Falling oil prices is one reason why mortgage rates are dropping for the first time in 6 days.

Oil is off $9 per barrel from last week, a shift that correlates to $0.23 per gallon of unleaded gas, roughly.

This drop is good news for both home buyers and “rate shoppers” — high gas prices is partly to blame for rising mortgage rates this week.

The connection between oil prices and mortgage rates is not necessarily clear, but it goes like this:

• High oil prices are linked to inflation
• Inflation devalues the U.S. dollar
• Mortgage bond repayments are made in U.S. dollars

Therefore, inflation devalues the payments made on mortgage bonds and investors typically avoid products with decreasing returns.

So, as demand for mortgage bonds fall, prices fall, too. This is basic Supply and Demand and many people “get” how that relationship works. But what is not so well known is that when the price of a bond falls, its corresponding interest rate goes up.

The reverse is true, too, and that’s what we’re seeing today. Because oil prices are falling, it’s reducing one of the many inflationary pressures on the economy and mortgage bonds are suddenly more attractive to investors.

Higher demand means higher prices and lower yields. Mortgages rates are benefiting from the action this morning — they’re down about 0.125 percent across the board.

Mortgage financier Fannie Mae is toughening its mortgage application decision-making process effective Monday, June 2, 2008.

The new guidelines will force many Americans to face higher mortgage rates, higher loan fees, or to be shut out from “prime” mortgage rates altogether.

The new “mortgage rules” include the following changes:

1. Higher income levels required for basic approvals
2. Interest only loans are now considered high-risk
3. Condos are now considered high-risk
4. 60-day mortgage lates within 6 months are a major red flag

Not all of the changes are for the worse, though.

In the new guidelines, self-employed borrowers will no longer be viewed as more risky than a W-2 employee. This will help small business owners and commission salespeople get more mortgage approvals than in the past.

Fannie Mae agreed to honor all mortgage approvals granted prior to its changes, so if you’ve been putting off that pre-approval, consider talking to your loan officer before the weekend starts.

Your mortgage approval will be much more lenient today than if you wait until Monday.

The monthly S&P/Case-Shiller Housing Price Index is a popular and often-quoted measurement of the housing market’s health. The chart above is sourced from its report published yesterday.

In 18 of the 20 largest metropolitan areas, home values declined at a slower pace than in the previously measured month. The report also showed that national home prices are down 14.4 percent from March 2007.

Unfortunately, it’s the more sensation “14.4″ figure that newspapers chose to report this morning. If you never went further than the headline, you’d miss a key piece of analysis.

Comparing today’s market to last year’s market is a lot less valuable than comparing it to last month’s market. That’s a better way to analyze the market’s health.

If we look beyond the headline and examine the data behind it, we see that housing may still be sagging in some areas, but it’s not sagging nearly as much as it used to.

At 32 million acres, homeowner lawns are the most irrigated crop in the United States.

That’s more acreage than the state of Pennsylvania.

Water is not free, however, and the 7 billion gallons deposited on lawns each day comes at a high cost to homeowners and to the environment.

Installing a basic rain monitoring device is one inexpensive way to save money and reduce water use. The Vigoro Rain Monitor, for example, costs $15 at Home Depot and attaches to an electronic sprinkler system.

The Vigoro Rain Monitor collects rainfall in its reservoir and when a half-inch of rain has collected, the monitor seals the path between the water source and the sprinkler heads, thereby preventing unnecessary watering and wasted money.

Many lawn care experts recommend 1 inch of water per week.

Source
Create a Greener Landscape
Pat Mertz Esswein
Kiplinger’s Finance, April 2008

The process of buying a home is very different from the process of selling a home, but they both end the same way — with Moving Day.

Choosing a moving company is the often-hurried “last step” that buyers and seller view as a hassle.

Because it’s difficult to differentiate between the moving companies, they look for the lowest-cost provider or a “guy” who can do the job.

If it was that simple, sites like MovingScam.com wouldn’t exist and the New York Times wouldn’t run headlines with the phrase “Furniture Ransom“.

There are a lot of reputable moving companies but there are a lot of con artists, too, and it’s sometimes hard to tell them apart.

This is one reason to ask your real estate agent for a direct referral to a mover; many brokerages have relationships with larger, national companies that can service your in-state and out-of-state moving needs. These movers will come to your home, give an accurate quote, and then stand behind their estimates.

