-hour at times.

This is the same brand of mortgage rate volatility we’ve seen all year and it’s expected to continue through at least this week, too.  There are a number of market-moving events set to hit.

The event with the largest potential impact is the Federal Open Market Committee’s two-day meeting.

Scheduled for Tuesday and Wednesday, the Bernanke-led Fed is not expected to raise the Fed Funds Rate upon its adjournment but the markets are more interested in what the Fed says than what it actually does.

If the Federal Reserve says that long-term inflation is a concern, mortgage rates should rise because inflation often leads rates higher.  Similarly, if the Fed says the economy is recovering quicker than expected, mortgage rates should rise on that story.

The Fed adjourns at 2:15 PM Wednesday so watch for big market swings around that time.

In addition, there’s some big data points due out this week including the Existing Home Sales and New Home Sales reports, plus the Personal Spending and Consumer Sentiment survey.

Each of these reveals the psychology of the U.S. consumer and consumers with dollars to spend move the economy forward.  If the reports are overwhelmingly positive, mortgage rates should rise as a result.  On the other hand, if the data is weak or non-convincing, mortgage rates should ease.

Mortgage rates are suffering through another volatile week, causing problems for rate shoppers and home buyers.After falling Monday and Tuesday, mortgage rates surged Wednesday and Thursday.  The momentum higher appears to be carrying into the weekend, too.

There are several data-related reasons for the mortgage market’s spastic activity this week:

1. Unemployment claims fell
2. Leading Economic Indicators rose
3. Inflation readings are tame

But while each of the data points above fueled mortgage rate volatility, it’s not the data that’s making markets move the most.  It’s the psychological impact of the data.

See, data tells us about the past.  It measures and reports on what’s already happened.  Unfortunately for rate shoppers, mortgage markets are not made on data from the past – they’re made on the expectations of what will happen next.

Mortgage rates reflect Wall Street’s opinion of the future.

In reading the papers and watching the news, you’ll notice ongoing debate about the U.S. economy.  It’s unclear whether the recession is worsening or improving.

On one hand, data is weak and sub-optimal.  On the other hand, the data is not nearly as weak as it was 6 months ago and, in some cases, it’s strong. To some, this is a signal that a recovery is already underway.

Or, it may just be a blip.

We can’t be certain in which direction the economy is headed and the same can be said for mortgage rates.  Because sentiment is changing so often, though, it forces us to be on our toes.

The last few months have been marked by large mortgage rate swings across small windows of time.  A rate that’s offered in the morning, for example, is rarely available in the afternoon.  Therefore, do your rate shopping in a compressed period of time and be ready to lock your rate at a moment’s notice IF you are in a position to lock.

You can usually lock any time on a refinance, providing that underwriting is not running too far behind.  On purchases, it’s a bit trickier, as in most cases, to get the *very* best rate, you can’t lock until you have a property and any inspection issues on that property have been resolved with the seller.  There are some programs out there that allow you to lock in a rate while you are still searching for a property, but those programs are truly only for limited circumstances, as they are not best pricing.

When markets move, they tend to move quickly.

The mortgage market roller coaster continues.  Markets worsened badly in the early part of last week, before rallying into Friday’s close.Overall, mortgage rates were slightly higher for the week even though — briefly — they rose to levels not seen since November 2008.

Last week marks the third week in a row and the sixth out of the last seven that mortgage rates increased.

It’s not all bad news for mortgage rate shoppers, however.  The market’s surge higher appears to be slowing and its momentum may start to reverse.

See, mortgage rates don’t come from thin air.  They’re based on the price of mortgage-backed bonds and, over the last few weeks, it seems as if nobody on Wall Street wanted anything to do with them.  A massive sell-off that caused bond prices to plummet and mortgage rates to soar.

Freddie Mac says rates are up 3/4 percent in the last 3 weeks but loan officers will tell you that’s undercutting it.  Conforming mortgage rates are up more than 1 percent since Memorial Day.

The biggest reason for the sell-off was that markets feared a runaway inflation scenario.  The U.S. Treasury has assumed an unprecedented debt load this year and to repay it, markets expect the government to print more cash — an inflation-inducing scenario.

However, when a number of high-profile investors and a country said last week that their faith in the U.S. economy remains strong, markets viewed it as an endorsement of government-issued debt.  It served as Thursday and Friday’s rate-dropping catalyst.

This week, mortgage rates will move on three points:

1. Data, including key inflation and housing reports
2. Rhetoric, including 5 Federal Reserve member speeches
3. Momentum, including technical trading patterns

It’s unclear whether these factors will lead rates higher or lower, but one thing has been clear lately — when mortgage rates change, they change quickly.

Therefore, if you’re shopping for a rate and find one that fits your budget, consider locking in right away.  With rates changing every few hours, it’s likely that if you wait too long, the rate will be gone.

Since Memorial Day, conforming mortgage rates have jumped by more than 1.125 percent, adding thousands of dollars to the annual cost of homeownership.To the casual observer, the moves may seem random.  There’s a reason this is happening, however.

It starts with inflation.

As an economic force, inflation erodes the value of the U.S. Dollar.  Left unchecked, it drives up the Cost of Living as each dollar “buys less” at the supermarket, gas station, or anywhere else.

But with respect to mortgage rates, inflation’s impact is more immediate.  Because inflation devalues the dollar over the long-term, it renders long-term mortgage bonds a less attractive investment for traders.

If bond investors are repaid in U.S. Dollars, after all, it would make the investment worth less if the dollar is in an inflationary freefall.

Therefore, in situations when inflation is likely to present, we find that traders often sell out of their mortgage bond positions which, in turn, drives down the bond prices.  Then, because bond yields move in the opposite direction of bond prices, rising rates are the inevitable result.

Lately, Wall Street is fearing inflation for a number of reasons:

1. Job losses are slowing, adding to consumer spending expectations
2. Gas prices have risen 41 days in a row
3. The federal government is increasing the money supply

These 3 factors — plus a few others — are all coming to a head around the same time and traders are getting defensive with their portfolios.  As a result, they’re selling their mortgage bond positions and it’s driving mortgage rates higher.

Rates may continue to trek toward 7 percent through July and August, or they may retreat toward 5 percent.  We can’t know for sure.  What we can know, though, is that volatility in rates should continue until the economic picture gets more clear. That could be next week, or next year.

For now, be ready to lock at a moment’s notice.  Mortgage rates are changing quickly.