When comparing two investments with equal risk, a rational person will choose the investment with a higher rate of return.

This behavior is called Risk Aversion and is a basic tenet of personal investing.

An off-shoot of Risk Aversion is that a rational person will only invest in an instrument of greater risk if the returns are greater, too.

The chart at right illustrates this concept, comparing return rates on two investments:

• U.S. Government bonds
• Mortgage-backed bonds

The difference in investment return rates is sometimes called a “spread” and the historical spread between government debt and mortgage debt is somewhere near 1.5 percent.

However, notice how the spread started to grow starting in July 2007.

July 2007 marked the “official” start of the Credit Crunch and as mortgage delinquencies grew nationwide, so did the market’s perceived risk of investing in them.

By the start of this month, the spread had nearly doubled.

But that all changed Sunday. When the government announced its takeover of Fannie Mae and Freddie Mac, it put the same “risk-free guarantee” on mortgage debt that has helped keep U.S. government debt so cheap to finance and the spread immediately shrunk.

This is one reason why mortgage rates fell Monday and why they should continue to stay low over the near-term. With the U.S. government backing the mortgage market, there’s no room for the risk premium that helped keep rates high this past year.

It doesn’t mean more people will qualify for conforming home loans, but for the ones that do, financing should be cheaper.

Sunday, the U.S. government assumed control of Fannie Mae and Freddie Mac.

The papers have done a terrific job talking about the political perspective of the takeover, and the economic perspective of the takeover, but very few people have addressed the key news for homeowners.

Mortgage rates are plummeting.

The reason why mortgage rates are falling post-takeover is because of Fannie Mae and Freddie Mac’s collective role in the U.S. mortgage market.

1. They guarantee about half of the nation’s $12.1 trillion in mortgages
2. They purchased and securitized four-fifths of the nation’s home loans as recently as six months ago

See, earlier this year, Wall Street punished Fannie Mae and Freddie Mac for their weak balance sheets and large numbers of delinquencies. This led to Wall Street to raise the borrowing costs for the two firms across the board which, in turn, led to higher mortgage rates for Americans.

But today, with their balance sheets backed by the U.S. government, Fannie and Freddie are now viewed as “safe” by the eyes of Wall Street.

This has lowered their borrowing costs, pushing down mortgage rates for the four-fifths of the country that is currently channeling their home loans through Fannie or Freddie.

On the first Friday of every month, the government releases its Non-Farm Payrolls report.

More commonly called the “jobs report”, the two-page analysis examines the nooks and crannies of the U.S. economy to see which industries are hiring and which are firing.

The August jobs report was released this morning and it shows that the U.S. economy shed 81,000 jobs in August.

This marks the eighth straight month in which payrolls declined and puts the annual job loss total at 605,000. The Unemployment Rate jumped to 6.1% — its highest level in 5 years.

For American workers, this is bad news. But, for American home buyers, the news couldn’t be better.

Mortgage rates are improved this morning on the weak jobs data.

If this seems counter-intuitive, remember that earlier this year, lingering concerns about inflation in the U.S. economy caused mortgage rates to rise to their highest levels in more than 5 years.

Lately, however, those fears are subsiding and as today’s jobs report shows worse-than-expected weakness, it’s one more reason for markets to put inflation concerns to rest. With fewer Americans working, there are fewer dollars are available to propel the economy forward, after all.

So, today’s jobs data is good for mortgage rates because it reduces inflationary pressures on the economy and as inflation levels fall, mortgage rates tend to do the same.

Lower rates mean more affordable housing payments each month.

A home inspection is a complete, top-to-bottom, visual check-up of the structure and systems of a house.

It is meant to be an objective determination of a home’s condition.

A home inspection usually takes 3-6 hours to complete, depending on the size of the home.

During the inspection process, the inspector will examine all of the following components of a home:

• Home exterior including doors, decks, and vegetation
• Heating and cooling systems for leaks and efficiency
• Electrical systems for safety and soundness of design
• Plumbing systems for venting, distribution, and drainage

In addition, the inspector will review the roofing system, the home’s interior, and several other parts of the property.

A home inspection may be ordered by a home owner or by a home buyer.

For a home owner, an inspection can detail a home’s shortcomings and provide a roadmap for repairs. This can help a person prepare his home for sale because “major issues” can be addressed in advance of listing.

For a home buyer, a home inspection physically reviews a home under contract, identifying structural flaws that may impact the home’s desirability. This is essential for the negotiation process because no home is “perfect” — even new ones!

A home inspection highlights potential long-term trouble spots and the likelihood for expensive home repairs. This is why real estate professionals often recommend inspecting a home immediately after signing a purchase contract.

To find a qualified home inspector in your area, ask your real estate agent for a referral, or visit the American Society of Home Inspectors Web site.

Source
American Society of Home Inspectors
Frequently Asked Questions on Home Inspections
http://www.homeinspector.org

Mortgage rates are hugely important to household budgets.

Lower mortgage rates free up household cash for spending and long- and short-term saving.

Higher mortgage rates, of course, do the opposite.

Unfortunately, it’s impossible to predict the future of mortgage rates with any bit of certainty. This is because there are countless influences on mortgage markets, ranging from the obvious to the obscure.

Some obvious influences include:

• The strength of the U.S. dollar
• The rate of inflation in the U.S. economy
• The relative performance of the U.S. housing market

And some of the obscure influences include policy decisions by the Bank of Canada, or political unrest in Nigeria.

But despite the challenge of making accurate mortgage rate predictions, we shouldn’t stop looking at trends for clues. The graph at top shows one such trend.

Starting in January, as oil prices rose, mortgage rates followed them higher. Then, as oil started its descent in mid-July, mortgage rates began to fall, too.

The relationship between oil prices and mortgage rates is not one-to-one and, most likely, the similarities are there because both oil prices and mortgage rates are pegged to the ever-stronger U.S. dollar.

As the dollar gets stronger, it’s pushing oil prices and mortgage rates down, and improving household cash flow for home buyers and other people in want of a new home loan.

With Labor Day behind and Cold and Flu Season approaching, consider taking a high-tech approach to staying germ-free at home and at work.

The Zadro Nano UV Disinfectant Light looks like a clamshell mobile phone but acts like a high-power germ killer.

With one wave of your hand, intense ultra-violet radiation emanates from the wand, safely killing 99.9 percent of bacteria and viruses on any surface in any location. It’s the same type of UV light that hospitals often use to sterilize surgical rooms.

Some practical places to use the disinfectant light include:

• On phones, keyboards and copiers in the office
• On the subway, bus and train
• In public restrooms, airplanes, and hotel rooms

Of course, around the home works, too.

The handheld Zadro device costs $80. It’s available at Amazon.com and other retailers.