Now, versus the smaller players, the estimates may look a little bit high, but know that they’re legitimate. Don’t think of the higher costs as dollar’s wasted — think of them as piece of mind while your life’s treasures are in transit.

Three weeks after adjourning, Federal Reserve officials release detailed minutes of their most recent meeting.

Therefore, the April 30, 2008 minutes were released Wednesday and it affirmed traders’ beliefs that the Federal Reserve will not be in a hurry to lower the Fed Funds Rate again.

This is bad news for two groups of people whose borrowing costs are tied to Prime Rate, the interest rate that is 3 percentage points higher than the Fed Funds Rate:

1. Homeowners with home equity lines of credit
2. Americans with credit card debt

Because Prime Rate moves in lock-step with the Fed Funds Rate, it, too, has fallen by 3.25 percent since September and now rests at 5.000 percent.

With the release of the April FOMC Minutes, though, it appears that Prime Rate is more likely to increase than to decrease moving forward.

If your home equity line of credit offers a “convert-to-fixed-rate” option, now may be a good time to consider switching over. Be sure to talk with your loan officer first, though — he/she may have alternate options for you.

Loan-to-value is a math formula that represents the relationship between how much a home is “worth” and how much money is borrowed against it.

Loan-to-value is often abbreviated as “LTV” and is one of the many factors that lenders consider when underwriting a mortgage application.

The math formula is straightforward:

In the LTV equation, Loan Size is the amount of money borrowed from the bank and Home Value is the lower of the home’s purchase price or appraised value.

Home loans with low loan-to-value ratios are usually less risky for banks. This is one reason why mortgage rates tend to be more favorable for home buyers and homeowners when their respective LTVs are low.

Typically, a “low” LTV loan is one in which the loan-to-value is 80 percent or less. In some instances, however, 70 percent is considered “low”. The cut-off point depends on the mortgage lender and the mortgage product.

On a home purchase, the one way to lower LTV is to make a larger downpayment, thereby reducing the LTV equation’s numerator. Buying a home for below-market value would not reduce LTV, for example, because the purchase price would be used as the equation’s denominator.

On a home loan refinance, the denominator is always the home’s appraised value.

Yesterday, several mortgage lenders issued three separate “rate sheets” in response to the changing mortgage market.

It was the fourth time in the last 6 trading days that mortgage lenders issued multiple rate sheets in a day, and continued the trend that started in mid-January.

The yo-yo nature of mortgage rates underscores the importance of making mortgage rate comparisons within a limited time frame.

Multiple quotes should be gathered with an hour of each other and, even then, it’s prudent to ask your lender: “Has there been a mortgage rate reprice in the last hour?”

The current market volatility is in contrast to the “normal” environment of one-rate-sheet-per-day to which mortgage rate shoppers have been accustomed. But with the changing economy, we all have to adapt.

Mortgage rate quotes from this morning won’t necessarily be valid this afternoon so if you’re in the market for a home loan, be sure to do your shopping in a limited timeframe and don’t forget to ask about the reprice.

Sometimes, turning electronics off doesn’t really turn them “off”.

Because of clocks, battery chargers, and other LED displays, devices in Standby Mode slowly suck energy from the national power grid and have earned the nickname “Energy Vampires”.

Some examples of standby energy include:

• Clock displays on home applicances
• Computers in Hibernation Mode
• Battery rechargers
• Communication between base units and portable units on phones

There is even a growing business around identifying energy loss in a home. P3 International, for example, touts it Kill-A-Watt product as a way to “find out what applicances are actually worth keeping plugged in”.

The U.S. Department of Energy estimates that Energy Vampires sucked $4 billion of energy from U.S. homes last year.

It’s not often that a mainstream media publication taunts renters into buying homes, but that’s exactly what Smart Money magazine tries to do in its latest issue.

The Smart Money Web site “lead-in” reads 5 (Lame) Excuses for Not Buying a Home. That’s a forceful title!

It’s unfortunate that renters could feel antagonized by the author’s tone because the article raises very good counter-points to the more popular reasons why renters avoid homeownership.

Owning a home is a serious responsibility and does require commitment. However, a renter should not feel bullied or hurried into buying because for as much as personal economics are at play, personal emotions are at play, too. Both deserve respect.

So, renters: Put your blinders on and give the Smart Money article a read. There’s good advice in there once you get past the author’s bias.

Retail Sales measures total receipts at stores that sell tangible “things” and — aside from weak demand for automobiles and automobile parts — Retail Sales displayed surprising strength in April.

So much strength, in fact, that many experts are changing their predictions about the U.S. economy’s fate.

Several months ago, most pundits declared that a economic recession was all but inevitable. Today, a growing number are changing their views.

Not only are stock and credit markets improving, but data such as April’s Retail Sales figures suggest that their fears were overblown.

The takeaway from a story like this is that “experts” do a much better job of interpreting the past than predicting the future. A person can make an educated guess, but it’s impossible to know what the future holds for the economy, or for housing, or for mortgage rates.

Even when the outcome is “inevitable”.

Source
Recession? Not So Fast, Say Some
Kelly Evans And Justin Lahart
May 14, 2008, The Wall Street Journal Online
http://online.wsj.com/article/SB121068163716188223.html

According to the FBI’s 2007 Mortgage Fraud Report, more than 46,000 cases of suspected mortgage fraud were reported last year. This led to bank losses exceeding $813 million.

If you’re looking for reasons why mortgage underwriting is measurably more difficult in 2008 — add “mortgage fraud” to the list. Lenders now perform extra scrutiny on each home loan application to protect against additional losses on all levels.

Mortgage fraud is a federal crime and exists in two basic varieties:

1. Fraud for Housing — Misrepresentation by a mortgage applicant for purposes of buying a home, usually related to income, assets, or debts. The applicant intends to repay the loan as agreed.
2. Fraud for Profit — Coordinated misrepresentations by a group of people related to applicants, appraisals, loan documents and relationships between buyer and seller. The applicant does not intend to repay the loan as agreed.

Although both are illegal, Fraud for Profit is most concerning to law enforcement officials and mortgage lenders. That’s because Fraud for Profit tends to incorporate multiple loans for multiple homes in a single neighborhood.

In other words, the bank’s potential loss is larger with Fraud for Profit schemes.

The photo above (from the FBI report) is from a Fraud for Profit home appraisal. It indicated that the “recently renovated condominium” included Brazilian hardwood, granite countertops, and a value of $275,000.

Clearly, this is untrue.

Despite increasing 31 percent, mortgage fraud growth slowed in 2007 as law enforcement agencies and mortgage lenders increased their efforts to identify and arrest perpetrators.

(Image courtesy: Federal Bureau of Investigation)

Just like real estate markets differ from town to town, so does the Cost of Living.

Courtesy of CNNMoney, this helpful calculator measures the change in living expenses a person would face when moving between any two major cities in America.

The key expenses compared are:

• Groceries
• Housing
• Utilities
• Transportation
• Healthcare

The comparison data is provided by C2ER which, on its own Web site, charges $4.95 for each city-to-city comparison.

At CNNMoney.com, the exact same C2ER data is licensed and available for free.

Season after season, dirt and moss collect and gather on your home’s exterior, rendering your home less attractive to your neighbors and less appealing to would-be home buyers.

The best (and fastest) way to restore your home’s original appearance is with the careful use of a pressure washer.

A pressure washer is a machine that compresses water from a garden hose into a highly focused stream. The force of the water cuts through grime instantly, rejuvenating your home and restoring its beauty.

Pressure washers are available for purchase or for rent at Home Depot and other hardware stores.

When the everyday “Cost of Living” increases, our dollars don’t go as far as they used to. Economists call this inflation.

One popular method of measuring inflation is to track prices for 84,000 individual items and lump them together into a “basket”. If the overall price is higher, then the economy is experiencing inflation.

If a picture is worth a thousand words, this one from The New York Times is worth at least 84,000.

Broken down item-by-item, life is more expensive in some places you expected, and some places you didn’t. For example, over the past year:

• Gasoline: +26%
• Milk: +13.3%
• Children’s Shoes: +4.6%
• Pet Supplies: +6.8%

Inflation can be especially damaging to both active home buyers and homeowners looking to refinance because inflation is linked to high mortgage rates.

This is one reason why mortgage rates have fallen since the Federal Reserve’s hints last week that its rate-cutting cycle may be over; many believed that additional Fed Funds Rate cuts would stoke inflation later this year.

In the absence of inflation, mortgage rates tend to improve (all things equal).

Source
All of inflation’s little parts
Matthew Bloch, Shan Carter and Amanda Cox
The New York Times, May 3, 2008